Syndicate content

Resolving disputes, avoiding litigation in India

Shanker Lal's picture
An overhaul of Dispute Boards looks to prevent delays in the creation of new infrastructure, such as the construction of roads and railways.
Photo: Simone D. McCourtie / World Bank

A significant percentage of government spending in India goes towards the creation of new infrastructure like the construction of roads, ports, railways and power plants. Construction contracts, however, often have a reputation for disputes and conflicts between contractors and governments. Such disputes ultimately delay implementation of the contracts and increase total costs, adversely impacting development outcomes of the projects.

Many countries have found that Dispute Boards offer an effective mechanism for resolving these issues in a timely and cost-effective manner. These boards, composed of one to three members, are set up upon commencement of a contract and help the involved parties avoid or overcome disagreements or disputes that arise during the contract’s implementation. The boards are less legalistic, less adversarial, less time consuming and less costly than options for resolving disputes within the legal system, including arbitration and litigation.

A 2004 study (PDF) shows that Dispute Boards have been successful in resolving even the most strenuous disputes with an almost 99% success rate. The savings in using these boards are enormous: another study indicates that in almost 10% of projects, between 8% and 10% of the total project cost was legal cost.

Despite these clear benefits, this method of dispute resolution remains unpopular in India, and very few government agencies use them. Even in those contracts where Dispute Boards are mandatory, parties to the contract try to bypass them.

The reticence to use such a promising dispute-resolution method may have to do with quality control. Members of Dispute Boards are supposed to be experienced, respected and impartial. They should be conversant with the nature and complexity of the work involved. But in many cases in India, members are selected by the contract parties on an ad-hoc basis. There is no national database of professionals trained to participate in Dispute Boards, and there are no performance appraisals. This leads to the hiring of underqualified or inexperienced members and a lack of accountability in the system. Lack of service standards or rules for the functioning of these boards also results in delays in decision-making and increased costs.

The World Bank is trying to change this. We have been advocating the use of Dispute Boards as an effective and speedy means to resolve disputes in infrastructure projects and minimize, if not eliminate, delays and consequent cost overruns. As part of these efforts and for addressing issues listed above, the Bank partnered with the Indian Council of Arbitration (ICA) to introduce some improvements in these boards to make them more popular and acceptable in India, improving the options for both Bank-funded projects and projects funded by other sources. ICA is an allied body of the Federation of Indian Chambers of Commerce & Industry (FICCI) and is the largest arbitration institution in India.

Under the Institutional Dispute Board initiative, launched on June 23, 2016, in New Delhi, ICA is responsible for:

  • The empanelment and training of Dispute Board members in self-developed standard operating procedures
  • Updating the list of Dispute Board members whenever needed
  • Providing a continuous platform for training of all stakeholders including the functional employees and operating staff of the employer, the contractor and the engineer’s organizations
  • Issuing guidance on problems faced in the operation of Dispute Boards
  • Assisting the parties by providing names of Dispute Board members out of the maintained panel
  • Monitoring whether Dispute Board members are performing their functions as stipulated and as expected, while pointing out deficiencies and improvements if any are required
After finalization of the standard operating procedures, ICA empaneled and trained nearly 200 experts in different trades as potential board members. This initiative holds promise to build confidence among all stakeholders in this mechanism and usher in a new era of timely dispute resolution in India.

Comments

Submitted by cecilia vales on

Shanker, a promising initiative that will benefit public service delivery in India. Kudos! I would be interested on a follow-up blog to inform on how it works on actual situation.

Submitted by Lindsey M. on

Transparent and effective dispute resolution is very important for the integrity, fairness, and effectiveness of public contracting. Transparency of procedures and impact metrics can help inspire private sector confidence in participation in public contracting market. In a future blogpost, I would be interested to learn more about transparency of these dispute settlement procedures as well as the impact of the new dispute board (whether the promises of the 2004 study will hold true for India under this new effort).

Lindsey Marchessault,
Open Contracting Partnership
www.open-contracting.org

Submitted by Vedamurthy on

Dear Shankar:

Thank you. The blog is informative and useful.

The blog articulates the best practices and various benefits (time, efforts, cost/legal cost) of using Disputes Boards with the help of data. The basic tenets of contract completion is to achieve the dynamic balance of keeping the cost, time and scope within the contours of initial contract. The Dispute boards are adopted widely in India and resolve disputes amicably between the employer and the contractor(s).

