Measures to Reduce Dispute in Projects

MEASURES TO REDUCE DISPUTE IN PROJECTS

Programme on Emerging Trends in Contract Management & Dispute Resolution.

Maj.Gen Nilendra KumarDirector, Amity Law School

& Dean, Faculty of Law

Amity University

What is a Project?

A project in business is typically defined as a collaborative enterprise.

It may also be termed as a temporary endeavor undertaken to create a unique product, service or result.

Examples

1. Project for construction of new key location plan.

2. Married accommodation project.3. Project to augment water supply.4. Building of new hospital.

What is a dispute?

Dispute means

A quarrel, controversy or an angry altercation.

Differing claims or divergent perceptions.

Why do the disputes take place?

What leads to disputes or in other words the causes for disputes?

COMMON CAUSES

1. Trade Union rivalry.2. Labour unrest3. Legal intervention4. Management of funds resulting in

shortage

5. Delay in obtaining regulatory clearances

6. Land acquisition problems

Reasons for delayed clearances

1. Environmental 2. Security3. Safety4. Overriding authority of other

agencies or departments

Nine categories of delay

Delay at project level

Original contracts duration is too short

Legal dispute between various parties

Ineffective delay penalties

Owner Group

1. Delay in progress due to payments by owner

2. Delay to furnish and deliver the site to the contractor by the owner

Example

In fighting amongst co-owners of land

Contractor Group

1. Difficulties in financing project by contractor

2. Conflicts among subcontractors engaged in execution of the project

3. Re-work due to errors during construction

Consultant Group

1. Delay in performing inspection and testing

2. Delay in approving major changes in the scope of work by consultant

Example

1. Remove plinth protection2. Steel door frames instead of teak

wood

Design Group

1. Mistakes and discrepancies in design documents

2. Delay in producing design documents

May be due to rivalry or lack of adequate accountability

Material Group

1. Shortage of construction material in market

2. Changes in material types and specifications during the construction

May be shortages in steel, cement, bricks or sanitary fittings

Equipment Group

1. Equipment break down 2. Equipment shortage

Labour Group

1. Shortage of labour2. Unqualified work force 3. Low productivity level of workers

External Group

1. Effects of subsurface conditioning (e.g. soil, high water table)

2. Delay in obtaining municipal permits

3. Hot weather effects on construction activities

Effect of a dispute

Dispute may lead to a lock out

LOCK OUT

A lockout is a temporary work stoppage or denial of employment during the course of a dispute. It is initiated by the management of a company.

How to resolve the dispute?

OVER ALL OBJECTIVE

To end the dispute make efforts to remove or reduce tension or conflict.

A dispute mechanism is a structured process that addresses disputes between two or more parties.

Dispute mechanism offers an effective tool for establishing communication channels between the parties.

Call the other side. At the first stage, get into a

dialogue. Talk it cover. Give a patient hearing.

Negotiation is a dialogue between twoor more people or parties, intended to reach an understanding, resolve points of difference to work out an agreement upon course of action.

However, negotiations may not always succeed to resolve the dispute.

EXAMPLES

Singur Tata Nano Controversy. The land acquisition controversy

during 2008.

Maruti Suzuki industrial unrest at Manesar, Haryana during Oct 2011

KUDANKULAM NUCLEAR POWER PLANT

Protest by thousands of persons against the plant fearing a Fukushima like disaster.

TATA MOTORS

Forced to abandon their project in West Bengal.

CONSTRUCTION PROJECTS

Judicial intervention on account of low payments for land acquired in Greater Noida.

As of January 1,2013 of the total 566 infrastructure projects in India, 276 were delayed. The estimated cost of these projects was above Rs 150 crores.

Causes for the project delayed was due to green clearances and other reasons.

The list of delayed infrastructure projects include the $90 billion Delhi-Mumbai industrial corridor and the $12 billion Posco Steel Project.

TIME & COST OVERRUNS IN DRDO PROJECTS

Costs have gone up from an original estimate of Rs 3,300 crores to over Rs. 5,789 crores.

DISPUTE RESOLUTION METHODS

1. Judicial2. Extra judicial

MEASURES TO REDUCE DISPUTES

1. Anticipate and seek all regulatory clearances.

2. Forecast realistic financial implications and arrange funds.

3. Strict adherence to environmental norms.

1. Establish and maintain cordinal labour relations.

2. Effective use of ADR to sort out differences.

3. Vigilant defence of litigation.

OTHER EFFECTIVE TOOLS

1. Periodic reviews.2. Web based monitoring system.

Prepare for the worst case scenario. Keep a safety time.

Education and training of engineers

Measures initiated by the Prime Minister of India during June 2012

Setting up of an investment tracking system. This will review projects periodically to ensure that issues are quickly identified and resolved.

Public sector projects with an investment of Rs 10 billion or more will be monitored by National Manufacture Competitive Council.

Judicial Method

1. Judicial Recourse2. Arbitration3. Mediation4. Lok Adalats

Arbitration

It is a technique for the resolution of disputes outside the courts, where the parties to a dispute refer it, to one or more persons (the arbitrators) by whose decisions they agree to be bound.

APPLICABLE STATUTE

The Arbitration

and

Conciliation Act, 1996

Based on UNCITRAL Model Law on international commercial arbitration and conciliation.

The process of arbitration can start only if there exists a valid arbitration agreement between the parties prior to the emergence of the dispute.

Arbitration can be either voluntary or mandatory.

Mediation

A settlement of a dispute or controversy by setting up an independent person between two contending parties in order to aid them in the settlement of their agreement.

A mediation has often been defined as assisted negotiation.

The mediator’s primary role is to act as a neutral third party who facilitates discussion between the parties.

Mediation differs from arbitration in which the third party (arbitrator) acts much like a Judge but in an out of-court less formal setting but does not actively participate in the discussion.

Advantages of Mediation

Cost of litigation much less Confidentiality Control Compliance Mutuality Support

CONCILIATION

Conciliation is an ADR process whereby the parties to a dispute use a conciliator who meets with the parties separately in an attempt to resolve their differences.

It is a less formal form of arbitration

Any party can request the other party to appoint a conciliator. One conciliator is preferred but two or three are also allowed.

If a party rejects an offer to conciliate, there can be conciliation.

PRINCIPLES

1. Non-adversial nature of proceedings 2. Voluntary nature of process3. Flexible procedure 4. Decisions are recommendatory

LOK ADALAT

1. ‘Lok Adalat’ means people’s court. 2. There is no court fee; and no rigid

procedural requirements.3. Pending cases in regular courts can

be transferred to a Lok Adalat, if both the parties agree.

4. The focus on ‘Lok Adalat’ is on compromise. When no compromise is reached, the matter goes back to the court.

5. Every ‘Lok Adalat’ is deemed to be a civil court.

ADVANTAGE OF TIMELY COMPLETION OF PROJECTS

L&T ‘s Q2 net up 42.5% on completion of projects.

CONCLUSION

Timely completion of projects with optimal use of resources not only influences the profitability of the company but also gives it competitive advantage.

The process of dialogue mutual accommodation and a positive approach would contribute to dispute resolution.