NATIONAL INSTITUTE OF CONSTRUCTION

MANAGEMENT AND RESEARCH

AN ASSIGNMENT ON

CASE ANALYSIS

CONTRACTS & CLAIMS MANAGEMENT

SUBMITTED TO: Prof. ASHISH GOEL

SUBMITTED BY:
PP20024: Swapnil Patil
PP20041: Harsh patel
PP20042: Manish Patil
PP20046: Shubham Katore
PP20047: Yash raj Saxena
 CASE SUMMARY

Appellant : M/S Harsha Constructions

Respondents : Union of India & Ors.
Subject : The concerned issue in this case is whether the arbitrator can arbitrator
on matters which are expressly excepted and what are the
consequences if the arbitrator decides such issues.
The present appeal arises from a Judgement dated 9 September 2005 by the High Court of
Judicature, Andhra Pradesh at Hyderabad, in CMA No. 476 of 2005. statement made against them is
not something the Appellant feels satisfied with. The example of dispute in this case is a result of
communication gaps, no coordination with the client and client not knowing who is providing the service or
whether it is supposed to be.
The Union of India entered into a contract for the construction of a bridge at a level crossing.
The costs for extra works that were done outside the scope of work had to be paid for by the client,
assuming that the engineer in charge could not be reached. The root cause of the disagreement is a lack
of approval.
As per clause 39 of the contract document, “Any item of work carried out by the
Contractor on the instructions of the Engineer which is not included in the accepted schedule of
rates shall be executed at the rates set forth in the "Schedule of Rates, South Central Railway"
modified by the tender percentage and where such items are not contained in the latter at the
rates agreed upon between the Engineer and the Contractor before the execution of such items
of work and the Contractor shall be bound to notify the Engineer at least seven days before the
necessity arises for the execution of such items of work that the accepted schedule of rates does
not include a rate or rates for the extra work involved.
The decision on the rates payable should be thoroughly discussed as soon as possible at the formal
meeting , and if the contractor is not present at the meeting, the client should be allowed to perform additional
work by other means and the contractor should have no loss or damage claim. which may arise as a result of
such proceedings
In this case, the contractor, in the event of disagreement or disagreement, had to apply or appeal to the
chief engineer, contesting the decision made by the engineer setting the rates within 30 days of receiving the
Engineer's decision, but the above-mentioned dispute resolution, and therefore an arbitrator was appointed to
resolve the dispute.
Upon perusal of Clause 63 of this contract, it is quite clear that the matters for which
provision had been made in Clauses 18, 22(5), 39, 45(a), 55, 55-A (5), 61(2) and 62(1)(xiii)(B)
(e)(b) of the General Conditions of Contract were "excepted matters" and they were not to be
referred to the arbitrator.
The GCC / SCC of this agreement states that such a scenario involving a contractor should be
considered 'Excepted matters and that decisions in this regard are final and binding on the contractor;
provided that the issues excluded should be excluded from the scope of the arbitration clause and should not be
referred to arbitration.
After some interventions and meetings between the parties, a certain amount was paid for the
additional work performed, which was unacceptable to the contractor, but the contractor accepted the same in
protest. . A former judge of the Andhra Pradesh Supreme Court has been appointed as arbitrator for all these
matters. Interestingly, however, an educated arbitrator resolved all disputes in accordance with the Order of
September 21, 2002, although the contractor objected to the arbitrariness of disputes that were not submitted to
the arbitrator in accordance with clause 39 of the Agreement. But again, disagreement and disagreement
prompted the Union of India to appeal to the Chief Justice of the Supreme Court.City Civil Court,
Hyderabad under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred
to as "the Act") to show client’s supremacy in Indian scenario.
There were two cases where a lower-level decision was contested and eventually overturned at a
higher level, because there was in fact a dispute between the parties. The Contractor also argued that the
Engineer did not make any decision, and therefore there was no question of appealing to the Chief Engineer,
and since the Chief Engineer did not make any decisions, the above-mentioned points viz. Paragraphs 39 and
64 would not apply because clause 64 "except" the chief engineer decision, but since the chief engineer made
no decision, there were no questions regarding clause 39 "excepting".
It is crystal clear that all the disputes have been now no longer arbitrable. Some of the disputes which
were mentioned in Clause 39 have been mainly now no longer arbitrable and on the subject of the stated
disputes the contractor needed to negotiate with the concern Engineer of the respondent and if the contractor
become now no longer happy with the fee decided via way of means of the Engineer, it become open to the
contractor to document an attraction towards the choice of the Engineer earlier than the Chief Engineer inside
30 days from the date of discussion of the choice to the contractor

So to encapsulate, The arbitrator was unable to resolve non-arbitration cases and the award, as it
concerns non-arbitration disputes, is invalid from the point of view of law and is hereby annulled. The
contractor may bring an appropriate legal action to collect payment for the work performed.
Q) Did the dispute happen due to ambiguity or mistakes in any of the contract clauses?
How the dispute could have been prevented (in terms of better drafting of contract
clauses)?

