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Chethana (Accountant)     27 March 2017

Contract - arbitration terms

Sir, We sub-contractors for main contractor and awarded with 9Cr work to be carried out in the state of Tamilnadu. The contract terms clearly says that any disputes falls within juridiction of Bangalore Civil Court.

As per the terms of contract, we were to construct a building at an given price stating "the price remains firm to execute work at various elevations". The said contract was agreed verbally mutually indicatiing we shall only work upto 50 feet height building.

In this contract, Atleast 4-5 places in the 40points of contract agreement says that "irrespective of any changes or whatsoever may be the reason offered price remains firm and no escalation, ideal charges, etc... shall be claimed" Now contractor forcing us to work beyond 50 feet budilng work for the same price stating terms of agreement. Working beyond 50feet height results in lower production per labor, increase labor cost/delay to work about certain height in which we are to consider height allowance as per the Labors Acts, Wastags of daily consumebles, etc... We have already indicated to contractor in writing that increased height work would incur additional cost and asked for suitable rate/compensation for which we yet receive any reesponce for last 1 year.. We have already started working on the increased height building as our labors can not be seated ideal. and contractors is clearing RA bills as per their previous contract price terms without considering our requests for price increase. Now trying to understand how this would be interpreted in the law. please let us know how to take this forward, Do we have any scope for arbitration in the event of contractor ntot heeding to our letter/request. Thaks- Chethan


 7 Replies

Bhargava S.K. (Legal Practitioner & Vice Chairman HRIDAI)     27 March 2017

Is there any arbitration Cl in the Agreement. 

Dr. Atul [9013898936] (Lawyer, Scholar)     27 March 2017

Your post title indicates a query on maintainability of arbitration and entire contents of your post is on the merits of the case ... weird.

Anyways ... from the limited that you have posted, yes, you have a good case because escalation in construction contracts refers to changes in the rates of materials on account of market fluctuations affecting the sourcing prices of raw material. That there shall be no escalation means that the rates quoted in the approved rates are not subject to change. That, however does not mean increasing the scope of the contract without increase in consideration. Construction contracts are (usually) bound by the Bill of Quantities and the moment the contractor is asked to do something which was not in the original contract or BoQ, the contractor  is entitled to extra amounts or refuse the works beyond the scope of the contract.

However, now that you have commenced additional work, you can rely on that as your attempt to mitigate the loss of profit. Had you refused work, under the law of contract, you could have been entitled to loss of profit towars idling men and machines which you could've employed gainfully in some other contract.

Try to understand the difference between additional consideration for additional work VS. enhanced pricing. The former, you are entitled to; the latter is arguable to some extent (but definitely not assured) if you establish that the additional work was delayed for reasons that may be attributed to of the other contracting party OR that there were material changes in the market pricing of the raw material at the time when you executed the original contract considering the then market prices, and the time when the scope of contract was changed by the other party, which could virtually be taken as an amendment to the original contract. 

If there is an arbitration clause, you'd almost certainly be bound to refer the dispute for arbitration in terms thereof.

To all the above, as with the entire law on contracts, a lot would depend on the actual terms of your contract.

1 Like

Chethana (Accountant)     27 March 2017

Thanks for the input sir. The Contract says following:

- Civil court having Ordinary Original Jurisdiction at Bangalore shall alone have exclusive jurisdiction in regard to all claims in respent of this contract.

- Kindly note accepted rates as mentioned in the descripttion of items and rates are fixed and firm till completion of entire work. Price variations or escalation of any is not applicable for this contract. U shall execute and complete the work as per the rates mentioned above without fail

- The rates are firm. No Revision of rates shall be applicable for any reason or whatsoever

- No Deviations shall be allowed from the tender conditions either commercially or technically

- The rates are brodly for the scope of the work mentioned in the descripttion and rates include any other items which are not specifically mentioned but it is required to undertake the contract work as per specifications acceptance by the clients.

Please suggest. Thanks - Chethan

Dr. Atul [9013898936] (Lawyer, Scholar)     27 March 2017

You may have a look at the judgment of Delhi High Court in NPCC v. Rajdhani Builders, OMP No. 210 of 2001, 10.05.2006:

Learned counsel contended that the deviations, variations have to be performed by the contractor on the same conditions in all respects including prices on which he agreed to do the main work.  However this is not a case where the deviations could be performed within the same period of time as they were really in the nature of extra work assigned.  If the extra work has to result in extension of time period of contract, it cannot be said that the contractor would continue to perform the extra work without escalation on the basis of indices.  The arbitrator has given extra time for completion of the contract in proportion to the increase in the value of the contract items.  Another factor taken note of by the arbitrator, in my considered view rightly so, is that even though the contractor was asked to perform the extra work and submit rate analysis, advance for the same was refused even though required to be so given. The contract required that 75 per cent of the cost of any materials which according to the engineer in charge is reasonably required was to be paid and the advance adjusted as and when the materials are utilised in the works. This is apparent from  clause 42 (b) of the heading “Payment on Account” at page G-34 of the Condition of contract.  The refusal of the petitioner to pay the secured advance would naturally affect the cash flow of the respondent this was one more factor taken note of by the arbitrator.

Also, National High Authority of India v. Unitech-NCC, FAO(OS)338 of 2010, Delhi High Court, 30.08.2010.

Of course they are only illustrative and your contract Clauses and facts may differ, but you should get the idea. From what you have provided, my interpretative argument will be, works "required to undertake the contract work" would mean works incidental to or necessary for works contemplated at the stage of making the contract, and not deviation and extra works added after the Contract.

You still have not made any reference to any arbitration Clause, so where is the question of arbitration, unless you are thinking of executing an arbitration agreement after the disputes have arisen (legally and technically valid, but I haven't come across any such post-dispute arbitration agreement ever).

Chethana (Accountant)     27 March 2017

Sir our works contract does not have arbitration clause. it says only "Civil court having Ordinary Original Jurisdiction at Bangalore shall alone have exclusive jurisdiction in regard to all claims in respent of this contract" Thanks much.

Dr. Atul [9013898936] (Lawyer, Scholar)     27 March 2017

Originally posted by : Chethana
Sir our works contract does not have arbitration clause. it says only "Civil court having Ordinary Original Jurisdiction at Bangalore shall alone have exclusive jurisdiction in regard to all claims in respent of this contract" Thanks much.


Good for you then - one stage less to fight (that too, in front of a biased other party appointed arbitrator most likely, had there been an arbitration Clause). If the original work and extra work under contract is not complete yet, and you can complete it all with a marginal loss, such that you can absorb it and sustain for the time being, keep demanding 'escalation towards new works which were not contemplated under the contract and which are not even incidental to the works so contemplated'  (get the hint?) ... continue with the work ... keep submitting running account bills and measurement books (be very particular about these formalities now, because now you know that things will go to litigation) ... state clearly that you are submitting the RA bills and MBs under protest and without prejudice and you are completing the new works at a loss, only to prevent complete loss for work already done (mitigation). Submit a Final Bill with escalation and then file a Suit for Loss of Profits & Damages.

If the other contracting party's registered office or ordinary business office is in Bangalore or the cause of action has in any manner arisen in Bangalore (like the negotiation-execution of contract or any payments etc.) Courts in Bangalore shall have exclusive jurisdiction as you have contractually agreed to exclude the territorial jurisdiction of all other competent Court. 

1 Like

Chethana (Accountant)     30 March 2017

Thanks for the suggestion sir.

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