 "Time to institutionalise Dispute Board system")
Contractual disputes are known to delay the implementation of infrastructure projects, increasing the project cost. A concurrent mechanism for resolving these before arbitration or litigation, termed 'Dispute Board' (DB) is globally popular.
In America, around 95 per cent of such disputes get resolved through the DB way. The mechanism was introduced in India as early as 1994, by the World Bank. However, its effectiveness in resolving such disputes is barely five per cent, say experts.
Having a DB is a mandatory part of a contract in any project financed by the World Bank and several international financial institutions. "Even in those contracts where DBs are mandatory, parties to the contract resist constituting these or try to bypass it," says Shanker Lal, senior procurement specialist at the Bank's Governance Global Practice. There are 100-odd projects funded by the World Bank under implementation in India, with loan commitment of $27 billion.
However, a few mindset issues mar this form of alternative dispute resolution. Typically, any DB comprises three members - one each from the two signatory parties of the contract and a third mutually-agreed external member. Being statutorily part of the contract, the DB is supposed to be in place at the time of a project's inception, its members kept informed of the progression. "So, as and when any dispute arises, they are fully aware of its nature and are able to resolve it at the earliest," said Goel.
In practice, though, it is common to have a delay in constituting a DB, with considerable loss of time before the mechanism is put in place. Lack of requisite expertise among DB members and the time taken to resolve disputes adds to making the mechanism less effective, say experts. Often parties reject DB decisions and prefer to escalate the matter to arbitration or litigation.
"In mature markets, experienced DBs facilitate settlement and help parties work together, than preside over the separation," said Ramesh Vaidyanathan, managing partner, Advaya Legal. However Indians tend to look at such discussions at the time of formation of contracts as being awkward or 'ashubh' (inauspicious), adds Vaidyanathan.
The World Bank has now taken steps to institutionalise the DB mechanism in India. The financial institution has tied up with ICA to lay down clear and effective standard procedures for operation of the DB system. This would involve empanelment, training and appointment of members, monitoring the functioning of DBs, and offering research and guidance to members, says Goel. The institutional DB service offered by ICA would also be available in non- Bank funded projects.
To institutionalise the mechanism, says Vaidyanathan, the government needs to lead the way by forming such boards in all major contracts. "It will be useful to bring in laws that make it mandatory to form dispute resolution boards for contracts exceeding a certain value, and where time is of the essence," he added.
WHY DBS ARE NOT EFFECTIVE IN INDIA
In America, around 95 per cent of such disputes get resolved through the DB way. The mechanism was introduced in India as early as 1994, by the World Bank. However, its effectiveness in resolving such disputes is barely five per cent, say experts.
Having a DB is a mandatory part of a contract in any project financed by the World Bank and several international financial institutions. "Even in those contracts where DBs are mandatory, parties to the contract resist constituting these or try to bypass it," says Shanker Lal, senior procurement specialist at the Bank's Governance Global Practice. There are 100-odd projects funded by the World Bank under implementation in India, with loan commitment of $27 billion.
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According to O P Goel, a member of the Indian Council of Arbitration (ICA), the cost of a DB system is around 0.15 per cent of the project value. "It far more compensates in dispute avoidance and resolving disputes quickly, apart from substantial savings by early completion," says Goel.
However, a few mindset issues mar this form of alternative dispute resolution. Typically, any DB comprises three members - one each from the two signatory parties of the contract and a third mutually-agreed external member. Being statutorily part of the contract, the DB is supposed to be in place at the time of a project's inception, its members kept informed of the progression. "So, as and when any dispute arises, they are fully aware of its nature and are able to resolve it at the earliest," said Goel.
In practice, though, it is common to have a delay in constituting a DB, with considerable loss of time before the mechanism is put in place. Lack of requisite expertise among DB members and the time taken to resolve disputes adds to making the mechanism less effective, say experts. Often parties reject DB decisions and prefer to escalate the matter to arbitration or litigation.
"In mature markets, experienced DBs facilitate settlement and help parties work together, than preside over the separation," said Ramesh Vaidyanathan, managing partner, Advaya Legal. However Indians tend to look at such discussions at the time of formation of contracts as being awkward or 'ashubh' (inauspicious), adds Vaidyanathan.
The World Bank has now taken steps to institutionalise the DB mechanism in India. The financial institution has tied up with ICA to lay down clear and effective standard procedures for operation of the DB system. This would involve empanelment, training and appointment of members, monitoring the functioning of DBs, and offering research and guidance to members, says Goel. The institutional DB service offered by ICA would also be available in non- Bank funded projects.
To institutionalise the mechanism, says Vaidyanathan, the government needs to lead the way by forming such boards in all major contracts. "It will be useful to bring in laws that make it mandatory to form dispute resolution boards for contracts exceeding a certain value, and where time is of the essence," he added.
WHY DBS ARE NOT EFFECTIVE IN INDIA
- Delay in constitution
- Lack of requisite expertise in members
- Time taken in resolving disputes
- Parties rejecting a DB decision and taking matter to arbitration/litigation
- Create a trained pool of experts. Have a panel of high-calibre dispute board members for companies to choose from
- Make it mandatory as part of a contract to implement the decision of a DB
- Lay down effective standard procedures for operation of the system