Document Fragment View

Matching Fragments

7. On 25th October, 2008, during the site visit by the General Manager of the petitioner, the Project Director (PD) advised the Team Leader to revise the calculation of price adjustment with an altered interpretation of sub clause 70.3 (xi).

8. Aggrieved by the said unilateral order of the PD, the contractor took up the matter with the PD on 26th October, 2008 and PD sought the Engineer's opinion. Even, the Engineer vide its letter dated 21st November, 2008 wrote back to the Project Director that in his view the footnote of clause 70.3 (xi), percentage of factors bitumen, cement and steel (X,Y,Z) was the actual percentage of cost of procurement of these articles in the said month, and that they would continue to use the said method till instructed to change it. The petitioners, thereafter, referred the dispute to the Dispute Resolution Board (DRB) consisting of three experts into the field. The DRB had also given its finding in favour of the contractor and against the petitioner and opined that the interpretation given till 19 IPCs by the Engineer, was the correct one. It has held that the value of X,Y,Z as per clause 70.3 (xi) is to be calculated on the basis of procurement cost of the month relating to IPC and not on the basis of the cost of these articles, as it stood 28 days prior to the date of submission of the bids. The petitioner, however, did not accept these findings.

It is this award which has been assailed by petitioner.

17. In this case, the majority award has been assailed by the petitioner. The petitioner had invited a tender from pre-qualified contractors for the work of "4 Laning from Km 279.80 to 319.80 of Gorakhpur-Gopalganj Section of NH-28 in Uttar Pradesh. The bid submitted by the respondent was accepted by the petitioner and a letter of acceptance was issued on 09.09.2005. The contract price was Rs.253,11,78,955/-. A formal agreement was drawn between the parties on 25.11.2005. Notice for commencement of the work was issued on 14.12.2005 and work was to be completed within 36 calendar months. The work was already completed in February, 2011 and was taken over on 18.02.2011 and Defect Liability Certificate was issued on 23.02.2012. Under this agreement, the respondent was entitled to the price adjustment of various items while submitting his bills. This price adjustment was agreed upon due to rise or fall in the cost of labour, equipment, plant, materials and other inputs to the work. The price adjustment was to be done in accordance with the formula prescribed therein. As per sub-clause 70.3(xi), the calculation of percentage of X, Y and Z which relates to materials bitumen, cement and steel was to be done. The note underneath provided that X,Y and Z are actual percentage of cost of material of bitumen, cement and steel respectively used for execution of work as per the interim payment certificate for the month. There is no dispute to the fact that till the 18 IPCs submitted by the respondent, the petitioner had calculated the value of X, Y and Z in this formula as per the actual cost of these articles in the relevant IPCs. However, subsequently, the petitioner changed the method of calculation and started calculating it on the basis of base price of these articles prevalent 28 days prior to the submission of the bids and also wrote a letter dated 28.07.2009 to PIU directing it to take necessary action to recover the excess payments made to the contractor and to apply the new interpretation in future. Thereafter, a letter dated 24.07.2009 was sent by the Project Director of the petitioner to the engineer, thereby requesting the engineer to review all the IPCs immediately. The engineer wrote a letter dated 01.09.2009 to the respondent that an excess payment of Rs.12,81,946.46/- has been made and asked the respondent to repay the excess payment or it would be recovered from the money due. The respondent thereafter filed the OMP No. 484/2009 under Section 9 of Arbitration and Conciliation Act, 1996 seeking stay on the operation of the changed price adjustment mechanism sought to be introduced by the petitioner and this Court stayed the operation of the changed position subject to respondent furnishing bank guarantee to recover the differential amount. This order was upheld by the Division Bench of this Court in appeal vide order and judgment dated 14.01.2011. Respondent thereafter raised the claim before the Arbitral Tribunal. It is also apparent that the petitioner changed the interpretation of this clause pursuant to an internal audit. Before invoking the arbitration clause, the matter was also referred to DRB. The DRB by a majority decision upheld the interpretation given by the petitioner and rejected the contentions of the respondent. It has been contended before the Arbitral Tribunal by respondent that there was no provision in the contract giving power to the petitioner to direct the engineer to change its opinion. It is further submitted that the change in interpretation of the clause is based on the internal audit report which is not specific to this particular contract. It is further submitted that auditor in his report has referred to 'base rate' by reproducing clause 70.1 from a different contract, whereas no such 'base rates' were stipulated or defined in clause 70.1 of this contract. It is further submitted that the contract specifically provides that the value of the R which is total value of the work done during the month. The secured advance is the value of the materials included in the work. The value of R including the value of materials accounted for in the secured advance is the basis for determining the price adjustment and there is no dispute between the parties in this respect.

In OMP No. 305/2014, the Arbitral Tribunal has observed that there is no dispute to the fact that in the contract under challenge, the cost has been defined as under:-

41. Clause 1.1(g) (i) of Contract reads as under:-

"(g) (i) "cost" means all expenditure properly incurred or to be incurred, whether on or off the Site, including overhead and other charges properly allocable thereto but does not include any allowance for profit."

42. The Arbitral Tribunals have concluded that the audit report, pursuant to which the petitioner had asked its Engineer to change the interpretation of sub-clause 70.3 (xi) was not specific to this contract and the auditors while giving its report have not considered the various terms and conditions of these contracts. On the other hand, Engineer has been interpreting the each contracts in the light of its terms and conditions. In OMP No. 472/2014, the opinion of Engineer, DRB and Arbitral Tribunals have been unanimous. They all had found that the value of X,Y and Z is to be calculated on the basis of cost price and not on base price.