HKA – Cyril Amarchand Mangaldas Joint Publication

Transforming vision into reality, design is the cornerstone of construction projects. However, its critical role often leads to numerous issues and disputes. Like many jurisdictions, India faces its share of design-related challenges in construction. In this insightful article, Anand Udayakumar from HKA, along with Gathi Prakash Karrah, Adarsh Saxena, Nidhi Asher, and Arushi Poddar from Cyril Amarchand Mangaldas, shed light on these complexities.

CRUX is HKA’s integrated research program which provides unprecedented insight into the common claim and dispute causation factors for engineering and construction projects on a sectoral and regional basis. At present, the CRUX database encompasses more than 1,801 projects in 106 countries (including India) representing a total capital expenditure of more than US$2.247 trillion.  An interactive dashboard has been developed which allows the user to search by region and sector.

This publication series focuses on the top claim and dispute causative factors, prevalent in the Indian project landscape.

Previously, we have discussed in Part I Change in Scope, Part II Access Issues, Part III Unforeseen Physical Conditions, Part IV Late Materials or Product Deliveries and Part V Late Approvals. In the remaining parts of the series, HKA together with renowned Indian law firms will present topics on poor subcontractor/supplier management, spurious claims, cashflow and payment issues, and contract management and/or administration failures.

This Part VI of the ten-part series focuses on ‘Design Issues’ as HKA’s CRUX Report identifies this to be a main cause of claims and disputes on projects and covers potential triggers for Design Issues, guidance on how to manage these challenges and legal stance/position under Indian law.

Potential triggers

At a high-level, triggers for Design Issues include:

• Alterations and modifications in the design
• Errors in the initial design that were overlooked leading to issues during construction
• Environmental factors and weather conditions
• Disagreements and conflicts among stakeholders
• Employer driven changes post approval
• Financial hurdles, such as issues with funding or cash flow
• Insufficient planning and lack of coordination
• Legal issues and disputes over regulations
• Limitations in the existing infrastructure
• Absence of required warranties or guarantees
• Exclusion of approved vendors or subcontractors from the employer’s list
• Employer’s unfamiliarity with the proposed materials, necessitating additional documentation and testing data
• Delays in inspections and factory visits for checking source materials, samples, and facilities
• Project complexity and scale
• Unforeseen site conditions, such as soil quality or underground utilities
• Inadequate understanding or experience with the approval process
• Challenges in obtaining technically compliant samples and ensuring product/material compliance
• Changes in material specifications
• Deviations from the planned schedule
• Delays related to subcontractors, including late or insufficient submission of necessary documents (including technical ones)

Managing Design Issues

From the contractor’s perspective, it is integral to consider the guidance provided below on the pre-execution and execution stages of the project while providing due consideration to the above triggers.

Pre-execution stage

The contractor’s focus should be on the accuracy and completeness of design specifics, ensure compliance with relevant standards, codes and regulations, and consider constructability analysis with reference to feasibility and site conditions.

Identifying potential risks associated with design (such as material availability, design errors and changes in regulatory requirements), developing mitigation plans, value engineering through cost optimisation and alternative design solutions are likely to prove valuable.

Focusing on design responsibility allocation, including anticipating potential issues relating to inadequate or incomplete specifications, unclear design responsibility allocation and potential errors in the initial design are critical. A thorough review of the design can help identify and rectify errors early on. The contractor should ensure comprehensive planning and coordination, understand the legal and regulatory landscape, assess the infrastructure, and secure necessary warranties or guarantees.

The contractor should maintain a diverse list of approved vendors or subcontractors, educate the employer about the proposed materials, and plan according to the project’s complexity and scale.

Execution stage

In relation to design changes and modifications, the contractor should implement a robust and contractually compliant change management process and assess impact of project changes on the project schedule, budget and overall feasibility.

In addition to proactive and coherent interdisciplinary coordination and stakeholder communication, the contractor must ensure quality control through continuous verification of construction works with design specifications and material compliance.

Ongoing risk management is critical and involves identifying and mitigating potential risks related to design, implementing mitigation strategies and contingency planning. The importance of record-keeping cannot be overstated with requirement for as-built drawings updated regularly to reflect changes made and maintaining detailed records of design changes, approvals and relevant communications.

Contractor is required to ensure compliance with relevant regulations and standards, including obtaining necessary permits and approvals in a timely manner, and preparing and facilitating inspections by regulatory authorities from a compliance perspective.