All the best to Bank's initiative on policy advocacy.

Best regards
Vedamurthy

Submitted by Shivendra Kumar on

Excellent move by the Bank. DBs have not been popular in India as a means of dispute resolution for varied reasons including lack of faith & professionalism in the system and the Members. Institutional support to the DB system shall hopefully remove such negatives, and promote use of DBs as an effective alternative to heavy dependence on prolonged and expensive arbitration/ legal mechanisms. Institutions like ICA can, not only provide professionally competent DBs, but can also monitor the performance of DBs, and the SOP for continued improvements.

Submitted by Shaun Moss on

This is an interesting and informative blog about a very promising move towards faster, more effective and lower-cost resolution of disputes in public infrastructure projects in India.

It will be interesting to watch how it develop and, one hopes, grows.

India's experience may be instructive for other countries which also suffer from a high level of expensive delays caused by disputes in public infrastructure projects, such as Brazil.

Submitted by VSRMURTHY on

Dear Sir,
Very happy to see the initiative and efforts.
But, would like to share the following field realities for improving DRB mechanism.
a) ICADR in India making efforts to introduce, educate and implement the DRB system.
b)Most of the State PWD Agreements have no provisions of DRE/DRB.
c)NHAI like organisations have taken initiatives to introduce DRE/DRB in Contracts.But, the awards were further referred to Arbitration and Courts as per the Contract Provisions and thereby delay in the Justice.
d)Even number of WB Project Agreements have no provision for DRE/DRB.

It is the time to ensure speedy and effective mechanisms to strengthen the ADR system for early disposal of disputes so as to avoid cost and time overruns.
With Regards,
VSRMURTHY.

Submitted by VSRMURTHY on

Sir,
Good initiative by WB.
Though ICADR is taking efforts to educate, implement ADR methods in Contract Agreements,DRE/DRB provisions are yet to be implemented by Govt., Departments.
Initiatives taken up by NHAI for introducing DRE/DRB in Contracts could not be succeeded as the awards were referred to Arbitration and some cases to Courts also as per the provisions.
It is suggested to introduce the DRE/DRB mechanism in the WB Projects so as the others shall follow.

With Regards,
VSRMURTHY.

Submitted by VSRMURTHY on

Sir,
Efforts by WB are highly appreciable.
Though ICADR taking interest in Planning ,Training and Enforcing the ADR methods in Indian Contracts, no significant progress is achieved.
It is time to introduce the DRE/DRB system in all the Project Contracts of WB,GoI and State Govt.,for early redressal.

With Regards,
VSRMURTHY.

Submitted by joseph shine on

Excellent and interesting blog. I think the Bank and ICA are focusing their efforts on the right issue...strengthening the composition and professionalism of Dispute Boards. The write up has rightly pointed out that not much thought was given to the composition of DBs at the time of contracting. I am sure with the large number of ICA empaneled experts across different sectors/disciplines the use of this mechanism will increase.

Submitted by Satya Panda on

Excellent & relevant Blog. It is heartening that Bank has taken a great initiative to bring efficiency in contract management by addressing one of the ticklish issue of dispute resolution in contract specifically for infrastructure projects. With grooming and empanelment of experts by ICA and subsequent monitoring of their performance, the Govt departments may develop confidence in the system and in turn adopt more widely for dispute resolution.

I wish all success to the team.

Submitted by Girish Bhatngr on

Lack of credible Mechanism
Lack of credible grievance redressal and Dispute resolution mechanisms is a debilitating gap in Indian Public Procurement. World Bank's this initiative through the Institutional DRB mechanism will go a long way in filling the gap. I wish success to the initiative.

Submitted by Ajit Mishra on

It was a great beginning. Its going to give an effective platform for expeditious and amicable settlement of disputes which will definitely help in better project implementation.

Submitted by Antonio Parra on

Dear Shanker,
Thank you very much for this excellent blog.
The DRB system was championed by the WBG from the very beginnings of the system. It is great to see it advancing further in India with the support also of the ICA.
With best wishes,
Antonio

Submitted by Archana Shukla on

Admirable and Superb Initiative by WB

This is hghly required by a county like India where Infrastructure development will drive India's economic growth in the next decade.

All the best

Hi S

Add new comment