Malini Ganesh, Advocate and Legal Consultant for Resolution of Construction and Engineering Disputes, Chennai


Project governance holds the key for many issues that arise in the construction field. Primarily, the delay that is caused to the project completion and the cost overrun has always been the concern of project participants and if it is a project of National importance, even the public interest is put at stake. The dispute resolution mechanism has also contributed for the further delays affecting the economics of the projects. The laws providing for dispute resolution alone cannot ease the situation and the focus should be directed to structuring of the contract documents and efficient administration of the contract.

We are witnessing a phenomenal growth in the engineering and construction projects. Hence more focus is generated towards structuring and managing the Contracts which form the foundation of the projects. The standardisation of both technical and administrative matters has assumed greater relevance. The participants of the projects are keen to adopt a standard form of contract so that their contractual obligations are clearly delineated.

Project Completion-The Ultimate Goal

Huge projects including infrastructural undertaken by the government or governmental bodies involve besides the contractor and the employer other intermediary parties such as design consultant, engineers/independent consultant, EPC contractor, sub contractors, and so on. Everything appears to be smooth in the beginning when the contract is awarded and contractual relationships are created. Only during the execution stage, differences and disputes emanates and issues relating to the duties and responsibilities of the respective participants of the contract come to the fore. The defined legal relationship of the parties to the contract, the contractual obligations, the authority and the powers of the engineers/consultants etc are taken seriously only at the adjudication stage.


A pivotal role is played by the person / firm designated as "The Engineer" who is assigned with the responsibility of supervising the execution of work by the contractors. The designated person is always held out by the employer as the person to whom the contractor should report and also execute the work to his satisfaction. The power and responsibilities of the engineer under the contract are expected to be clearly specified in the contract documents.


We are aware of FIDIC conditions which provided the necessary foundation for structuring the contract conditions have been accepted and adopted with suitable modifications internationally. The basic role of an independent engineer is one of the important aspects of FIDIC. The Government of India and some of the public sector undertakings have adopted FIDIC conditions with slight modifications incorporated in the special conditions of contract, namely COPA. Other forms of contracts have also been inspired by the FIDIC conditions.

Under the FIDIC conditions, the engineer is not a party to the contract between the employer and the contractor. His designation is in the nature of Independent engineer who is normally selected having regard to his professional integrity and his ability to administer the contract in an impartial manner in the interest of both the parties. Notwithstanding, the engineer’s determinations / interpretations are not given a finality by the liberty given to the parties to have recourse to dispute resolution process. In contrast, in the adopted mode of standard conditions, the engineer- in-charge is normally an officer appointed by the relevant department of the government or the PSUs, being necessarily subjected to the administrative pressures. This invariably results in embarrassing situation due to lack of decision-making authority.

The FIDIC conditions also provide for effective dispute resolution process. But these provisions are also diluted in the COPA adopted by various departments which has contributed for the prolonged process of dispute resolution.

Chaturvedi Committee Report

In this context, the second report submitted by the committee set up by the Honorable Prime Minister and headed by Mr B.K. Chaturvedi, Member-Planning Commission turns relevant. The report has laid a focus on the dispute resolution mechanism amongst other issues. It has emphasized standardizing both the General Conditions and COPA at least for adoption in future .A particular reference is made to the role and responsibilities of the independent engineer under the contract.

The report states as follows on this aspect:
  1. Scope of Independent Engineer: FIDIC places great reliance on the Engineer both in terms of supervision and first level adjudication of disputes. This role of the Engineer is being internationally accepted and there is no reason not to adopt a similar role for the Engineer in India. However, COPA of NHAI deviates from the spirit of FIDIC conditions, introducing elements substantially diluting the role and authority of the Independent Engineer. This may be reviewed and the international practice of giving greater authority to the Engineer may be restored.
  2. In any case, NHAI also appoints a Project Director (PD) for each project and the PD is expected to take adequate care of NHAI interests even at the time of contract management. However, while recommending this enhanced role for the Engineer, the Committee noted that the matter is also under discussion separately with the Department of Expenditure. It was also acknowledged that care should also be taken to keep within the principles laid down in the General Financial Rules.
It is significant to note that the report has expressed its concern on both ongoing cases and future cases by incorporating certain valid recommendations. The committee has advocated for accepting the DRB recommendations with certain limitations. Random scrutiny of accountability and credibility of DRB recommendations, an increased time limit for the DRB to render its recommendations and an enhanced time limit for NHAI to consider the recommendations of the DRB have been provided as an additional check to ensure an early finality to the arbitration awards.

