Power Minister RK Singh Approves Formulation of ‘Dispute Avoidance Mechanism’

A Committee of board-level Officers was constituted to study the field level issues and the difficulties in arriving at the resolution of these issues.

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A “Dispute Avoidance Mechanism” through ‘Independent Engineer’ (IE), has been given approval by the union Minister of Power, New and Renewable Energy Shri R K Singh. Being put in place for Construction Contracts of CPSEs executing Hydro Power Projects, it mandates the appointment of ‘Independent Engineers’-mechanism of an independent, third-party, widely used in major infra projects, nationally as well as internationally, engaging an Independent Engineer for the specific project who is an “Expert” having domain knowledge of the subject as well as commercial and legal principles. This ‘independent engineer’ can have regular oversight over the project, with open communication with all the key stakeholders that can play an effective role in the avoidance of disputes. This mechanism seeks to reduce the conversion of initial disagreements over issues into full-fledged disputes, and also for expeditious elimination of disagreements in a just and fair manner. This will help avoid time and cost overruns so as to ensure timely completion of the Projects.

The Hydro CPSEs had been raising concerns that the present mechanism of dispute resolution in the Hydro Power sector did not provide an adequate framework to address the conflicts between the Employer and the Contractor at their inception stage but only addresses it after the disputes have arisen and notified between the Parties. A Committee of board-level Officers was constituted to study the field level issues and the difficulties in arriving at the resolution of these issues. The Committee submitted its report which was deliberated in the Ministry during which CEA and Board level officers of Hydro CPSEs too participated.

The committee observed that delays in addressing disagreements or claims related to the execution of Contracts actually results in significant financial and economic losses besides time and project cost overruns. Fair and just resolution of disagreements related to Contracts at the inception stage, is key to the successful performance of the contract as per scheduled timelines leading to both effective utilization of budget and prevention of time and cost overruns. Salient features of the model contract provision for “Dispute Avoidance Mechanism” through ‘Independent Engineer’ (IE) are as under:

  1. Ministry of Power shall prepare a panel of domain-specific Experts with a high level of integrity and proven track record by adopting a transparent and objective selection process. Further, any changes in the panel shall only be made by the Ministry and the Ministry shall also keep updating the panel at regular intervals.
  1. The CPSE & Contractor shall jointly select only one Member from the above panel of Experts for each package of works. The Expert would be designated as IE for each contract.
  2. Necessary information sought by IE during the course of an investigation shall be provided in a time-bound manner by both the Parties and non-compliance of the same shall lead to the imposition of penalties, elaboration of which shall be made by the CPSEs in their respective contracts depending upon the criticality of the contract.
  3. IE will examine the issue(s) raised by the Parties concerned by conducting inspections involving field measurements as may be required to further investigate and to also conduct hearing/ mediation with both the parties.
  4. Based on the preliminary hearing of the parties, IE shall prescribe a resolution timeline depending upon the number and nature of disagreements subject to a maximum duration of thirty (30) days or within extended timeline under extraordinary circumstances and for reasons to be recorded in writing
  5. The initial term of appointment of IE would be for a period of five (5) years or contract period whichever is lesser and may be further renewed on a year-onyear basis as may be mutually agreed between the CPSE and the Contractor subject to the consent of IE and final approval by the Ministry.
  6. lt will be mandatory for the IE to visit the site once in every two months to be constantly aware of the ongoing project activities and to have a fair idea of any situation that may lead to disagreement between the parties. Further, additional visits may also be undertaken as and when called upon to address issues of disagreements.
  7. CPSE or Contractor will not be able to change the IE in any case. In case of adverse finding about IE such as not performing duties or complaints of integrity, that Expert would be dropped by the Ministry from the panel itself and a new Expert would be selected by the CPSE and Contractor jointly from the panel for performing the duties of IE.

Dispute Avoidance Mechanism through IE as above shall be adopted by all the Hydro CPSEs executing Power Projects. IE shall be implemented in all cases irrespective of the fact that the contractor is a CPSE or a private party. Dispute resolution mechanism through DRB or DAB in existing contracts may be subsumed by the aforementioned Dispute Avoidance Mechanism through IE with mutual consent. For future contracts, Dispute Avoidance Mechanism through IE shall only be provisioned in place of Dispute Resolution Board or Dispute Adjudication Board. The terms of remuneration have also been spelt out.

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