No.

1s-18/U2020-HYDEt-ll (MoP)
Government of lndia
(Bharat Sarkar!
Ministry of Power
(Vidyut Mantralay)
Shram Shakti Bhawan, Rafi Marg
New Delhi, the 18th October,2023

OFFICE MEMORENDUM

Subject: Addendum - Model Contract Provision for "Dispute Avoidance Mechanism"

through 'lndependent Engineer' (lE) in the Construction Contracts of CPSEs executing
Power Projects - Reg.

A "Dispute Avoidance Mechanism" was introduced vide this Ministry's OM of even

number dated 21.09.2027 (copy enclosed) for resolution of the contractual disputes in
hydroelectric projects being implemented by CPSUs under this Ministry at inception stage itself by
means of appointment of "lndependent Engineer". So far, the platform has been widely utilized by
the Hydro CPSUs under MoP and the same has played a pivotal role in mitigation of time and cost
overrun in hydro projects by resolution of disputes at inception stage.

2. A need has been felt to replicate the mechanism in other power sector projects. ln
view of the above, in continuation of this Ministry's OM of even number daled 27.O9.2O21,
the "Dispute Avoidance Mechanism" through "lndependent Engineer" is hereby extended to
all power sector projects being executed by the CPSUs under the administrative control of
Ministry of Power.

3. The Standard Operating Procedure and Terms and Conditions for payment to
"lndependent Engineer" shall remain the same as given in MoP OM daled 27.O9.2021.

4. The panel of lndependent Engineer(s) having domain expertise in the areas of thermal
and transmission sector will be notified by this Ministry in due course.

This issues with the approval of the Competent Authority.

$P
(Vikrant S. Dhillon)
Deputy Director
Tel:011-23705841
Email: hydro2-mop@gov.in

1. Chairperson, CEA
2. Chairperson, CWC
3. CM Ds/Chairpersons to all CPSUs/Statutory bodies/ Autonomous bodies under MoP
Copy to:
1. PS to Hon'ble Minister of Power and New and Renewable Energy
2. PS to Secretary (Power)
3. PAtoSS& FA
4. Sr. PPS to AS (AT)
5. PPSto allJoint Secretaries in MoP
6. PPSto EA
7. All Directors/ DS/ US/ DD, MoP

Copy also to:

ln-charge, NIC Cell, MoP with request to publish the instant OM on the homepage of the website of
Ministry of Power.
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No. 15-1.8[/2020-HYDEL-II (MoP)

Government of India
Ministryof Power

Shram Shakti Bhawan, RafiMare,

New Delhi, dated the27#ptember, 20il

OFFICE MEMORANDUM

Subjech Model Conhact Provision for "Dispute Avoidance Mechanism" through

'Independent Engineer' (IE) in the Construction Contracts of CPSEs executing Hydto
Power Proiects

1. Hydro CPSEs have been raising concerns that the present mechanism of dispute
resolution in Hydro Power sector does not provide adequate framework to address the
con{licts between the Employer i.e CPSE and the Contractor at their inception stage but only
addresses it after the disputes have arisen and notified between the Parties. A Committee of
Board level Officers was constituted to study the field level issues and the difficulties in
arriving at the resolution of these issues. The Committee submitted its report which was
deliberated in the Ministry during which CEA and Board level officers of Hydro CPSEs too
participated.

2. Following points emerged after the deliberations:

i. Delays in addressing disagreements or claims related to execution of Contracts

actually results in significant financial and economic losses besides time and
project cost over runs. Further, dispute resolution is a long-drawn process
leading to unjustified and inflated claims with adverse impacts on timely
completion of projects involving termination of contracts and/or leading
to arbitration.
ii. Fair and just resolution of disagreements relatecl to Contracts at inception
stage, is key to successful performance of the contract as per scheduled
timelines leading to both effective utilization of budget and prevention of
time and cost over runs.
iii.An optimal way of addressing the aJorementioned issues is to have a
mechanism of an independent, third party widely used in major infra projects,
nationally as well as internationally, in the form of engaging Independent
Engineer for the specific project who are "Experts" having domain knowledge
of the subject as well as cofiunercial and legal principles and who can have
regular oversight over the project with open communication with all the key
stakeholders that can play an effective role in the avoidance of disputes.
iv. Efficient access to a fair and transparent mechanism for timely resolution of
conflicts at the inception stage itself plays a k"y role in expeditious
development of infrastructure projects. Formulation of a robust 'Dispute
Avoidance Mechanism'through appointment of an independent expert in the
form of 'Independent Engineer', will be an effective initiative to prevent time
and cost overruns in Hydro projects.
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3. The main objectives of appointing 'Independent Engineer' are as follows :

i. To reduce the conversion of initial disagreements over issues into full-fledged

disputes.
ii. For expeditious elimination of disagreements in a just and fair manner.
iii. To avoid time and cost overruns so as to ensure timely completion of the
Projects.

