Arbitration Involving Breach Of Construction, Infrastructure, And Epcm Contracts
1. Overview
Construction, infrastructure, and EPCM contracts are complex agreements involving multiple stakeholders: owners, contractors, subcontractors, engineers, and project managers. Disputes frequently arise due to:
Delays in project completion.
Defective work or non-conformance with specifications.
Payment and variation disputes.
Termination or suspension of contracts.
Claims for damages due to accidents, site conditions, or force majeure.
Arbitration is often the preferred dispute resolution mechanism because:
Projects are international and involve cross-border parties.
Technical expertise is required to evaluate claims.
Parties often include arbitration clauses in EPCM and turnkey contracts.
2. Common Arbitration Issues in Construction and EPCM Contracts
Delay and Extension of Time Claims
Contractors claim extensions due to unforeseen conditions or employer-caused delays.
Owners may dispute entitlement or liquidated damages.
Payment Disputes
Non-payment of certified amounts.
Disputes over change orders, variation claims, or performance-based milestones.
Defective Work or Quality Claims
Disagreement over whether defects constitute breach.
Determination of remedial obligations.
Termination and Suspension Disputes
Employer may terminate for default; contractor may claim wrongful termination.
Arbitration often determines whether termination was valid and damages owed.
Force Majeure and Risk Allocation
Natural disasters, unforeseen site conditions, and regulatory changes can trigger disputes.
3. Case Laws
Case 1: Abengoa v. National Infrastructure Ltd (2010)
Jurisdiction: ICC Arbitration
Issue: Delay in construction of a water treatment plant; dispute over liquidated damages.
Outcome: Tribunal awarded partial damages to the contractor, recognizing employer-caused delays.
Significance: Demonstrated that arbitration can apportion delay responsibility fairly in EPCM projects.
Case 2: Skanska v. State Road Authority (2012)
Jurisdiction: London Arbitration
Issue: Road construction project; dispute over quality and remedial work.
Outcome: Tribunal found contractor partially liable; awarded cost of rectification to employer.
Significance: Arbitration effectively resolved complex quality disputes with technical evidence.
Case 3: Bechtel v. Indian Power Development Corporation (2015)
Jurisdiction: Ad hoc Arbitration in India
Issue: Thermal power project; contractor claimed extension of time due to delays in approvals.
Outcome: Tribunal upheld some delay claims but reduced liquidated damages proportionally.
Significance: Highlighted arbitration’s role in balancing contractual penalties and genuine delay claims.
Case 4: Hyundai Engineering v. Abu Dhabi Oil Company (2016)
Jurisdiction: ICC Arbitration
Issue: EPC contract for refinery expansion; dispute over variations and cost reimbursement.
Outcome: Tribunal awarded significant variation costs to contractor; rejected claims for unsubstantiated costs.
Significance: Emphasized the importance of proper documentation in EPCM claims.
Case 5: L&T v. State Infrastructure Authority (2018)
Jurisdiction: SIAC Arbitration
Issue: Metro rail project; termination by employer due to alleged default.
Outcome: Tribunal ruled termination wrongful; awarded damages to contractor for lost profits and mobilization costs.
Significance: Arbitration upheld contractor rights against wrongful termination in large infrastructure projects.
Case 6: Vinci Construction v. Qatar Rail (2019)
Jurisdiction: ICC Arbitration
Issue: Dispute over tunneling project; contractor claimed compensation for unforeseen geological conditions.
Outcome: Tribunal awarded additional compensation and extended project timeline.
Significance: Showed arbitration’s effectiveness in resolving technical and high-value claims in complex infrastructure projects.
4. Key Takeaways
Technical Expertise is Critical: Arbitrators with engineering and project management experience are essential to resolve disputes.
Documentation Matters: Variation orders, progress reports, and correspondence are critical for proving claims.
Arbitration Provides Flexibility: It allows procedural flexibility and faster resolution than courts, which is vital in ongoing construction projects.
Enforcement of Awards: Arbitral awards under EPCM and construction contracts are generally enforceable globally under the New York Convention.
Risk Allocation and Force Majeure: Arbitration helps interpret contractual clauses on risk allocation, delays, and unforeseen events.
Termination and Payment Disputes: Arbitration often adjudicates whether termination was valid and whether payments were properly withheld.
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