Govt working on Bill to settle disputes in public contracts

Plan Panel asked to formulate draft legislation after consultations.

Written by ENS Economic Bureau | New Delhi | Published: May 17, 2013 2:50 am

Plan Panel asked to formulate draft legislation after consultations.

In an acknowledgment of the growing dissatisfaction amongs private developers carrying out infrastructure projects,the government is planning to set up a dedicated institution for dispute resolution in public contracts.

As a precursor,Prime Minister Manmohan Singh has asked the Planning Commission to formulate a draft Bill on the issue after consultations from stakeholders.

“There are a few hundred 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,” said a release from the Prime Minister’s Office (PMO).

The move comes at a time when the government is hoping to enhance private sector participation in the infrastructure sector that requires $1 trillion over the next five years but also revive economic growth.

But private sector interest in carrying out such projects has waned considerably after being faced by issues such as differences with nodal ministries,delays in getting land and environment clearances and a high interest rate regime.

Disputes in PPP projects are becoming increasingly common,especially in sectors like highways. Just last year,the National Highways Authority of India had locked horns with Delhi-Gurgaon Super Connectivity Ltd and had dragged it to the high court,alleging that it had refinanced the Delhi-Gurgaon Expressway without prior approval.

Pointing out that private players are often ‘dissatisfied’ by the responses from project authorities regarding their responses,the PMO said that they often take to arbitration as these developers do not want to enforce their contractual rights “for fear of antagonising project authorities”.

But due to its lengthy nature arbitration tends to impose a “heavy burden” on private developers,the PMO has said,adding,“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.”

Data with the Union finance ministry suggests that there are over Rs 7 lakh crore worth of projects that are stalled at various stages of implementations due to a variety of reasons. It has also identified 215 such projects,and another 126 where loans have been sanctioned but are yet to take off.

This is just the latest attempt by the government to promote private participation in infrastructure projects. The government had earlier set up the Cabinet Committee on Investment to ensure faster clearances and execution of PPP and projects involving large investments.

Dispute Resolution

The decision comes in the wake of several projects under the public-private partnership mode getting entangled in contractual disputes,especially in sectors like highways

Private sector players are increasingly taking to arbitration to settle disputes after getting unsatisfactory responses from the project authorities,the PMO said

The arbitration process being lengthy,leads to a heavy financial burden on the private party,which otherwise could have been employed more productively,the PMO said

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