DISPUTES IN CONSTRUCTION CONTRACTS & ROLE OF ARBITRATION

The most important issue in construction projects is the delay in completion of the contract. The delays occur due to the late completion of activities of the contract that lead to the distrust amongst the related people in the contract and incapability in performing the contract arises and invites disputes.  

Disputes forces the parties to get into some kind of dispute resolution which can be resolved due to successful arbitration, which is a process by which the parties in dispute, instead of going to court, agree to submit their case to a third party neutral, known as arbitrator, who acts as a jury. 

Construction contracts suffers from the following major causes of delay:

1. Delay in releasing payments
2. Design errors / changes in designs
3. Poor site management
4. Lack of expertise in managing project
5. Contract Duration
6. Change in Material Prices
7. Corruption and poor estimation
8. Site constraints 
9. Political situations
10. Non compliance of existing laws
11. Geographical constraints 

The intersection of any two of the above causes is inevitable with the booming infrastructure projects in MMR and with increase in use of arbitration, we may achieve towards resolution of conflicts. 

Arbitration in Settling Disputes in Contracts

Arbitration is an effective process of resolving disputes in a contract by reconciling their difference and to arrive to an acceptable solution without intervention of the court. It is a form of alternate dispute resolution process. (ADR). 

1. An arbitration clause is incorporated in the contract in the form either:

1. An arbitration clause within the contract agreement entered into by the parties or, 
2. A separate agreement by the parties involved in a contract. 

1. The arbitration clause must be in writing.
2. Termination of the contracts and its effect on the arbitration clause should be enumerated below: 

1. An arbitration clause is a collateral term of a contract. 
2. It is separated from a substantive part of the contract. 
3. It is an integral part of the contract. 
4. Once the contract is completed or cancelled, it destroys automatically. 
5. It will not impact the invalidity of the arbitration clause once the contract becomes null and void. 

1. Arbitral Tribunal:

1. It may consist of a single / sole arbitrator or a panel of arbitrators. 
2. Both the parties of the arbitration are free to fix the numbers of arbitrators but it shall not be an even number. 
3. If the parties are unable to decide the number of arbitrators, then the arbitration tribunal shall consist of a sole arbitrator. 

With the introduction of The Arbitration and Conciliation Act 1996, the commercial arbitration is not the preferred mode of dispute resolution. In order to improve the arbitration landscape in our country, the following amendments to the Arbitration & Conciliation Act, 1996, shall help to improve the efficiency of the arbitration process.  The proposed amends are as follows:

1. Fixing the time limits
2. Encouraging the institutional arbitration
3. Minimizing the court intervention at both the pre-arbitration and post arbitration stage. 
4. Minimizing frivolous applications that challenges the arbitral awards. 
5. Minimizing the delays by introducing a realistic cost regime. 

There have been various amendments in the said act and the latest amendment in 2021 reassures that the Indian legislature is ready to update the ADR in order to meet international standards. 

Due to the propensity of the multitude of disputes and increasing complexity in the construction and contractual related cases, a better mechanism and institutional support in facilitating construction and contractual related arbitration is an emergent need of the day. Mostly, arbitration in construction projects is a growing trend in the legal system of the say and welcome one that helps to settle the disputes efficiently, economically and clarifies the several procedural aspects of arbitration. It is quite distinct from usual cases of arbitration, the arbitration resolution process has several unique benefits and therefore, has the potential for becoming the mainstay in resolving construction related disputes.