Expanding the Dispute Avoidance Mechanism in Power Projects

Posted On - 7 November, 2023 • By - King Stubb & Kasiva

In a significant move aimed at improving efficiency and transparency in the power sector, the Ministry of Power (MoP) has extended the Dispute Avoidance Mechanism to encompass all power projects executed by Central Public Sector Enterprises (CPSEs) under its purview. This expansion of the mechanism goes beyond the confines of hydroelectric power projects, where it was previously applied.

Background

In September 2021, the MoP introduced a model contract provision for a Dispute Avoidance Mechanism through an Independent Engineer (IE) in construction contracts of CPSEs involved in power projects. This mechanism played a pivotal role in the timely resolution of disputes in hydropower projects, effectively mitigating time and cost overruns. The success of this initiative in the hydro sector prompted the ministry to consider its applicability in a broader context.

The Ministry’s Directive

The recent directive from the MoP highlights the need to replicate the Dispute Avoidance Mechanism in various power sector projects beyond the realm of hydroelectric power plants. The ministry’s order, issued as an addendum to the existing norms, signifies its commitment to enhancing dispute resolution mechanisms and further promoting the seamless execution of power projects.

“A need has been felt to replicate the mechanism in other power sector projects. In view of the above, in continuation of this Ministry’s Office Memorandum of even number dated 27.09.2021,[1] the Dispute Avoidance Mechanism through Independent Engineer is hereby extended to all power sector projects being executed by the CPSEs under the administrative control of the Ministry of Power,” the order states.

Standard Operating Procedure and Terms

In extending the Dispute Avoidance Mechanism, the Ministry of Power has made it clear that the standard operating procedure and terms and conditions for payment to IEs will remain consistent with the original norms issued in 2021. This consistency ensures that the established framework and guidelines continue to apply uniformly across various projects within the power sector.

Appointment of Independent Engineers

The appointment of IEs is a critical aspect of this mechanism. These engineers are selected from a panel of domain-specific experts, individuals with high integrity and a proven track record in the power sector. The selection process is designed to be transparent and objective, ensuring that the most qualified experts are chosen.

Under this agreement, the CPSEs and the contractors jointly select an IE from the panel of experts for each work package. The appointed IE serves a term of five years or the duration of the contract, whichever is less. This appointment is crucial in ensuring that disputes are resolved effectively and in a timely manner, thereby preventing costly delays and overruns.

Benefits of Expanding the Dispute Avoidance Mechanism

The extension of the Dispute Avoidance Mechanism to all power projects under CPSEs’ administration brings several benefits to the table. Here are some of the key advantages:

  • Improved Dispute Resolution: The Dispute Avoidance Mechanism, with its Independent Engineers, offers an effective platform for resolving disputes at the inception stage of power projects. This can significantly reduce the time and costs associated with disputes and legal proceedings.
  • Enhanced Project Efficiency: By standardizing the dispute resolution process and making it applicable to a broader spectrum of power projects, the Ministry of Power aims to enhance the overall efficiency of project execution. Delays caused by disputes can be minimized, leading to on-time project completion.
  • Transparency and Fairness: The transparent and objective selection process for Independent Engineers ensures that individuals with the right expertise and integrity are chosen. This promotes fairness and transparency in dispute resolution.
  • Cost Savings: Timely resolution of disputes not only saves time but also reduces the financial burden on CPSEs and contractors. This is crucial in ensuring that public funds are utilized efficiently.
  • Knowledge Sharing: The extension of the mechanism to various power projects encourages knowledge sharing and best practices among experts in the field. This cross-pollination of ideas and experiences can lead to innovation and improved project management.

Looking Ahead

The MoPs decision to expand the Dispute Avoidance Mechanism is a progressive step toward promoting efficiency and transparency in the power sector. By ensuring that the benefits of this mechanism are available to a wider range of power projects, the ministry is contributing to the growth and development of the sector. This move aligns with the government’s vision of achieving a robust and sustainable power infrastructure in the country, benefitting both the industry and the general public.

[1] No. 15-1.8[/2020-HYDEL-II (MoP)