Let’s believe in conciliation

The Chennai Metro Rail Corporation (CMRL) recently announced a delay of at least one year in the completion of metro rail project, due to the retendering of the contract for a portion of the tunnelling works. These works were being undertaken by Gammon India and its joint venture partner. CMRL had recently terminated this contract with Gammon India. CMRL charged Gammon with delays in the completion of the project, while Gammon attributed the causes to CMRL.

When the dispute was taken to the Madras High Court, the court proposed that the parties participate in a mediation process. CMRL did not agree to this proposal; the contract stood terminated. The project contracted to Gammon India will be undertaken by a new contractor.

The outcomes are additional months of delay and disruptions, and cost overruns, while the disputes take their time in arbitration and before the courts. Could this have been avoided?

A study by Centre for Monitoring Indian Economy finds that 101 projects were abandoned in the financial year 2014-15, with 69 projects being abandoned in the previous financial year. The reasons cited include delays in approvals and clearances, lack of funds, unfavourable market conditions, delays in land acquisition, etc.

With a view to swiftly addressing disputes in public-private partnership contracts, the UPA in 2013, and the NDA in 2015 have proposed a Public Contracts (Resolution of Disputes) Bill, 2015, which provides an institutional arrangement for resolution between the government and contractors in construction and infrastructure projects.

The Bill proposes the establishment of a tribunal for public contracts. The tribunal will decide cases within 180 days, while the arbitrators will decide the cases within 120 days with limited extensions of time after this period. The tribunal will also constitute a panel of arbitrators to whom disputes involving the consideration of extensive evidence or complexity of issues will be referred for arbitration.

It will have supervisory control over arbitrations and will decide appeals against arbitration awards. If the dispute involves third parties, the tribunal can pass orders against such third parties as well.

The Bill, however, is short-sighted and fails to take into account the conditions in which most disputes arise. In government contracts, activities of the contractor often depend on actions of the government.

These reciprocal obligations are not confined only to the specific government body and the contractor, but also depend on other sub-contractors, vendors as well as other government agencies. Legal and contractual options rest with terminating the contract and making a claim for compensation. Neither of these remedies takes into consideration the fate of the project. Resolution of these disputes are best done through discussions. However, in reality, when delays or disruptions to the project occur, the exchange focuses on pointing fingers at each other. Positions harden and effective communication stops.

It is in this context that conciliation as a dispute resolution process has tremendous value. Conciliation is a facilitated negotiation between the disputing parties.

Why is conciliation better than direct negotiation? To start with, the conciliator takes the responsibility of getting the disputants to engage in a discussion. Neutrality staves off discussions from assertions and counter-assertions of blame, and guides parties towards solutions that would serve their interests and that of the project.

Discussions that the conciliator undertakes separately with each of the disputants enable them to identify measures and solutions to the problems.

Conciliation has the additional benefit of accommodating other concerned parties in the discussions (such as sub-contractors, other government agencies). At the end of these discussions, all the parties aim to arrive at an agreement which will be the basis for the project going forward.

Importantly, conciliation is non-binding — there is no compulsion on the parties to settle on terms that they are not happy with or find unworkable. It is also non-binding in that a party can also opt out of conciliation talks, if it finds that resolution is delayed. In fact, it is this voluntary feature of conciliation that makes the process compelling.

The Public Contracts (Resolution of Disputes) Bill, 2015, should take into account the specific nature of disputes in public-private partnerships and the ability of conciliation to address these.

Often public-private contracts are long-term, and the reciprocity that is needed over this time is best met through conciliation. While conciliation can be availed of in any dispute by virtue of its statutory recognition under the Arbitration and Conciliation Act, 1996, its specific inclusion in the Bill as a process that the tribunal will refer the parties to, will not only create the awareness of this dispute resolution process, but also bolster its use by all concerned.

The writer is a lawyer and co-founder of Foundation for Comprehensive Dispute Resolution

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