Lessons learned for Contract Management & Dispute Resolution after one year of COVID-19

Global Procurement Summit 2021 organized by All India Management Association with support of Ministry of Finance, Government of India, the World Bank and the Asian Development Bank gave platform for discussion and exchange of ideas between senior officials engaged in public procurement at central and state public entities and the key bidding communities represented by manufacturers, suppliers, contractors and consultants. The key objective of the summit was to discuss impact of COVID-19 on procurement and contract management functions and come out with recommendations for the way forward.

One of the plenary sessions of the summit on “Lessons learned for Contract Management & Dispute Resolution after one year of COVID-19” was chaired by Mr. Sanjay Aggarwal, Procurement Policy Division, Ministry of Finance, Government of India. The speakers for this session included Mr. KRM Rao, Executive Director (C&P), GAIL (India) Limited, Ms. Pratibha Jain, Partner, Nishith Desai Associates and Ms. Deepika Kinhal, Lead (Judicial Reforms) and Senior Resident Fellow, Vidhi Centre for Legal Policy.

Mr. Sanjay Aggarwal initiated the proceedings of the session by mentioning the steps taken by the Government of India for supporting public procurement in view of the COVID-19. Mr. Sanjay dwelled on the instructions issued by the Government of India and explained its importance in supporting the public procurement. These instructions included returning of performance security to the contractor/ supplier proportional to supplies made/ contract work completed to the total contract value, extending the completion of contractual obligations, scheduled for completion on or after 20th February, 2020, for a period not less than three (3) months and not more than six (6) months without any financial implication and no global tenders up to INR 200 crore, unless approved by cabinet secretariat among others.

Mr. Sanjay Aggarwal then elaborated on the instructions issued by the Government of India under the Atmanirbhar programme that included reduction of performance security from 5-10% to 3% and no provisions for monetary Bid Security in the Bid documents to alleviate the financial crunch faced by the contractors.

The next speaker for this session, Mr. KRM Rao made a detailed presentation on “Challenges faced by Contractors and Employees during COVID-19 and how same were addressed”. Some of the challenges discussed during the session included availability of labour and material, availability of cash flow to the contractors, increase in cost of inputs and access to lending. Mr. Rao then explained the initiatives taken by GAIL for addressing these issues. These initiatives included payment of manpower charges to contractors for lockdown period, faster payment to contractor to provide liquidity, reduction of security deposit to 3% from existing 10% in ongoing and new contract, relaxation of timelines for submission of security deposit and early disbursement of mobilization advances in two installments of 5% each among others.

Further, Mr. KRM Rao talked on technological interventions that were considered for improving the tendering process and measures taken for minimizing the paperwork and promoting digitalization of key procurement activities. He further explained the challenges faced by employees during the COVID-19 and presented the actions taken by GAIL for enhancing efficiency, building motivation and ensuring wellness of its employees.

Following this presentation, Ms. Pratibha Jain talked about the impact of COVID-19 on Contract Management and Dispute Resolution and elaborated on the critical issues and the outputs from a legal standpoint. She mentioned that the Government of India (GOI) issued an official memo declared that in view of disruption of supply chains due to spread of COVID-19, a natural calamity, force majeure clause may be invoked whenever considered appropriate, following due procedure. However, the force majeure clause remains missing in many contracts and hence, the affected party were required to appeal the Section 56 of the Indian Contract Act, 1872 i.e. doctrine of frustration. Further, she appreciated the courts of India for declaring prompt judgements to such cases. Ms. Pratibha also talked about the Material Adverse Effect clause that is typically used in high-valued contracts and explained the amendments made in the clause due to COVID-19 scenario.

She also elaborated on the impact on the dispute resolution due to pandemic. She mentioned that adjusting to the new normal, the courts started hearing matters through virtual conferences and have now started to adapt to a hybrid model wherein they allow both physical and virtual hearings for the cases. However, the number of cases disposed by the High Courts and District courts have fallen by 50% and 70% respectively. She further explained that the companies prefer dispute resolution through arbitration then litigation and suggested introduction of Online Dispute Resolution would streamline the process even further. In the end, Ms. Pratibha emphasized on the importance of mediation and stressed on the need for mandating mediation for resolution of commercial disputes.

Building on the momentum, the next speaker Ms. Deepika Kinhal talked about how Online Dispute Resolution (ODR) would help in effective and speedy resolution of pending disputes. She mentioned that ODR is an infusion of technology and dispute resolution mechanism and dwelled on its benefits that included cost effectiveness, convenience, reduction in unconscious biases and customizable processes among others. She further elaborated on three typical types of ODR initiatives that are implemented around the world which includes Government run ODR initiatives, Court annexed ODR services and Private ODR platforms.

Ms. Deepika also mentioned a few successful case studies of some ODR initiatives undertaken by various countries and highlighted the ODR initiatives in India as well. These initiatives included Government run ODR initiatives like SAMADHAAN portal by MSME, Integrated Consumer Grievance Redressal Mechanism and Court annexed ODR centres like Online Mediation Project by Delhi High Court and E-Lok Adalats. She further added that the services provided by these centres include case intake assistance, serving notice to the party, negotiation facility, online mediation facility, case management, Transcription services, etc. and highlighted the structural, behavioral and operational challenges in mainstreaming ODRs. In conclusion, Ms. Deepika outlined some key initiatives that should be considered for speedy adoption of ODRs.

Finally, some queries raised by attendees were answered by the chair, Mr. Sanjay Aggarwal, along with other panelist.

The deliberations  on the session can be viewed by visiting https://www.indiaprocurement.in/expert-speaks