Para 9.7.5 - Arbitration Rules | KartavyaDesk
Original Rule Text
4. Government Guidelines on Arbitration in Contracts93: Department of Expenditure, Ministry of Finance has issued following guidelines for arbitration in contracts of domestic procurement by the Government and by its entities and agencies (including Central Public Sector Enterprises (CPSEs), Public Sector Banks (PSBs) etc. and Government companies): 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 9.7.5 of the Manual for Procurement of Non-Consultancy Services outlines the government's guidelines on using arbitration to resolve disputes in procurement contracts. Essentially, it discourages the automatic inclusion of arbitration clauses, especially in large contracts. The rule suggests that arbitration should generally be limited to disputes valued at 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, a conscious decision must be made, with proper 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 procurement contracts, especially large ones.
- •Arbitration is generally recommended only for disputes valued under Rs. 10 crores.
- •For disputes exceeding Rs. 10 crores, approval from a Secretary (or Joint Secretary with delegated authority) or Managing Director is required.
- •Institutional arbitration is preferred when appropriate.
- •Secretaries or Managing Directors can authorize modifications to these guidelines in specific cases.
Practical Example
The Ministry of Textiles is procuring uniforms for its field staff. The total contract value is Rs. 50 crores. The tender document initially included an arbitration clause for all disputes. However, following Para 9.7.5, the Joint Secretary, Mr. Sharma, reviews the contract. He decides that since the contract value is high, and disputes are unlikely to exceed Rs. 10 crores, the arbitration clause should be removed. If, however, a specific clause related to fabric quality might lead to a Rs. 12 crore dispute, Mr. Sharma would need to record the reasons for including arbitration for that specific potential dispute and obtain approval from the Secretary before finalizing the tender.
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?▼
If a contract includes multiple potential disputes, does the Rs. 10 crore limit apply to each dispute individually?▼
What is 'institutional arbitration'?▼
Can the Secretary delegate the approval authority for arbitration clauses to a lower-level officer?▼
Does this rule apply to all types of government contracts?▼
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 9.7.5 of the Manual for Procurement of Non-Consultancy Services, what is the general guideline regarding the inclusion of arbitration clauses in large procurement contracts?
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