Arbitration in Indian tenders refers to the inclusion of an arbitration clause within the tender documents in case of a contract dispute between the stakeholders of a project — the Tender Issuing Authority (TIA) and the Contractors or Tenderers. It is a mechanism involving a formal method of resolving disagreements between them outside traditional court proceedings. Inclusion of an arbitration clause in a contract necessitates that any conflict arising from this contract will be submitted to a neutral third party for a binding decision.

Potential Disputes Between a Tender Inviter & a Tenderer

A TIA and a contractor must review the arbitration clause in a contract to understand the process for addressing potential disagreements. The common issues that may arise between them are –

  • Disputes over interpretation of terms and conditions laid out in the tender document.
  • Disagreements on the tender evaluation process.
  • The contractor may challenge the eligibility criteria.
  • Issues regarding the scope of work of the project.
  • The contractor may contest the technical specifications based on what the project entails.
  • Contractor may challenge their disqualification from contesting in the tender.
  • Contractor may challenge the procurement process’s alleged lack of fairness.

Issues that May Arise after a Contract is Signed

  • Breach of contract by either party that can be challenged by the other.
  • Disagreements over money, pricing or delayed payment.
  • Dispute over delays in the project execution.
  • Conflicts due to change in the original project plan by either party.
  • Dispute due to contractors not meeting required standards and also work quality.

In case either party decides to terminate the contract, the other party can challenge it as per an arbitration clause.

Key Aspects of Arbitration in Indian Tenders

Arbitration clause mentioned in a contract is a provision put out in the tender documents that highlights that any dispute between the tender inviter and the contractor to be resolved through arbitration. This will be conducted outside the realms of the traditional court system. Few key aspects are:

  1. The mechanism involves following the process laid out in the arbitration clause in a contract, rather than going to court in case of any contract dispute.
  2. It is a written agreement between both parties under the Section 7 of the Arbitration and Conciliation Act, 1996. The act provides the framework for arbitration in Indian tenders and the process, appointment of arbitrators, making of the arbitral award and enforcement of the law in case of any contract dispute.
  3. Arbitration in Indian tenders is binding in nature and the court will refer each party to arbitrate provided the issue falls within the scope of the arbitration clause in a contract.
  4. The arbitration clause specifies types and range of contract disputes which will be subject to arbitration.
  5. Ideally, the arbitration clause also specifies the rules of arbitration and the place or venue, which determines the judicial seat of the arbitration.

Recent Developments in Arbitration in Indian Tenders

  1. Recent Guidelines by the Ministry of Finance

The Ministry of Finance has issued guidelines recently in June 2024 for stakeholders to reconsider and be more cautious while including arbitration clauses in public procurement contracts, especially for larger projects.

  1. Reconsideration for a Higher Value Contract Dispute

The guidelines state that arbitration clauses should be restricted to disputes under ₹10 crore. They add that higher value disputes need to be approved only after thorough reconsideration.

  1. Emphasis on Peaceful Negotiation

The guidelines emphasise that arbitration in Indian tenders, when possible, should be avoided and resolved through peaceful mediation and negotiation.

A Contractor’s Guide to Avoiding a Contract Dispute

Arbitration in Indian tenders can become quite a time-consuming process. It is costly and diverts your resources from a systematic execution of the project. Avoiding it can ensure smoother project flow and safeguards the relationship among all stakeholders. Vendors can avoid a contract dispute by focussing on clarity, diligence and proactive communication throughout the process.

  1. Understanding the Contract Well – To avoid arbitration in Indian tenders, make sure both parties understand the project requirements completely and agree upon the contract terms, specifications and obligations. 
  2. Proactive Communication – Maintain open, clear and regular communication with the TIA to stay abreast with any updates and potential issues. Make sure you document each communication in case of an arbitration. It’s better to be safe than sorry.
  3. Strict Adherence to Specifications – It’s important to adhere to technical specifications, timelines and quality standards as mentioned in the tender documents and the contract.
  4. Any Deviation must be Reported – In case of any deviation, convey it to the client or TIA via formal communication and get it approved before altering the course of action during executing the project. Make sure every change is documented, priced appropriately and agreed upon by both parties in writing.
  5. Systematic Documentation – Maintain a systematic record of all works done, materials used, approvals, variations or changes, inspections — all necessary paperwork, in case of an arbitration in Indian tenders and while resolving them.
  6. Being Prompt – Be prompt while resolving any challenge or potential issue during the execution of the project. Early intervention can most likely prevent minor issues from escalating further.
  7. Review Progress with the Client – The client should be kept aware of the project’s current status with regular progress reviews and make sure they are aligned with its way forward.

How can BidAssist Help?

BidAssist has an experienced team who can help you understand a tender document well, before you start preparing your bid for a project. Understanding the requirements and specifications of a project well in the beginning itself, can help prevent disputes that may later lead to arbitration in Indian tenders.