Reformation of Construction Law in India

Reformation of Construction Law in India

A Unified Construction Law Could Be Based On A Consolidation Of The Various Statutes As Also Borrow From Some Of The Best Practices Of Other Countries…

Construction Law in India is dealt with through various statutes including the Indian Contract Act, Transfer of Property Act, various labor laws etc. There is uncertainty in interpretation which leads to disputes and protracted litigation. The contracts between the construction companies and contractors are based on distorted versions of FIDIC and there is no standardized format of the contract. There is, therefore, probably the need for a unified construction law in India for balanced contract conditions, timely payments and speedy dispute resolution.

There have been amendments to certain laws to address certain issues such as the Specific Relief Act was amended in 2019 which prohibits a civil court from granting an injunction for such infrastructure projects where the injunction would result in a delay in progress or completion of the project. Various amendments have also been made to the Indian Arbitration Act. However, the existing laws do not address the issues currently faced by construction and infrastructure companies due to the complexity of transactions and technological advancement in construction.

A unified construction law could be based on a consolidation of the various statutes as also borrow from some of the best practices of other countries such as the UK Construction Act, the US False Claims Act etc. For example, the UK Construction Act contains a "slip rule" which allows an adjudicator to correct typos or clerical errors due to an accident or omission, while making its decision.

The UK False Claims Act has certain interesting provisions which penalize over-invoicing. Further, a whistle blower is entitled to 25% of the claim amount.

Additionally, in the US, there are provisions relating to "mistake in bid". This permits a company to withdraw its bid in the event it has made a genuine mistake during submission of its bid. Such provisions would be relevant in the India context to address issues relating to errors in quoting.

The Indian laws could also be modified to have provisions which address the issues relating to hidden materials' substitution. A looming problem in the construction sector in India is the use of sub-standard material in construction of a project. The rights of a company, in such a case, depend upon the terms and conditions of the agreement with the contractor as well as the impact of the contractor's choice of materials. A company may have a right to claim monetary damages but the same would be based on an interpretation whether the contractor's choice of replacement materials renders the completed project substantially different than what was contracted for. It is only then that the breach may be considered to be a material one.

A general issue in India is that agreements with contractors have front-end loading payment milestones. This, at times, therefore leads to issues if the funds are used by the contractor for other purposes and therefore the contractor is subsequently unable to comply with its obligations. The Middle East has provisions which permit price balancing in a contract.

Pending implementation of a unified construction law, it is advisable to implement various checks and balances so that the project timelines and costing are not impacted. While drafting tender conditions, it should be borne in mind that the terms and conditions are balanced so that the project does not get stalled.

Generally, tenders and construction contracts have liability clauses. The approach is advised to be on the basis of a genuine pre-estimate of losses that a company may incur. While there should be penal provisions levied on the contractor, the same should act only as a deterrent to ensure timely performance of the obligations under the tender and not with a purpose to profit from the same.

The Indian laws applicable to the construction sector could therefore be adapted into a consolidated and unified construction law, which could give a boost to the real estate and construction sector in India.