With a compound annual growth rate (CAGR) of over 6% in the past five years that is contributing approximately 8% to the GDP, the construction and infrastructure industry has experienced substantial growth. The industry is on track for a rise, while projecting a valuation of $1.4 trillion by 2025, on a ground observation such numbers mark the infrastructure industry critical for development. 

Infrastructure facilities entail any type of establishment, whether it is a physical structure, a resource, a commodity, or a service, intended for public or societal use. Despite significant investment over the years, infrastructure in the country remains inadequate for development. The public sector, tasked with closing the demand-supply gap, has shifted focus to other areas. Key issues hindering this development include insufficient user charges and regulatory uncertainty. As a result of which, states are increasingly adopting public-private partnerships (PPPs) and toll financing for infrastructure projects.

Peering into the fundamentals, infrastructure projects are complex due to their technical nature, leading to equally twisted disputes. The principal construction contract is often a multi-party contract involving the owner (often referred to as the employer), the contractor, the project consultant, engineers, etc. Further, the implementation often requires several back-to-back arrangements. Therefore, robust contractual documentation is essential. According to a study by Rahman and Kumaraswamy, it was established that the complexity of infrastructure contracts often leads to ambiguities and disputes. Unpredictable factors like weather, site conditions, and regulations further affect these projects.

Arbitration within infrastructure: An effective resolution mechanism ?

The Accounting Standard (AS) 7 defines a construction contract as, “any contract which is entered into specifically for the construction of an asset or a combination of assets that are closely interlinked or interdependent in terms of their design, technology, and function or their ultimate purpose or use.” Considering the complexities involved herein, effective contract management and dispute resolution mechanisms are crucial to mitigate risks and ensure project success, one such mechanisms would be arbitration. In arbitration, parties have the authority to decide the procedure arising from their contract. Therefore, while drafting the main contract, it is crucial to create an arbitration clause that eliminates potential delays to ensure a timely resolution. To expedite the process, parties should consider waiving rights such as oral examination of witnesses and include this in the arbitration clause. In this context, while many parties use standard templates like those from FIDIC, it is recommended to alter the clauses to suit specific circumstances, as standard templates may not always be appropriate for every situation.

A major problem in solving disputes through arbitration is the unnecessary delays produced by cross-examinations in cases. Although Section 19 of the arbitration act was meant to address this, parties often still opt for cross-examination instead of relying on careful document review. In infrastructure disputes involving overheads, termination, idling claims, and price adjustments, effective contract interpretation could resolve issues. However, proceedings are prolonged by insistence on cross-examination, which yields no productive outcomes.

Construction contracts often include arbitration agreements within standard forms like Article 5 and Clause 41 of the JCT form or Clause 66 of the ICE form. These clauses commit parties to submit future disputes to arbitration. A dispute can also be arbitrated through an ad hoc agreement made after the dispute arises. In either case, a party must serve notice to initiate arbitration, marking the commencement of the arbitration process akin to filing a court claim. The Arbitration Act 1996 governs written arbitration agreements in construction contracts. 

Way forward to cross the barriers present

Industry experts stress the need for proactive strategies to prevent disputes in construction projects, as pinpointing the root causes of delays post-facto is nearly impossible. Close monitoring is essential for timely identification and resolution of issues. Contracts should mandate monitoring and evaluation to resolve disputes. In case disputes arise, mandatory mediation should be enforced, with the cost burden on the party refusing mediation if it loses in arbitration.

To speed up proceedings, contracts should specify when cross-examination is necessary, with input from the arbitral tribunal. A large pool of arbitrators is also required, comprising both technical specialists and former judges. Arbitration can be accelerated by implementing global best practices, such as appropriate case management systems. A blueprint for conducting arbitration should be established, with penalties for violations, to ensure timely dispute resolution.