Contract Performance Disputes in India: Defending Against Termination, LD, and Risk-Purchase Claims

Common Claims in Contract Disputes

1. Extension of Time (EOT)

When project delays stem from the employer—such as late site handover, delayed approvals, or excessive change orders—the contractor is entitled to time extensions. This not only shields against liquidated damages but also prevents wrongful termination. Indian courts have consistently held that LD cannot be imposed when delays are employer-driven.

2. Price Escalation & Variations

Prolonged projects often lead to cost inflation. Where escalation clauses exist, contractors must invoke them. Even without such clauses, claims can be raised under Section 73 of the Indian Contract Act, seeking compensation for costs incurred due to extended timelines.

3. Disruption & Idle Costs

Idle machinery, standby manpower, and work stoppages caused by employer instructions often result in heavy financial losses. Contractors can recover these costs by maintaining detailed site diaries, logs, and correspondence proving employer responsibility.

4. Challenging Wrongful Termination

Employers sometimes terminate contracts without proving default. In such cases, arbitral tribunals or courts may declare the termination invalid, awarding damages for loss of profit on the unexecuted portion of the contract.

5. Rebutting Risk-Purchase Claims

Employers often inflate re-tender costs and seek recovery from terminated contractors. Defences include proving the termination itself was wrongful, that the re-award price was commercially unreasonable, or that no direct link exists between alleged contractor default and higher costs.

Importance of Strong Evidence

Tender disputes in India are heavily evidence-driven. Successful defences and counterclaims require contractors to maintain a consistent paper trail throughout the project. Key evidence includes:

• CPM/Primavera schedules to prove delay responsibility.
• Daily site diaries & reports capturing stoppages and instructions.
• Correspondence & notices showing timely objections to employer-caused delays.
• Engineer/PMC directions documenting suspensions or changes.
• Financial records substantiating idle costs, wage bills, and vendor invoices.

Tribunals often disregard oral statements unless supported by contemporaneous records. Hence, proper documentation is not optional—it is decisive.

Methods to Quantify Claims

Once liability is established, contractors must prove quantum with precision. Inflated claims usually fail. Accepted approaches include:

• Measured Mile Analysis – comparing productivity in disrupted vs. undisrupted periods.
• Actual Cost Records – payroll, invoices, and equipment logs.
• Hudson/Emden Formulas – fallback tools to calculate overheads and profit when actual data is incomplete.
• Loss of Profit – recoverable in wrongful termination cases, based on audited margins.
• Market Rate Comparisons – to challenge exaggerated risk-purchase demands.

Enforcement & Interim Reliefs

Winning a dispute is only half the battle; enforcing awards is equally critical. Contractors must consider:

• Dispute Adjudication Boards (DABs/DRBs) – useful for interim relief in infrastructure projects.
• Section 9 Applications – to restrain bank guarantee encashment or coercive recoveries.
• Section 17 Reliefs – interim protection ordered directly by tribunals.
• Arbitration Awards Enforcement – enforceable as court decrees under Section 36 of the Arbitration in India.
• Settlement Leverage – interim reliefs and strong awards often push employers, especially PSUs, towards negotiated settlements.

Conclusion

Contract performance disputes in India—whether involving liquidated damages, wrongful termination, or inflated risk-purchase claims—require a balanced strategy. Contractors must not only defend against employer penalties but also pursue affirmative claims such as EOT, escalation, disruption costs, and loss of profit.

The tender litigation process in India rewards those who prepare diligently: keeping CPM schedules updated, recording site realities, preserving correspondence, and maintaining accurate cost data. With the right evidence, legal strategy, and procedural safeguards, contractors can transform what begins as a penalty into a financial recovery.

This content is originally posted on: https://www.maheshwariandco.com/
Source: https://www.maheshwariandco.com/blog/contract-performance-disputes-in-india/