Need for Improvement in the Dispute Settlement Clauses in the GCC/PCC in the SBDs

Public Procurement Monitoring Office(PPMO) of Government of Nepal has so far issued the following Standard Bidding Documents for ICB and NCB Contracts:

ICBs

  1. Procurement of Works Single Stage Post Qualification Procedure [ICB], January 2012
  2. Procurement of Goods[ICB], January 2012 for small to medium contracts for small to medium contracts

NCBs

  1. Procurement of Woks for NRs. 1.00 Million to NRs 6.00 Million [NCB], January 2009
  2. Procurement of Works, NCB for Above 6 Million Rupees (Recent amendment), May 2014
  3. Procurement of Goods[NCB], July 2010
  • Standard Form Contract for Consultancy Contracts, 2008

International Competitive Bidding(ICB) is applied for:

  • Donor funded projects of large amounts or for works or goods or consultancy for which local capacity/availability is not enough.
  • GoN funded projects for works or goods or consultancy for which local capacity/availability is not enough.

National Competitive Bidding(NCB) is applied for:

  • Projects fully funded by the Government of Nepal funds.
  • Small to medium projects funded by donor agencies for works or goods or consultancy for which local capacity exists.

Standard Bidding Documents(SBDs)

Most donor agencies, particularly the multilateral banks such as ADB and the World Bank require to use their own SBDs, mainly for ICBs.

For large ICB contracts for works (single stage post qualification), the SBD issued by PPMO has recommended FIDIC MDB Conditions of Contract with a well drafted Particular Conditions of Contract (PCC) for GCC 20.2, 20.3 and 20.6, though some improvements can be made in PCC for GCC20.6(b).

For NCBs, the SBDs prepared by Public Procurement Monitoring Office of GoN are used by the Procurement Entities(PEs) of the sectoral agencies. There are thousands of PEs in Nepal and not all of them are using the SBDs issued by PPMO. Even those using it are making changes in the several clauses of the General Conditions of Contract (GCC) and Particular Conditions of Contract (PCC or SCC) and the Information to the Bidders (ITBs) without a thorough appreciation of the spirit of the SBDs.

This paper is concerned with the dispute resolution clauses, in the GCC and PCC(SCC) of ICB and NCB SBDs, which are pathological and give rise to many issues during the implementation of the contract.

Issues in Dispute Clauses

  1. Separate rules of arbitration are often provided, in the dispute clause of the GCC and PCC, for Nepali Nationality or Foreign Nationality of the Contractor in the SBDs for ICB and NCB contracts, for small to medium contracts, in donor funded projects. This could have been more logical if it was based on ICB or NCB.
  2. Governing Law of country other than Nepal are sometimes provided in the Contracts made in Nepal even though international rules of arbitration such as ICC Rules or UNCITRAL Rules or Arbitration Rules of other international arbitral institution are commonly provided in the contracts.
  3. Dispute Settlement Clause have no clear linkage with the Claim clauses. For example, claims are not filed until the last stage of the contract and there is a lot of delay between the date of event of claim and the date of filing of claim which makes it difficult to examine the authenticity of the claim.
  4. Adjudication or Dispute Board(DB) sometimes called DAB, DRC, DRB also, are intended to ensure implementation of the contract and the resolution of the dispute in parallel so that disputes are resolved efficiently and effectively by the experts in the field and there are no losses due to delayed payment and unnecessary prolongation. But in reality the adjudication or the DB process in Nepal has been merely an additional step that adds to the delay and expenses because the public sector employers, almost invariably, refuse to enforce the Adjudicator’s/DB’s decision, if it involves additional payment to the contractor, and refer the case to arbitration. This is because the employer fears the hassles of the investigation of oversight agencies if additional payment is made. Moreover, recovery of the payment made if the decision is overturned by arbitration or the court becomes difficult. Payment against a bank guarantee until arbitral awards may be a solution though it may not be very simple or straight forward by itself.
  5. Lack of Statutory Adjudication or Dispute Board is one of the reasons for non-enforcement of the DB’s decision because law does not clearly recognize Adjudication or DB. That is why U.K., Singapore, Malaysia and other countries have resorted to Statutory Adjudication/DB. Nepal needs a clear cut law on dispute resolution by Adjudication and Dispute Board.
  6. Until a statutory adjudication or dispute board is in place, the arbitrators and the courts may help minimize the problem by ordering strict implementation of the decision of the Adjudicator/DB which has become final and binding.    
  7. Dispute clauses of the GCC often provide the appointment of the Adjudicator/DB on the request of the employer instead of either party. This has made it difficult to invoke adjudication or DB even if the Contractor has fulfilled all other requirements of dispute initiation process. Such a situation has defeated the spirit of dispute resolution in the contracts.
  8. Lack of rules of adjudication/DB has often made the process similar to arbitration which is contrary to the spirit of timely resolution of disputes, minimization of disputes, and facilitation of smooth project implementation.
  9. Institution for dispute settlement such as NEPCA can be very helpful in improving the quality of dispute settlement. SBDs and GoN regulations should recognize NEPCA rules of Adjudication/DB and Arbitration. Reference to NEPCA Rules itself will address many issues of pathological clauses in the GCCs and PCCs of the Bidding Documents.
  10. Many issues on initiation of dispute settlement process, appointment of adjudicator/DB/arbitrator, Rule of the proceedings of DB/arbitration, remuneration of adjudicators and arbitrators, fees of institutions of dispute settlement, place of arbitration, time bar for filing claims, governing law, and implementation of decision of the adjudicator/DB can be considerably addressed by properly written model dispute settlement clauses in the SBDs.  
  11. Disputes have legal implications particularly in view of the governing law and substantive law related to arbitration. Therefore, standard dispute clauses need to be carefully drafted for small to medium to large ICB or NCB contracts.

Revision of Dispute Clauses in the SBDs

NEPCA is preparing a draft of the suggested amendments in the current SBDs issued by PPMO to address many of the above issues so that NEPCA’s role in enhancing quality of dispute resolution, and through it to the effective and efficient implementation of development projects in the country, continues to remain meaningful.

 

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