National Highway Authority Of India vs M/S. Progressivemvr(Jv)

For the sake of convenience, the facts are taken note of from Civil Civil Appeal No. 458 of 2018 & Ors. Page 4 of 37 Appeal No. 458 of 2018 in which M/s. ProgressiveMVR (JV) is the contractor.

The NHAI is a statutory body constituted under Section 3 of the NHAI Act, 1988. The functions assigned to NHAI under Section 16 of the NHAI Act, 1988 are to develop, maintain and manage the National Highways entrusted to it by the Central Government. In the year 2005, the NHAI issued an invitation for bid for four laning from Km. 402.00 to Km 440.00 of Gopalganj – Muzaffarpur section of NH-28 in Bihar in contract package No. LMNHP-EW-II- (WB-10). The contractor was found successful bidder and accordingly the letter of acceptance was issued to it where it is clearly stated that your bid is accepted by NHAI for the contract price of Rs.263,97,29,718/- (Two Hundred Sixty Three Crore Ninety Seven Lac Twenty Nine Thousand Seven Hundred Eighteen Rupees Only). According to the NHAI, the Engineer was paying the price adjustment as per the base rate and the contractor had not raised any dispute in this regard. The contractor first time raised a dispute about price adjustment by applying current cost while arriving XYZ percentage as per sub- clause 70.3 (viii) of COPA. The contractor vide letter dated April 13, 2008 raised objection with the Engineer at the time of submission of IPA 9. The team leader rejected the dispute raised Civil Appeal No. 458 of 2018 & Ors. Page 5 of 37 by the contractor by stating that the essence of price adjustment cannot be maintained by considering the current rates of the materials and the claim cannot be accepted. This resulted in a dispute between the parties and on September 2, 2008, the contractor invoked the provision of sub-clause 67.1 of COPA and referred the matter for recommendation from the DRB (Dispute Resolution Board).

6) The DRB vide its majority gave its recommendation dated January 4, 2009 to the effect that ‘the contractor’s interpretation is not in accordance with contract and should be rejected.’ Being aggrieved by the order passed by the DRB, the contractor issued a notice to invoke arbitration in terms of provisions of clause 67 of COPA against the order passed by the DRB. Arbitral Tribunal was constituted. The respondent filed the statement of claim before the Arbitral Tribunal for the following claim:

27) In the present case, we find that the intention in the formula as well is to keep in mind the base cost while arriving at the price adjustment. There are few reasons which drive us to take this opinion.

f) The Contract specified for calculation x, y and z factors every month. The intention is to permit price adjustment based on actual consumption of respective materials issued in execution of work in the particular month if they are fixed at tender stage only just like labour and POL etc., the price adjustment is to be allowed irrespective of whether the item is executed or not which is not realistic. Hence in this Contract, the price adjustment is linked to the actual usage of material viz. cement, steel and bitumen.

g) BOQ rates have been quoted based on the cost of materials at the time of bidding. Therefore, in working out the actual percentage of cost of any specific material in the BOQ cost, rates of material applicable to the same datum period for BOQ costs i.e. base period is only logical and justified.

h) The weightage factor x, y and z for these materials have two basic parameters namely their cost and cost of work done. In order to ascertain the actual percentage of cost of these materials in an IPC, cost of material has to be on the same basis as adopted in cost of work done. As the cost of work done is based on base cost of materials, it is therefore natural that the cost of these materials incorporated in the work should be calculated on the base cost only. Calculating the cost of these materials on actual procurement price is not justified and would go against the terms and conditions of the Contract word ‘actual’ in the note Civil Appeal No. 458 of 2018 & Ors. Page 30 of 37 under sub-clause 70.3(xi) 8 COPA relates to percentage and not to the cost.”

35) We find due rationale in the aforesaid approach. As a result, we hold that while applying price adjustment formula for calculating the price adjustment of bitumen, it is the base rate which is to be Civil Appeal No. 458 of 2018 & Ors. Page 34 of 37 applied and not the current rate.

36) Having arrived at the aforesaid finding, now we need to determine the outcome of these cases.

38) As a consequence, all these appeals are allowed thereby setting aside the impugned judgment and also the award given by the Arbitral Tribunal on the claim pertaining to price adjustment of Civil Appeal No. 458 of 2018 & Ors. Page 36 of 37 bitumen. There shall, however, be no order as to cost.

FEBRUARY 23, 2018 Civil Appeal No. 458 of 2018 & Ors. Page 37 of 37