New Guidelines for Arbitration and Mediation in Indian Public Procurement Contracts: An Overview

Introduction

The Government of India has introduced new guidelines for arbitration and mediation in domestic public procurement contracts.
These guidelines mark a shift in dispute resolution practices for construction professionals and legal practitioners in India's infrastructure and public sector projects.

Arbitration is traditionally favored for resolving construction and procurement disputes due to its speed, flexibility, and expertise.
New guidelines (published on 3 June 2024) show that arbitration is underutilized, with challenges like prolonged timelines, high costs, and disputed arbitral decisions, especially involving government entities.

Introduction of a monetary threshold: Arbitration limited to disputes under INR10 crore (approx. USD 1.2 million).
The cap pertains to dispute value, not contract value, to streamline arbitration for smaller disputes.
Larger disputes require high-level government approval to opt for arbitration over mediation or litigation.
This limit may restrict arbitration in high-value contracts, affecting sectors like transportation, energy, and public works.
Positive note: Decreased routine appeals against arbitral awards could reduce legal costs and increase arbitration efficiency.

Guidelines encourage mediation or conciliation before arbitration or litigation.
The Mediation Act, 2023, supports these proceedings, highlighting quicker, cost-effective resolutions.
High-Level Committees (HLCs) suggested for complex disputes, including retired judges or technical experts.

Increased Use of Mediation: Expect more frequent mediation discussions in public procurement.
Limited Arbitration for Large Contracts: With the monetary cap, large-scale projects may shift towards alternative dispute resolution.
Preference for Institutional Arbitration: Ensures better oversight and transparency.
Contract Tailoring: Dispute resolution clauses need careful drafting to align with new guidelines.

The guidelines reflect concerns over arbitration inefficiencies and a focus on amicable resolutions through mediation.
They are viewed as unwelcome by the international arbitration community, conflicting with India's goal to be an arbitration hub.
As a significant market for infrastructure, international contractors and legal advisors must adapt to these changes.

Contact: [email protected] for further discussion or concerns.