CRUX is HKA’s integrated research program which provides unprecedented insight in relation to common dispute causation factors for engineering and construction projects on a sectoral and regional basis. At present, the CRUX database encompasses more than 1,400 projects in 94 countries (including India) representing a total capital expenditure of more than US$2 trillion. An interactive dashboard has been developed which allows the user to search by region and sector thus giving free-range and allowing searches relevant to any criteria.
The aim of this publication series is to focus on top dispute causative factors, prevalent in the Indian project landscape.
Previously, we have discussed in Part I Change in scope and Part II Access issues. In the remaining parts of the series, HKA together with renown Indian law firms will present topics on late delivery of materials and/or products, late approvals, design issues, poor subcontractor/supplier management, spurious claims, cashflow and payment issues, and contract management and/or administration failures.
This Part III of the ten-part series focuses on ‘Unforeseen Physical Conditions’ as CRUX identifies this to be a main cause of disputes on projects. The narrative below covers potential triggers for Unforeseen Physical Conditions (“UPC”), guidance on how to manage these challenges and their legal stance/position under Indian law.
UPCs are not necessarily limited to below the ground (i.e., subsurface) conditions as it may also include above the surface latent issues. Based on HKA project involvement, below is a consolidated plausible list of UPCs.
UPCs arise both at tender and project execution phases and ultimately affects the effectiveness of the design and whether consequent work execution meets Project requirements.
The tender stage is the earliest opportunity to identify what could be categorised as foreseeable physical conditions. This is achieved through site inspection, ground surveys (particularly boreholes & trial pits) and inspection of available data such as historical records on the area in question. The use of an independent reputable laboratory to undertake both strength and chemical analysis of soil and rock samples is highly recommended.
Understanding ground conditions, and possible foreseeable factors will influence the engineering parameters in design calculations to ensure safety and workable execution. It also serves as basis to establish a clear delineation of what constitutes unforeseeable conditions to map out relief provisions relating to extension of time and cost claims in construction contracts.
In circumstances where the ground conditions, records or the surveys are insufficient, it is advisable to take steps to provide for contingencies through tender clarifications early on. Alternatively, parties will need to adopt appropriate risk allocation strategies in the contract to counter any unforeseeable factors. Protection through insurance indemnification is also encouraged.
In the event an UPC is encountered, compliance with the procedural requirements under the contract is key. This will involve issuance of a timely and compliant notice, capturing adequate details of the impending situation. The detailed particulars must identify unforeseen factors with appropriate reference to the ground condition surveys and other known records at the time of tender. The actual impact to immediate works and potential domino effect on other works should be stated, capturing the time and cost impact. The contractor must also show any mitigatory factors implemented.
UPCs may also trigger a requirement for change under the contract (e.g., design or work methods), which must be formalised through appropriate instructions from the engineer/employer’s representative, or confirmation of the same in engaging the variation clause under the Contract.
The following section summarises certain key considerations from the Indian legal standpoint relating to UPCs.
Where a claim pursuant to force majeure claim or frustration of contract is not plausible, the employer may be entitled to damages and compensation (costs and liquidated damages) from the contractor. This is especially if the UPC could have been ascertained if reasonable due diligence was exercised.
Ground conditions are often the cause of great uncertainty in projects as its not necessarily within the control on contracting parties. However, it would be prudent to provide for such a contingency through:
This article was originally published in HKA on 29 August 2022 Co-written by: Binsy Susan, Partner; Akshay Sharma, Principal Associate; Palak Kaushal, Associate. Click here for original article
Contributed by: Binsy Susan, Partner; Akshay Sharma, Principal Associate; Palak Kaushal, Associate
This is intended for general information purposes only. The views and opinions expressed in this article are those of the author/authors and does not necessarily reflect the views of the firm.
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