The legal position in India

In India, design requirements are usually regulated by state/provincial and local laws, rules and building codes. For instance, the Maharashtra Regional Town Planning Act, 1966 (MRTP Act) is applicable in the state of Maharashtra and Development Control and Promotion Regulations 2034 (DCPR) are applicable to the city of Mumbai. These regulations impose design requirements primarily from the perspective of safety and planning considerations.

In essence, the local authority is empowered and only entitled to approve construction plans that conform with specified requirements, and the other design criteria being contractually agreed between the employer and the contractor.

In respect of building construction activities, the National Building Code of India (NBC)^[1]National Building Code – Bureau of Indian Standards (bis.gov.in) is a comprehensive building code containing (i) administrative regulations, (ii) development control rules, (iii) general building and fire safety requirements, (iv) stipulations on materials and structural design, construction (including safety), building and plumbing services, (iv) approach to sustainability, and (v) asset and facility management. It serves as a Model Code for adoption by private and government agencies involved in building construction works.  Compliance with NBC guidelines ensures that both contractors and employers adhere to quality and safety standards, reducing the risk of disputes over design deficiencies.

Design issues in Standard Form Contracts

Under Standard Form Contracts, such as:
1. The FIDIC Yellow Book^[2]Plant and Design-Build Contract 2^nd Edition (2017 Yellow Book) (reprinted with 2022 amendments)
2. The General Conditions of Contract (GCC) of the Central Public Works Department (CPWD), Ministry of Housing and Urban Affairs,^[3]Available at <https://www.iitb.ac.in/deanpl/tenders/chemlabr/gc.pdf> (last visited on June 18, 2024). and
3. The EPC agreements of the National Highways Authority of India (NHAI), Ministry of Road Transport and Highways^[4]Available at <https://morth.nic.in/sites/default/files/circulars_document/EPC-2012.08.17-Model%20EPC%20document.pdf> (last visited on June 18, 2024).

The contractor is typically required to ensure that work is executed in accordance with contractual specifications prescribed by the employer as well as in compliance with applicable laws.

Allocation of design responsibility is a critical issue which these Standard Form Contracts normally address.

Certain contracts require the contractor to prepare the construction drawings based on contractual specifications and/or basic drawings provided by the employer. For instance, under the EPC Agreement of NHAI,^[5]Clause 3.1.1, supra note 2. EPC Agreement of NHAI the contractor is required to undertake the survey, investigation, design, engineering, procurement, construction, and maintenance of the project highway. Under the FIDIC Yellow Book, the contractor shall carry out and be responsible for the design of the Works. Designs shall be prepared by qualified designers who are engineers or other professionals who shall comply with the criteria (if any) stated in the Employer’s Requirements. The contractor warrants that he, his designers, and the design subcontractors have the experience and capability necessary for the design.^[6]Clause 5.1, supra note 1. The FIDIC Yellow Book. These contracts also provide for the drawings prepared by the contractor to be reviewed and approved by the employer’s representative/engineer. Notwithstanding this requirement, the onus for compliance with contractual and regulatory requirements remains with the contractor. For instance, the standard form NHAI contract provides that by submitting drawings to the engineer for approval, the contractor is deemed to represent their conformance with contractual specifications and applicable law.^[7]Clause 10.2.4(b), supra note 2. EPC Agreement of NHAI Similarly, under the FIDIC Yellow Book, the contractor undertakes that the design and works will be in accordance with contractual specifications and applicable technical standards and law.^[8]Clauses 5.3, 5.4 supra note 1. The FIDIC Yellow Book.

Some contracts contemplate that the employer shall provide the designs to the contractor for carrying out the works. For instance, under CPWD’s GCC,^[9]Clause 11, supra note 1. CPWD’s GCC the contractor shall inter alia conform exactly, fully and faithfully to the design, drawings and instructions in writing in respect of the work signed by the Engineer-in-Charge and the contractor shall be furnished with inter alia the specifications, designs and drawings. However, the contractor ordinarily remains responsible for the safety and stability of the works until their completion. Accordingly, even where the designs are provided by the employer, contractors must still evaluate whether the design is compliant from a safety and stability perspective and advise the employer accordingly.

Delayed review and approval of drawings and employer-driven changes are the most common triggers for design issues in construction contracts in India. It is not uncommon for employers’ representatives to insist on certain post-contract design changes and withholding of approval until contractors submit revised drawings incorporating these design changes. Contractors are often constrained to follow employers’ instructions to minimise the impact of delayed approvals on project completion timelines whilst reserving their right to raise claims for these employer-driven changes later.  

Rights, remedies, and obligations of the contractor under Indian Law

The contractor is obliged to ensure that construction is carried out in accordance with the approved construction plans. Constructions carried out in contravention of approved construction plans are likely to be subject to stop work orders from the relevant local authority and may be demolished unless the construction is regularised in compliance with prescribed procedures. In theory, contractors would be justified in suspending work if the employer insists on any construction in contravention of approved construction plans. However, such situations are extremely rare in practice.

