Effectively managing and resolving disputes in the construction sector

On the World Bank’s Ease of Doing Business Index, India’s improved ranking of 77 in 2018 (up from 100 in 2017 in a group of 190 countries) conceals one of the biggest pain points for international investors. The country has shown significant improvement on sub-parameters, such as ease to start a business, get credit, seek construction permits, and trade across borders.

However, the ‘ability to enforce contracts’ remains one of the biggest issues, wherein the country continues to exhibit dismal performance. In this aspect, the country’s ranking improved by just a point to 163 from 164 on the index.

According to the World Bank’s Ease of Doing Business Index, it takes about four years (1,445 days) to resolve a dispute in India with expenses reaching up to 31% of the claim value. This can be a significant hurdle for certain sectors, such as infrastructure, real estate, and construction, which see a large number of disputes. These sectors account for the largest proportion of the commercial disputes in the country. In light of this, companies in these sectors should have robust mitigation strategies covering appropriate contractual safeguards, internal process controls and documentation, and strong contract management. These companies should also consider alternative dispute resolution (ADR) mechanisms.

In this document, we share some insights on challenges faced in managing commercial disputes in the construction industry.