Prime Minister of India - Dr. Manmohan Singh

PM directs Planning Commission to formulate a Draft Bill on Dispute Resolution in Public Contracts

The Prime Minister has tasked the Planning Commission to formulate a draft Bill on Dispute Resolution in public contracts in consultation with all stakeholders and Ministries.

Dispute resolution in large public contracts is an area of growing concern and the Prime Minister has initiated the first steps in improving the institutional arrangement for dispute settlement.

Following the rapid expansion of Public Private Partnerships (PPP) which have already attracted investment of a few lakh crore of rupees in different sectors, there are concerns about the dispute resolution mechanisms in place. There is a certain dissatisfaction among private sector participants arising from the responses they receive from project authorities about the obligations of project authorities.

Most concession agreements specify the obligations of project authorities along with timelines for fulfilling such obligations. Whenever some of these obligations are not fulfilled, projects get delayed, which in turn increases project costs and reduces the returns. Private sector entities often find it difficult to enforce their contractual rights and tend to stop short of claiming damages due to them for fear of antagonizing project authorities. The ultimate recourse available to the private sector participants is only arbitration, as provided in the contract.

Given the current state of arbitration in India and the likelihood of arbitral awards being challenged in courts, project developers face a long process which imposes a heavy burden on them. Large amounts of capital get locked up in disputes, restricting growth and the ability of entrepreneurs to use it fruitfully. Further, developers factor these delays into their costs, thus pushing up project costs.

There are a few hundreds PPP contracts already in operation and more are being signed on a fairly rapid pace. As a result of this expansion, contractual disputes have been rising steadily and it has now become essential to consider an institutional arrangement that would address such disputes expeditiously and at reasonable costs. It is in the interests of all concerned to set up an institutional mechanism that can provide assurance of speedy resolution of disputes, especially in respect of large public contracts. This could be a dedicated institutional arrangement, drawing from the experience of various other tribunals, while eliminating any litigation up to the High Court.

The Planning Commission will conceptualise this further and present a draft bill for consideration of the Government.