Computation of Price Variation in the Construction Disputes – Judicial Approach in India.

Case title: PCC Infrastructure Pvt. Ltd. vs. Airports Authority of India (01.04.2024 – DELHC) : MANU/DE/2442/2024 FAO (COMM) 11/2024

Case brief:
The dispute is related to the work “Construction of part parallel taxi track for new hashtagRunway at Mangalore International hashtagAirport “. The Work could not be completed within the stipulated period and was extended by about nine months. The value of the Work done was less than the value of the Work as negotiated.

The time for completing the Work was extended without levy of any hashtagpenalty or compensation due to no delay attribution.

Clause 10CA of the GCC provides for a formula for computing the variation in price in respect of cement, bitumen, and structural steel. PCC claims that applying the said formula, it computed price variation on account of cement at ` 83,12,140/-; However, AAI computed in the negative by ` 1,10,90,368.48/-and recovered the said amount. PCC raised a dispute in respect of price indices of cement.

The competent authority referred the said dispute to the Dispute Redressal Committee (DRC), who declared to not accept PCC’s claim. The same was not acceptable to PCC and it declined to accept the DRC’s decision. Thereafter, PCC invoked the hashtagArbitration Clause and the Sole hashtagArbitrator was appointed.

The award:
The Arbitral Tribunal examined Clause 10CA of the GCC and held that there was no ambiguity in the description for determination of the price indices to be used for calculating the price hashtagvariation .
They further held that there was no material, which reflected that the PCC has raised any query in regard to the said formula or had raised any protest that the price variation was required to be based on the base price and index notified by the Zonal Chief Engineer, CPWD in respect of the said zone.
Since the Arbitral Tribunal found that the language of Clause 10CA of the GCC was unambiguous, it dismissed the claims raised by PCC.

Sequitur by the Court:
It is apparent from the above that, the hashtagmemorandum as set out , includes the base price of material including cement, which is applicable only for around the Delhi area, as well as the All India Price hashtagIndex as applicable for Clause 10CA of the GCC.
..PCC has construed the said memorandum and such other memorandums as specifying All India Price Index as applicable only in the above referred areas. However, a careful reading of said memorandum indicates that the base prices as set out, are applicable only in the above area and not the All India Price Index.
There is no such qualification that confines the All India Price Index to any given zone. Thus, on a strict and a plain reading of GCC, the calculation of price variation in terms of the formula of the GCC, by using the price index as declared by the Director General, hashtagCPWD, cannot be faulted.

Post note: Negotiating the variation clauses based on the best practices is prudent.


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