Engineer Duties and Responsibilities

The adjudicatory process provided under the contract aims at resolving the disputes that have arisen between the parties. Invariably the decision/determination of the engineer forms the basis of such disputes. Hence, a greater responsibility rests upon the engineer to act fairly, impartially and in accordance with the contract conditions.

It is always made clear in the contract documents that the contractor receives and complies with instructions from the engineer. All correspondences and notices are required to be addressed to the engineer which indirectly emphasises that the engineer has the responsibility of responding to the same in the manner provided under the contract.

Let’s be concerned with the powers, duties and responsibilities of the engineer as provided under the contract. The engineer is defined to mean the person appointed by the employer to act as engineer for the purposes of the contract and named as such in Part II of the Conditions. More often than not this has become a disputed area and the question as to who is the engineer surfaces during the time of adjudication. We have seen instances, where the parties have taken the issue as to who is the engineer up to the Supreme Court.

Authority of the Engineer

FIDIC clause 1.1 (iv) gives the definition of engineer and sub clause (v) that of the engineer’s representative. The term ‘for the purposes of the contract’ has its own meaning and purpose.

"2.1 (a) The Engineer shall carry out the duties specified in the contract.

(b) The Engineer may exercise the authority specified in or necessarily to be implied from the contract, provided, however, that if the Engineer is required, under the terms of his appointment by the Employer, to obtain the specific approval of the Employer before exercising any such authority, particulars of such requirements shall be set out in Part II of these Conditions. Provided further that any requisite approval shall be deemed to have been given by the Employer for any such authority exercised by the Engineer.

(c) Except as expressly stated in the Contract, the Engineer shall have no authority to relieve the Contractor of any of his obligations under the Contract.

Consultative Process

The above clause presents complications leading to lengthy debates during the arbitral process. A number of clauses in the FIDIC Conditions mandates the Engineer to undertake due consultation with the employer and the contractor before making his determination. The contract also mandates the engineer to carry out the duties specified in the contract. During the arbitration proceedings, lengthy deliberations are directed towards the duties and responsibilities of the engineer and their obligation to seek consultation of the employer etc. It has become necessary to assign to the engineer an absolute power of determination, of course with a certain amount of consultation with both the parties. But, this calls for absolute integrity of the independent engineer /consultant and the sincere discharge of duties by the project directors appointed by the employer. The second report of Chaturvedi Committee emphasizes the need of the Project Director to take adequate care of the employer’s interests even at the time of contract management. Hence, ultimately effective contract management and the project governance holds the key for the successful completion of any project.

Claims Presented for Adjudication

My experience as an advocate for the contractors in some of the road projects and the opportunity to interpret the FIDIC conditions alongside the special conditions incorporated in COPA compels me to refer to yet another provision in the FIDIC, namely clause 53 of the Red Book of 1987 which is currently being operated in many arbitrations. This pertains to submission of claims by the contractor and especially at the stage of adjudication, the contractor faces difficulties in interpreting the clauses as these clauses are taken advantage of by the employer to dismiss the claims at the threshold. The residuary clause 53.4 provided for affording relief to the contractor who was not wary of his rights in presenting the claims within the time stipulated read in the context of COPA again drags the parties to prolonged deliberations. In this context, the reference to contemporary records assumes significance as the DRB/Arbitral Tribunal is empowered to decide the entitlement of the contractor for payment on their claims upon due assessment of such contemporary records. The empowerment of the arbitral tribunal to open up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the engineer and any recommendations of the board completely sets at naught all the works put in by the engineer during the execution stage thereby making his decision whatsoever redundant. This, in my humble opinion goes contrary to the requirement of deciding the matters in dispute based upon the contemporary records. For this also, the answer lies in the project governance which includes preparation of contract documents without ambiguity.

