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Former Chief Justice of India Uday Umesh Lalit suggested that infrastructure project contracts should be examined by a specialised government agency before they are signed to reduce arbitration disputes and protect public funds. Speaking at a conference in New Delhi organised by PHD Chamber of Commerce and Industry, he said that poor contract drafting, inaccurate project estimates and coordination gaps between departments often lead to disputes. He also noted that environmental restrictions and design changes during project execution frequently result in arbitration claims, sometimes exceeding the original project cost.
Former Chief Justice of India Uday Umesh Lalit said that infrastructure project contracts should undergo detailed scrutiny by a specialised government agency before they are finalised, as early examination can help avoid costly disputes and save large amounts of public money. Advertisement
He shared these views while addressing a conference on dispute resolution and arbitration in the construction and infrastructure sector organised in New Delhi by the PHD Chamber of Commerce and Industry. Lalit explained that if construction contracts are reviewed carefully at the drafting stage by an agency within the relevant ministry, several issues that later lead to arbitration could be identified and corrected in advance.
Based on his experience of handling around 20 arbitration matters related to infrastructure and construction projects over the past three years, Lalit said that many disputes originate from weaknesses in contract drafting, lack of proper project planning and limited coordination between different government authorities. According to him, these gaps often remain unnoticed until a project has already begun, after which disagreements between contractors and government agencies escalate into arbitration proceedings.
He pointed out that in several cases the arbitration claims raised by contractors become larger than the original value of the project itself. Lalit cited instances where projects initially estimated at about INR 800 crore later faced claims exceeding INR 1,000 crore during arbitration proceedings. Such situations, he said, often create the perception that arbitration processes are being used by contractors to seek additional financial benefits beyond the initial project scope.
Environmental restrictions were identified as another factor that contributes to disputes in infrastructure projects. Lalit referred to pollution control measures such as GRAP-III and GRAP-IV restrictions implemented in the Delhi region during periods of severe air pollution. These measures often require construction activities to be temporarily halted. Contractors then seek compensation for the period when labour, machinery and equipment remain idle, particularly when such stoppages were not clearly anticipated in the contract terms.
He also explained that inaccurate cost estimates prepared at the tender stage frequently lead to disagreements during project execution. When project estimates are not thoroughly reviewed before contracts are signed, arbitral tribunals later find it difficult to determine how compensation claims should be calculated, especially when clear benchmarks or guidelines are not available.
According to Lalit, infrastructure development requires a balance between three important factors ensuring quality construction, completing projects within timelines and delivering public benefits while keeping costs under control. Achieving this balance becomes difficult when contracts are poorly framed or when major changes occur during execution.
Another issue highlighted by Lalit was the lack of coordination between government departments involved in infrastructure projects. He referred to cases involving railway overbridges where designs prepared by one authority later require changes when railway authorities modify or expand their infrastructure. When such changes happen after contracts have already been awarded, disputes often arise between contractors and project agencies over design revisions and additional costs.
He suggested that governments should establish systems to address disagreements during the execution phase of projects rather than allowing them to escalate into long arbitration proceedings. Early intervention and structured dispute resolution mechanisms could help reduce project delays as well as financial losses.
During the same event, former Supreme Court judge Hema Kohli highlighted the scale of infrastructure investment currently underway in the country. She noted that India's National Infrastructure Pipeline includes projects worth about INR 184 lakh crore across sectors such as highways, railways, energy, urban infrastructure and logistics.
Kohli emphasised that strong legal frameworks and effective arbitration mechanisms are essential to support such large investments. According to her, the credibility of dispute resolution systems plays a significant role in maintaining investor confidence in projects that involve multiple stakeholders and complex contractual arrangements.
The conference was also attended by Justice Tejas Karia and former Delhi High Court judge Justice Jayant Nath, along with legal professionals and industry representatives who discussed the evolving arbitration framework for infrastructure projects in India.
India has significantly expanded infrastructure spending in recent years through programmes focused on highways, rail networks, urban transport systems and logistics infrastructure. As project size and complexity continue to increase, experts have repeatedly pointed to the need for stronger contract structures and more efficient dispute resolution systems to prevent delays and financial overruns.
Source PTI
FAQ
1. What suggestion did former Chief Justice of India U.U. Lalit make regarding infrastructure contracts?
Uday Umesh Lalit suggested that infrastructure project contracts should be examined by a specialised government agency before they are finalised. According to him, careful scrutiny at the drafting stage can help identify gaps, unclear clauses and potential risks early. Addressing these issues before contracts are signed could significantly reduce arbitration disputes and help protect public funds used for large infrastructure projects.
2. Why do infrastructure projects often end up in arbitration disputes?
Lalit explained that many disputes arise due to weaknesses in contract drafting, inaccurate project cost estimates and poor coordination between government departments involved in a project. When these problems are not addressed at the planning stage, disagreements between contractors and government agencies may emerge once construction begins. Such disputes frequently escalate into arbitration proceedings that take time and increase project costs.
3. How can poor project estimates create disputes later?
If project costs are not estimated accurately at the tender stage, disagreements may occur when contractors claim additional payments during construction. Lalit noted that in some cases projects initially valued at around INR 800 crore later faced arbitration claims exceeding INR 1,000 crore. Without clear benchmarks or properly defined contract terms, arbitral tribunals may find it difficult to determine the validity of such compensation claims.
4. What external factors can lead to disputes during infrastructure construction?
Environmental restrictions can sometimes interrupt construction activities and create disagreements over compensation. Lalit referred to pollution control measures such as the Graded Response Action Plan, which includes stages like GRAP-III and GRAP-IV that temporarily halt construction work during severe air pollution. Contractors may then seek compensation for idle labour, machinery and equipment when such delays were not clearly accounted for in the contract.
5. How does coordination between government agencies affect infrastructure projects?
A lack of coordination between departments can lead to design changes after contracts have already been awarded. Lalit cited examples involving railway overbridges where infrastructure modifications by railway authorities required changes to previously approved designs. When such changes occur during construction, contractors may demand additional payments, leading to disputes between project agencies and builders.
6. What solutions did Lalit propose to reduce such disputes?
He recommended establishing systems to resolve disagreements during the project execution phase rather than allowing them to escalate into long arbitration proceedings. Early intervention mechanisms, clearer contract structures and stronger review processes could help settle issues quickly and prevent costly legal battles that delay projects and increase financial burdens on the government.
7. Why are stronger dispute resolution systems important for India's infrastructure sector?
According to Hema Kohli, India's infrastructure sector involves massive investments, including projects under the National Infrastructure Pipeline valued at around INR 184 lakh crore. With large and complex projects involving multiple stakeholders, reliable legal frameworks and effective arbitration systems are essential to maintain investor confidence and ensure projects are completed efficiently.
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