Three out of every 10 highway contracts end up in arbitration

Three out of every 10 highway contracts end up in arbitration
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First Published: Sun, Feb 10 2008. 11 23 PM IST
Updated: Sun, Feb 10 2008. 11 23 PM IST
New Delhi: As many as three out of every 10 road projects handed out by the National Highways Authority of India (NHAI) to private road contractors are?languishing before arbitration panels, leading to further delays in completion of projects, some of which were initiated 12 years ago.
The companies are seeking additional money owed to them on account of costs incurred to accommodate changes in the project specifications made by NHAI after the deal had been awarded to private contractors.
According to officials who spoke on condition of anonymity, as many as 118 cases out of around 340 projects awarded under the National Highway Development Programme (NHDP) since 1996 are under arbitration.
NHAI is responsible for the development of 66,000km of national highways, which account for roughly 2% of the country’s road network. It is upgrading the national highway network in five phases.
Arbitration panels typically consist of three members with experience in the sector, and are selected by mutual consent between NHAI and the road contractor.
With some cases referred to panels dragging on for as many as three years, the process could make contractors unwilling to undertake NHAI work, say analysts.
It is not immediately clear how much the roads regulator would have to pay when the arbitration process is complete and if these cases were decided in favour of the contractors.
In seven cases that were settled so far, the government has paid Rs20 crore. In a single contract pertaining to the Jawaharlal Nehru Port connectivity project, the authority has paid the contractor around Rs10 crore.
Road contractors estimate that the body could be liable for as much as Rs500 crore if the arbitration panels ruled in their favour in a majority of cases.
The causes for disputes vary.
“We have two out of four completed road contracts currently in arbitration,” said a director with a diversified construction company, who did not wish to be identified, because he was currently executing NHAI projects.
Speaking about cases that are typically referred to arbitration, the contractor said most of the claims either related to variations from the original plan, or because of delays associated with land acquisition.
“When NHAI cannot acquire land on time and the project gets delayed, it costs us to keep the equipment for the project rather than use them for other projects. So, we file claims, and they (NHAI) refuse to pay. Then it gets referred to an arbitration panel where it may take a few years,” he added.
A 2004 Comptroller and Auditor General of India report had castigated the agency for its lack of standardization while awarding works. The comptroller had said the scope of work had been altered in too many cases after awarding of the contract, resulting in delays, cost escalation and potential disputes.
“There are arbitration issues in every single project.” said an executive at a major private road operator, who wished to remain anonymous because he was competing for road projects. “What do you expect, when NHAI has had four different chairmen (in a short period),” he added.
Jayesh Desai, director of consulting company Ernst and Young Pvt. Ltd’s transaction advisory services practice, however, said arbitration may not affect the pace of the work. “I think it is almost an old style technique… Bid low and make your money in claims later,” Desai said. “But I think the number (of arbitrations) is an underestimate.”
NHAI prescribes a three-stage arbitration process for disputes. In the first step, the dispute is addressed by the onsite supervisor. In the next stage, the case is referred to an independent arbitrator for resolution.
The contractors and private road operators can then appeal to the three-person panel—which includes an independent consultant, an NHAI representative and a representative from the private contractor.
Member of the NHAI board Nirmaljit Singh said a number of cases in arbitration was not abnormally high. “We are awarding a huge number of contracts that involve many technical complications. Sometimes the contractor interprets the concession agreement in a manner different from how we have interpreted it.”
According to Singh, the number of cases wherein the contractors had opted for litigation against NHAI would be less than 50.
The contractors who have been awarded works that are a part of NHDP are seeking huge payments over and above the contracted amount from the highway development authority for carrying out works that were not originally part of the scope of plan.
rahul.c@livemint.com
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First Published: Sun, Feb 10 2008. 11 23 PM IST