Institutional Arbitrations

Efficient management of the project has to be carried even beyond the stage of completion by adopting a efficient management of dispute resolution as well I would like to conclude this article by making a reference to the need of more disciplinary form of adjudicatory process. Of late many institutions like CIAC, and ICA have dedicated themselves to provide well laid out rules for the conduct of arbitration proceedings aiming at minimizing the time and cost involved in conducting the proceedings. Such institutions have also taken sincere efforts to create a panel of efficient, knowledgeable and dedicated persons as arbitrators. The parties adopting such Institutional arbitration have the advantage of selecting the arbitrators from such panel relieving them of their anxiety in the matter of selection, besides the well written procedural formalities and predetermined cost. In India only ad hoc arbitrations have been prevalent and a great awareness is slowly dawning upon us to opt for institutional arbitrations as is the case in the international scenario.
  1. One time settlement of pending disputes may be offered to contractors adopting a bucket –based approach to drop all category A cases (amount claimed is less than Rs.10 crores or 5% of contract price whichever is lower) after a review on case to case basis by an Independent Expert Group (IEG) with eminent representation comprising a retired Dy. C&AG, a former Vigilance Commissioner and a retired Senior Officer of the Law Ministry, besides a Technical Expert. The IEG’s opinion may be sought by the Variations Committee in all cases where the Tribunal Awards have already been published and appeals are pending in various Courts, and on selective basis in respect of cases pending decision by Arbitral Tribunals. The net likely benefit from withdrawal of pending NHAI references to Arbitral Tribunals in all category-A cases is estimated at Rs.6.5 crore.
  2. In particular, where the decisions have been similar and unanimous both in the DRB and AT stages, the appeals pending in the various Courts may invariably be withdrawn. In 86 disputes (27 packages) of category-A both the DRB and the AT recommenda- tions have been unanimous.
  3. Once a decision is taken by NHAI, in consultation with the contractor, to drop further proceedings, the reference to Arbitral Tribunal may be withdrawn in terms of section 30 of the Arbitration Act. 196 cases pending before Arbitration Tribunals could potentially be dropped on this basis.
  4. One-time settlement shall not imply that the ratios forming the basis of the DRB recommenda- tions or the Arbitral Awards, as the case may be, are also being accepted as binding.
  5. Notwithstanding this settlement, it will entirely be open to NHAI to contest the underlying issues of principle, in all other pending or future cases not covered by this settlement.  The binding decisions of the Courts, if any, shall govern all such other cases.

Dispute resolution

According to industry estimates, about Rs.8,000 crore to Rs.10,000 crore is held up on account of disputes between the National Highways Authority of India (NHAI) and contractors. With the Road Transport and Highways Minister, Mr Kamal Nath, targeting to build 7,000 km of highways in 2010-11, setting up of a fast dispute resolution mechanism is being seen as one of investor-friendly moves.

For the ongoing dispute cases, where the amount claimed by contractor is less than Rs.10 crore or 5 percent of contract price (whichever is lower), the committee has suggested that NHAI may offer a "one-time settlement of pending disputes".

The matter could be reviewed on case by case basis by an Independent Expert Group (IEG) with eminent representation.

For cases, where amount involved is between Rs.10 crore to Rs.100 crore, the committee stated, "In general, award of Arbitral Tribunal may be accepted, particularly in cases where the unanimous decision at dispute resolution board (DRB) level is upheld by the Tribunal."

In cases where amount involved is beyond Rs.100 crore, the committee has recommended, "Considering substantial amount involved, NHAI may carefully consider the award of Tribunal before challenging in the Court. NHAI may take up with the Arbitral Tribunal/Court for early hearing and disposal of all pending cases. These measures would enable significant savings in interest payment."
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