Rohit Kapoor, Advocate
Delays in execution of mega infrastructure projects have seen a massive Rs 52,446 crore jump in their original cost estimates. The cost escalation has gone up by 36 per cent from Rs 1,45,271 crore to RS 1,97,716 crore as on May 31, 2012, official figures state. The cost overrun pertains to 28 over projects, railway projects and 84 schemes of ministry of road transport and highways (MORTH). The delayed projects include Udhampur-Srinagar-Baramulla rail line in Jammu & Kashmir where the project cost escalated by a massive 700 per cent to Rs. 17,500 crore. As per the report of Construction Industry Arbitration Council, working under the aegis of Planning Commission of India, crores of Rupees are locked up in commercial disputes in construction sector alone. Because of complexity of such interwoven responsibilities, superimposed by statutes, monitored by environmentalists, exposed to vagaries of nature and uncertainties of markets, it could be a miracle if any construction project can come out without getting greatly distorted on Time-money or concept scale. All distortions induce strains.
Construction of infrastructure projects which occupies the major portion of the National plan outlays has always been the concern of everyone because of the inordinate delays in the completion of the projects leading to heavy cost overruns. During the life cycle of a contract, changes occur with regard to time frame, specifications, additional items, cost etc. There can be many factors for such changes. Some deviations are covered by express terms of contract others are not. There are hidden risks lurking in just about every contract. FIDIC contracts are being executed in the country. No upper limit of delay damages in these agreements make the Employer vulnerable to un-limited damages when time ceases to be essence of contract after grant of extension expressly or by implication.
It has been observed that Government and industry focus their time, attention and key resources on soliciting, proposing, negotiating, and forming the contract-simply said, getting the deal. While project management and earned value management have received significant focus and attention in recent years for the value-added capabilities they can provide, few organizations have paid much attention to Pre-post award – contract Legal management and closeout activities, which are equally vital for a successful contract.
Legal management of a contract is continuous monitoring and assessing of all the events taking place during execution of a contract. During the subsistence of a contract, many a time innocuous appearing mails/letters are actually premeditated and are to be used as evidence. Not replied or real intentions not understood, do cause problems later on. With a view to prevent adverse legal implications “Pre & Post award -Contract Legal Management / Contract lifecycle Legal Management” can improve exposure to financial and legal risks. It has been observed in Public and Government Sector that they seek requisite legal aid only after they receive intimation of claims or many a time when they are brought before the Court or Arbitral Tribunal. Parties beginning with friendly relations are at each other’s neck and the mood often is to demand “Pound of Flesh”. This leads to “Differences and Disputes”.
There is one more significant factor to be noticed. There is progressively stiff increase in money cost. Projects were delayed in past but over the delayed period money’s value remained steady so no big burden was felt. Now with cost of money becoming so high rising upwards, time has become a sensitive issue. Time is indicated as the essence of a contract. There are circumstances compelling extension of time which is granted but Time does mean money. The rate of inflation erodes the profit of Contractor and hence longer he has to stay, more sensitive he becomes to Time factor and puts up claim for Damages/ Compensation.
Intense legal scrutiny is required at the time of preparation of Detailed Project Reports (D.P.R.’s) particularly in the context of delayed execution and change in specifications- both these elements are virtually in-evitable in Mega projects. Delivering high value deposition summaries requires litigation expertise. Abstraction and summarization of large contracts help owners and others connected with the work to understand their rights and responsibility as a party to the contract. However, this component is by and large missing during execution of a contract with the result; owners end up in paying huge sums as compensation to contractors. Delay Claims Analysis (DLA) has, therefore, become elementary. The objective and emphasis is to avoid litigation and/or its adverse consequences eliminated/reduced.
“Pre & Post award -Contract Legal Management / Contract lifecycle Legal Management” includes Preparation of Risk and Obligation summaries of a contract and each of its stipulations; suggesting measures to eliminate owner’s liabilities in the event of delayed execution of works; track and Manage Contract Life Cycle in its legal perspective; Focus on Contract Compliance in its legal/ Contractual perspective; Observing and notifying delays that may escalate project cost particularly in terms of compensation etc. Escalation in cost has left many construction projects abandoned/in-complete and has the adverse impact on other projects and economy of the State. So an effort is required to minimize such adverse implications. Focus on Contract Compliance through “Pre & Post award -Contract Legal Management / Contract lifecycle Legal Management” can ensure timely dispute resolution, cost efficient and scheduled completion of projects/transactions. This will streamline the Legal review process to help reduce risks and costs, improving focus on other areas.
(The author is Consultant Regd with ADB for Pacific Region.)
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