Where the contract allocates design responsibility to the contractor, after obtaining the employer’s representative’s approval, the contractor is required to submit the designs/ drawings to the relevant local authority for approval. Since most design issues attributable to the employer are triggered by employer-driven changes and delayed review and approvals, the contractors’ rights and remedies are primarily contractual in nature, with such changes entitling the contractor to claim extension of time and/or cost subject to contract terms.

Based on established case law, delayed approvals may entitle the contactor to extension of time for completion of the project and prolongation costs^[10]Union of India v. Chenab Construction Joint Venture, 2022 SCC OnLine Del 4694, p. 14. (provided such rights are reserved^[11]Ircon International Ltd v. Delhi Metro Rail Corporation, 2023 SCC OnLine Del 6368, p. 20 – 21.).

Approach of Indian Courts and Arbitral Tribunals on Design Issues

When confronted with change of scope/additional work claims arising from employer-driven design changes, courts and arbitral tribunals are primarily guided by the contractual provisions.^[12]NTPC Ltd v. Tata Projects Ltd, 2023 SCC OnLine Del 4560, p. 87. The onus is usually on the contractor to satisfy the court/ tribunal that the extra engineering/designing required to incorporate the employer’s changes is not contemplated under the original contract.^[13]Id.

Employers often cite safety as the basis for the design changes and, in such cases, courts and tribunals (who may not be experts) usually expect the contractor to prove that the changes were motivated by aesthetic or utilitarian preferences and do not arise from safety concerns. Such claims usually succeed only when the employer-driven design changes are such that they have the effect of substantially modifying the work that was contemplated at the time the contract was made.^[14]Union of India v. Tantia Construction (P) Ltd, (2011) 5 SCC 697, p. 30-32. In contrast, courts and arbitral tribunals are usually more liberal when considering claims for extension of time on account of delays attributable to the employer and there are also instances where compensation (including in the nature of prolongation costs) has been awarded.^[15]Government of Madhya Pradesh v. Khusiram & Co, 1994 SCC OnLine MP 254, p. 6. Indian courts and arbitral tribunals have also used “honest guesswork” or the “rough and ready approach”^[16] https://disputeresolution.cyrilamarchandblogs.com/2024/07/can-damages-be-awarded-based-on-a-guess/ to quantify losses when there is insufficient evidence on record to arrive at the precise quantum of damages to be awarded.^[17]Construction and Design Services v. Delhi Development Authority, (2015) 14 SCC 263, p. 17; Cobra Instalaciones Y Servicios, SA & Anr v. Haryana Vidyut Prasaran Nigam Ltd, 2024 SCC … Continue reading

Conclusion

Design is undeniably the backbone of any construction project with potential to adversely complicate contractor’s progress, requiring careful and continuous scrutiny from tendering stage through project execution. As construction projects continue to innovate and expand boundaries of design, it becomes increasingly vital to stay ahead of issues that may arise.

The mantra to follow include thorough planning, in-depth understanding of design and responsibility allocation, continuous assessment of design issues impact and deployment of mitigation measures, timely/contractually compliant coordination, notification and initiation of change orders (as appropriate), and appropriate enforcement of rights and remedies available under contract and Indian law, which may likely entitle the contractor for extension of time for completion and/or additional cost.

If you require further information, please contact anandudayakumar@hka.com from HKA, gathi.prakash@cyrilshroff.com,  adarsh.saxena@cyrilshroff.com, nidhi.asher@cyrilshroff.com and arushi.poddar@cyrilshroff.com from Cyril Amarchand Mangaldas.

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About the authors

Anand Ayyappan Udayakumar is a Senior Consultant at our London office (since 2022) and prior to which was working as part of our Dubai office (2021 & 2022). He is a qualified lawyer with over a decade of experience in providing legal, contractual, quantum and delay advisory for over 100 projects spanning construction, infrastructure and energy sectors in Asia, Africa, Europe and Middle East.

Gathi Prakash Karrah developed a market reputation at an early stage of her career for handling large volume, complex commercial disputes involving PE & promoter/shareholder rights, public infrastructure and construction projects and high value media rights contracts.

Adarsh Saxena has over a decade of experience in complex and high-stakes commercial dispute resolution. He is dual-qualified in India and England & Wales, with a practice that covers disputes relating to construction and infrastructure projects, joint ventures, shareholder agreements, media rights contracts, franchise agreements, sports and corporate governance.