News Brief
Power Minister Clears 'Dispute Avoidance Mechanism' For Construction Contracts Of Hydro Projects
Union Minister of Power, New and Renewable Energy (MNRE) R K Singh (Twitter)
Union Minister of Power, New and Renewable Energy R K Singh has approved a "Dispute Avoidance Mechanism" through 'Independent Engineer' (IE) for constructions contracts of Central Public Sector Enterprises (CPSEs) executing hydropower projects, an official release said on Wednesday (29 September).
The mechanism mandates the appointment of 'Independent Engineers'- a 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, a Ministry of Power release said.
This ‘independent engineer’ can have regular oversight over the project, with open communication with all the keystakeholders 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, it added.
According to the ministry, this will help avoid time and cost overruns so as to ensure timely completion of the projects.
The ministry said that the hydro CPSEs had been raising concerns that the present mechanism of dispute resolution in hydropower sector did not provide 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 inarriving 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 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 inception stage, is key to successful performance of the contract as per scheduled timelines leading to both effective utilisation of budget and prevention of time and cost overruns, the ministry said.
Salient features of the model contract provision for "Dispute Avoidance Mechanism" through 'Independent Engineer' (IE) are as under:
Ministry of Power shall prepare a panel of domain specific Experts with high level of integrity and proven track record by adopting a transparent and objective selection process. Further, any changes in the panel will only be made by the ministry, and the ministry will also keep updating the panel at regular intervals.
Necessary information sought by IE during the course of investigation shall be provided in a time bound manner by both the parties and non-compliance of the same will lead to imposition of penalties, elaboration of which shall be made by the CPSEs in their respective contracts depending upon the criticality of the contract.
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.
Based on the preliminary hearing of the parties, IE will prescribe 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.
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.
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.
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.
According to the ministry, Dispute Avoidance Mechanism through IE will be adopted by all the Hydro CPSEs executing Power Projects. IE will be implemented in all cases irrespective of the fact that the contractor is a CPSE or a private party.
Dispute resolution mechanism through Dispute Resolution Board (DRB) or Dispute Adjudication Board (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 will only be provisioned in place of DRB or DAB.