No, there was no ambiguity in the contract that led to this dispute, and the dispute could have
been prevented by incorporating the following points in the clauses
1. The “excepted conditions” could have been clearly mentioned and their implications
should have been made more transparent to the contractor.
2. Provisions should have been made in the contract or BOQ for any extra work or change
in quantities which may lead to cost overruns by the contractor.
3. Separate contract clauses are supposed to be mentioned for change of scope by the
contractor but with the consent/prior approval of the engineer.
4. The scope/domain of arbitrator should have been made clear to both the parties as a part
of special conditions of contract.
5. The roles and responsibilities of Engineer, Chief Engineer (client’s side) should have
been also clearly mentioned in the context of change in financial/technical structure of
the project, if the situation arises in midway.
6. Special clause pertaining to Quantum Meruit compensation can be added in Special
Conditions of Contract
7. All payment related clauses should be arranged in correct sequential order as per timeline
of work scheduled.
8. The roles and responsibilities of the arbitrator should have been clearly defined in general
conditions of contract as to when, how and where to appoint him/her.

Q) Comment with reasons whether the dispute could have been avoided if FIDIC
provisions (Red/Yellow/Silver book, as applicable based on type contract used in the
selected case) were adopted instead of an Indian standard form contract. Cite the relevant
FIDIC clause to support your argument. However, if the case you have selected is already
based on FIDIC conditions, only provide your arguments for point ‘b’ above).

According to clause no. 67.1 of FIDIC Part-1 – General conditions with forms of
tender and agreement –
 “If a dispute of any kind whatsoever arises between the Employer and the Contractor in
connection with, or arising out of, the Contract or the execution of the Works, whether during
the execution of the Works or after their completion and whether before or after repudiation or
other termination of the Contract, including any dispute as to any opinion, instruction,
determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first
place, be referred in writing to the Engineer, with a copy to the other party. Such reference shall
state that it is made pursuant to this Clause. No later than the eighty-fourth day after the day on
which he received such reference the Engineer shall give notice of his decision to the Employer
and the Contractor.”

“If either the Employer or the Contractor be dissatisfied with any decision of the
Engineer, or if the Engineer fails to give notice of his decision on or before the eighty-fourth day
after the day on which he received the reference, then either the Employer or the Contractor
may, on or before the seventieth day after the day on which he received notice of such decision,
or on or before the seventieth day after the day on which the said period of 84 days expired, as
the case may be, give notice to the other party, with a copy for information to the Engineer, of
his intention to commence arbitration, as hereinafter provided, as to the matter in dispute. Such
notice shall establish the entitlement of the party giving the same to commence arbitration, as
hereinafter provided, as to such dispute and, subject to Sub-Clause 67.4, no arbitration in
respect thereof may be commenced unless such notice is given.”

“If the Engineer has given notice of his decision as to a matter in dispute to the
Employer and the Contractor and no notice of intention to commence arbitration as to such
dispute has been given by either the Employer or the Contractor on or before the seventieth day
after the day on which the parties received notice as to such decision from the Engineer, the said
decision shall become final and binding upon the Employer and the Contractor”.

The contractors discretion over additional work was not used in this instance, not in any
case, and there was no way to communicate differences with the other parties such as work
expected to happen later or things like that. There had been an 84 day notice periods for both
parties if the use of FIDIC conditions were to be used and if a dispute arose between the parties, the
notice could be sent again no later than 70 days to initiate the arbitration proceedings, but nothing like this was
observed in this case, the arbitrator was appointed directly without prior notice, the party excluded matters that
again become the subject of disputes / disagreements .

Coming to the excepted cases as mentioned in this contract, where as in on the contrary
there is no mention of the excepted cases in FIDIC standard form of contract.

According to clause no. 67.2 - “Where notice of intention to commence arbitration as to

a dispute has been given in accordance with Sub-Clause 67 .I, the parties shall attempt to settle
such dispute amicably before the commencement of arbitration. Provided that, unless the parties
otherwise agree, arbitration may be commenced on or after the fifty-sixth day after the day on
which notice of intention to commence arbitration of such dispute was given, even if no attempt
at amicable settlement thereof has been made.”

It also happened in our case, The procedure that could have been avoided started way too
early as per clause fidic of the arbitration clause where it only started after the 56th day from the
initial notice of its start up to either party.

According to clause 67.4 - “Where neither the Employer nor the Contractor has given
notice of intention to commence arbitration of a dispute within the period stated in Sub-Clause
67 .l and the related decision has become final and binding, either party may, if the other party
fails to comply with such decision, and without prejudice to any other rights it may have, refer
the failure to arbitration in accordance with Sub-Clause 67.3. The provisions of Sub-Clauses
67.1 and 67.2 shall not apply to any such reference”.

If either party doesn't follow the proper communication channel with reference to
timelines or if there is no process for disagreeable matters then the decision that was made prior
to court shall be binding upon them.

It's almost certain that if the correct channel with references to timelines isn't used and no
process regarding disagreements addressed, the other party will assume final responsibility of the
disagreement.