Warring road developers join hands to lower arbitration costs

As disputes mount in the road sector and resolution costs escalate, stakeholders such the National Highways Authority of India (NHAI) and road developers – usually the warring parties – have come together looking for cheaper ways to settle their differences.

The NHAI and National Highway Builders Federation (NHBF), the developers’ body, have together floated another body – The Society for Affordable Redressal of Disputes (SAROD).

While the society would work largely within the principles of the current dispute resolution framework, such as the International Centre for Alternate Dispute Resolution (ICADR) mechanism and the Indian Arbitration Act, it would deviate while attempting to limit the expenditure on arbitration, according to M Murali, Secretary General, NHBF.

Cost savings The present mechanism allows arbitrators to define their own fees and there are cases of arbitrators asking for exorbitant fees. In a recent case involving a dispute regarding the Panipat-Jalandhar national highway, the arbitrators structured their fees in such a way that the fee payable to each arbitrator a day could go up to ₹8 lakh, according to NHAI, which has estimated that the fees to resolve this dispute, based on the ICADR framework, would be ₹32 crore, while that through the SAROD framework would be below ₹50 lakh.

Also, NHAI and road developers feel that disputes solved through ICADR do not incentivise faster decisions or provide disincentives for delayed decisions.

Justifying SAROD, NHAI Chairman RP Singh stated in a note to the Road Secretary Vijay Chhibber, “We are trying to make serious efforts to resolve disputes amicably and bring down the cost of arbitration...NHAI has tried to sign supplementary agreements with contractors to limit the fee of arbitrators...Effort is on choose such arbitrators who agree to our fee structure.”

Road rage The amount involved in disputes may shoot up with the Government adopting the public-private partnership (PPP) model, which involves long-term contracts (15-30 years) between the Government and private road developers.

Already, the road sector is saddled with over 1,000 disputes involving ₹20,139 crore, as of June 2013, according to estimates by highway developers. Even though the current dispute levels in PPP projects are low at ₹800 crore, most of the completed projects are running into arguments. The dispute in PPP projects could touch a whopping ₹60,000 crore in three years, says NHBF.

Though these numbers could be bloated, as NHAI found out while settling the disputes in earlier contracts, it does look to face bigger dispute resolution bills while dealing with PPP projects. “The claims in cash contracts were quite exaggerated. The claims for PPP projects are expected to be much higher due to different interpretation of clauses of the model concession agreement,” said Singh.

Some Ministry officials, while admitting that there was a need to curtail the arbitration expenses, added that the SAROD mechanism would have to be tested. “It is important to maintain neutrality of the process. In the effort to cut arbitration expenses, quality, independence and neutrality of arbitrators should not be jeopardised,” said officials.

Though yet to be operational, SAROD has just started empanelling arbitrators, said Murali.