Para 10.7.5 - Arbitration Rules | KartavyaDesk
Original Rule Text
a) Arbitration as a method of dispute resolution should not be routinely or automatically included in procurement contracts/ tenders, especially in large contracts. b) As a norm, arbitration (if included in contracts) may be restricted to disputes with a value less than Rs. 10 crores. This figure is regarding the value of the dispute (inclusive of both claims and counterclaims) not the value of the contract, which may be much higher. It may be specifically mentioned in the bid conditions/ conditions of the contract that arbitration will not be a method of dispute resolution in all other cases. c) Inclusion of arbitration clauses covering disputes with a value exceeding the norm specified in sub-para (b) above should be based on careful application of mind and recording of reasons and with the approval of: i) Regarding Government Ministries/ Departments, attached/ subordinate offices and autonomous bodies, the Secretary concerned or an officer (not below the level of Joint Secretary) to whom authority is delegated by the Secretary. ii) Regarding CPSEs/ PSBs/ Financial institutions etc., the Managing Director. d) In matters where arbitration is to be resorted to, institutional arbitration may be given preference (where appropriate, after considering the reasonableness of the cost of arbitration relative to the value involved). e) General or case-specific modification in the application of the above guidelines may be authorised by the Secretary concerned (or an officer not below the level of Joint Secretary to whom the authority is delegated by him) in respect of Government Ministries/ Departments, attached/ subordinate offices and autonomous bodies, or the Managing Director in respect of Central Public Sector Enterprises including Banks and Financial institutions etc.
What This Means
Para 10.7.5 of the Manual for Procurement of Consultancy Services deals with the use of arbitration to resolve disputes in consultancy contracts. Basically, it discourages automatically including arbitration, especially in large contracts. The rule sets a guideline that arbitration should generally be limited to disputes worth less than Rs. 10 crores. This limit applies to the value of the dispute itself, not the overall contract value. For disputes exceeding this amount, using arbitration requires careful consideration, documented justification, and approval from a senior official.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Arbitration should not be automatically included in consultancy contracts, particularly large ones.
- •As a general rule, arbitration is suggested for disputes valued at less than Rs. 10 crores.
- •Using arbitration for disputes exceeding Rs. 10 crores requires documented justification and approval from a Secretary (or Joint Secretary delegate) or Managing Director.
- •Institutional arbitration is preferred when appropriate, considering cost-effectiveness.
- •Secretaries or Managing Directors can authorize modifications to these guidelines.
Practical Example
The Ministry of Urban Development is procuring consultancy services for a smart city project. The contract value is Rs. 50 crores. Initially, the tender document included an arbitration clause for all disputes. However, following Para 10.7.5, the Joint Secretary, Mr. Sharma, reviewed the clause. He decided that for disputes exceeding Rs. 10 crores, arbitration would not be the default method. Instead, a structured negotiation process would be followed, and arbitration would only be considered after exhausting other options. This decision was documented, and the tender document was amended accordingly. Later, a dispute arose regarding a payment of Rs. 12 crores. Since it exceeded the threshold, Mr. Sharma had to approve the use of arbitration after considering the negotiation attempts failed and documenting the reasons for his approval.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What does 'value of the dispute' mean in this context?▼
Who needs to approve the inclusion of arbitration for disputes exceeding Rs. 10 crores in a CPSE?▼
Can the Secretary delegate the approval authority to someone else?▼
What is institutional arbitration?▼
If a contract doesn't include an arbitration clause, what are the other options for dispute resolution?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Test Your Knowledge
Question 1 of 3
According to Para 10.7.5 of the Manual for Procurement of Consultancy Services, what is the general guideline regarding the value of disputes for which arbitration may be considered?
Related Rules
Need help understanding this rule?
Ask Niti — your AI assistant for Consultancy Manual and other government rules