In a major policy shift aimed at curbing alleged malpractices, the Ministry of Road Transport and Highways has decided to eliminate arbitration for resolving disputes valued at more than Rs 10 crore in the highway construction sector. This move seeks to address long-standing concerns about undue influence and the pursuit of favourable rulings in high-value cases.
New Dispute Resolution Mechanism for Highway Projects
According to the finalised changes in contract norms, any dispute involving a claim exceeding Rs 10 crore must now be addressed solely through conciliation or mediation. If these methods fail to yield a resolution, the involved parties will have the option to approach civil courts. This new regulation will be uniformly applied across all types of highway contracts, including Build-Operate-Transfer (BOT-Toll), Hybrid Annuity Model (HAM), and Engineering, Procurement and Construction (EPC) agreements.
The decision to overhaul the dispute resolution framework is based on an extensive study of arbitration practices within the sector over the past 10 to 15 years. Officials familiar with the analysis revealed startling figures: between 2015 and 2025, nearly 2,600 arbitration awards were issued in the highways sector. In these cases, contractors had raised disputes totalling approximately Rs 90,000 crore, but the cumulative value of the arbitration awards granted was just over Rs 30,000 crore. Furthermore, highway builders have initiated arbitration for additional claims worth another Rs 1 lakh crore.
Finance Ministry Guidelines Paved the Way
This policy change aligns with broader government directives. In June 2024, the Finance Ministry issued guidelines stating that arbitration should not be a routine or automatic inclusion in procurement contracts and tenders, especially for large-scale projects. The guidelines explicitly recommended that arbitration be restricted to disputes valued under Rs 10 crore, clarifying that this limit refers to the dispute value, not the total contract value. They further advised that bid documents and contract conditions should specify that arbitration will not be available for disputes exceeding this threshold.
Curbing Loopholes and Ensuring Accountability
The government's crackdown extends beyond just changing dispute mechanisms. Authorities are also examining systemic loopholes that allow contractors to obtain favourable court orders even after being blacklisted or banned from bidding by highway authorities for failures or non-performance. This scrutiny aims to create a more transparent and accountable environment for public infrastructure projects, ensuring that contractual obligations are met and public funds are protected.
By shifting the focus from arbitration to conciliation and mediation for high-value disputes, the road transport ministry hopes to foster a more collaborative approach to conflict resolution, reduce litigation costs, and expedite project timelines while safeguarding the integrity of the process.