Accordingly, based on the detailed deliberations on the subject matter, a model

contract provision for "Dispute Avoidance Mechanism" through 'Independent
Engineer' (IE); selection criteria for IE; Standard Operating Procedures (SOPs) for
dispute resolution through the IE have been finalized in consultation with CEA and
all CPSEs executing Power Projects . Salient features of the same are as under :
4. Appointment, Selection and Removal of IEs/Experts :-

i. Minisky of Power shall prepare a panel of domain specific Experts with high
level of integrity and proven track record by adopting a transparent and
objective selection process as per the selection criteria mentioned aiAnnexure-
1 and the panel so prepared shall be published by the Ministry on its website.
Further, any changes in the panel shall only be made by the Ministry and the
Ministry shall also keep updating the panel at regular intervals.
ii. The CPSE & Contractor shall jointly select only one Member from the above
panel of Experts for each package of works. The Expert would be designated
as 'lndependent Engineer' (IE) for each contract.

iii.The initial term of appointment of IE would be for a period of five (5) years or
contract period whichever is lesser and may be further renewed on a year-on-
year basis as may be mutually agreed between the CPSE and the Contractor
subject to the consent of IE and final approval by the Ministry.

iv.It will be mandatory for the IE to visit the site once in every two months to be
constantly aware of the ongoing project activities and to have a fair idea of any
situation that may lead to disagreement between the parties. Further,
additional visits may also be undertaken as and when called upon to address
issues of disagreements.

v. CPSE or Contractor will not be able to change the IE in any case. In case of
adverse finding about IE such as not performing duties or complaints of
integrity, that Expert would be dropped by the Ministry from the panel itself
and a new Expert would be selected by the CPSE and Contractor jointly from
the panel for performing the duties of IE.

5. Standard Operating Procedure(SoPs) for Independent Engineer (IE):-

i. IE shall act as per the Standard Operating Procedures (SOPs) attached at

Annexure-2.
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ii.Resolution by IE shall commence when the claimant Party submits detailed

information as per Standard Format for Disagreement Case filing attached as
Annexure-3 to IE for intervention along with the necessary documentary
evidences. Demand for IE intervention will not be admissible without initial
documentary evidence.

iii. Necessaryinformation sought by IE during the course of investigation shall

be provided in a time bound marmer by both the Parties and non-compliance of
the same shall lead to imposition of penalties, elaboration of which shall be
made by the CPSEs in their respective contracts depending upon the criticality of
the contract.

iv. IE will examine the issue(s) raised by the Parties concerned as mentioned at
point number (ii) above by conducting inspections involving field measurements
as may be required to further investigate and to also conduct hearing/mediation
with both the parties.

v. Based on the preliminary hearing of the parties, IE shall prescribe resolution

timeline depending upon the number and nature of disagreements subject to a
maximum duration of thirty (30) days or within extended timeline under
extraordinary circumstances and for reasons to be recorded in writing .

vi. There shall not be any conflict of interest and it shall be ensured that IE should
not have been engaged for providing any other services to any of the parties i.e.
either Owner or Contractor in the last three years.

vii. In the event of non-performance of obligations/services by the IEs at any

time during the duration of its contract, the Employer and the Contractor, on
mutually agreed basis, shall have the right and discretion to terminate IEs
contract by giving a termination notice of thirty (30) days to IEs.

6. Terms and Conditions for Payments to'Independent Engineer' -

(a) Retainership Fee : A retainer fee of
Rs.100,000 per month fixed for FY
2021-22for 'Independent Engineer' for a specific project shall be considered
as payment in full for :

i. being available on a notice of 2 weeks for all site visits and

hearings;
ii. becoming and remaining conversant with all the project
developments and maintaining relevant files;
iii.compensating all office and overhead expenses including
secretarial services, photocopying and office supplies incurred ir-r
connection with his duties; and
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The retainer fee of Experts, shall be increased annually by ].0%. Further, an

Expert, shall not be in the retainership of more than two Hydro power
contracts concurrently in the same CPSE. In case of two contracts, expert
shall draw retainership fee limited to one contract only i.e. Rs.100,000
referred to for Fy 21-22. The duration of retainership shall be for such
duration as may be mutually decided by the owner and Contractor but
shall not , in any case , extend beyond 3 months after the completion of
works as per the contract . The retainership fee shall be shared by the CPSE
and the Contractor equally but shall initially be paid to the IE by the
concerned CPSE.

(b) Site visit A daily visiting fee of Rs 20,000/- to either project site or
Fee :
project office, anywhere in India, limited to a maximum of 10 days in a
month for Expert, shall be paid for hearing, preparing reports etc initially
by the Client fixed for FY 21-22. The daily visiting fee of Expert, as
mentioned above, shall be increased on yearly basis @L0%.

(.) Reimbursement of travel, boarding/lodging expenses incurred by

'Independent Engineer' : The travel, boarding/lodging expenses of the
'Independent Engineer', as per entitlement of Executive Director of CPSE,
would be made initially by the Client i.e. Owner or Contractor. If any
expert of 'Independent Engineer' does not receive payment of the amount
due within 30 days after submitting claim, the expert shall be free to
suspend his/her services without notiie until the payment is received.

(d) Meeting Expenses : All the payments for holding the meeting would be
initially borne by the Client i.e. Owner or Contractor, as the case may be,
and shall be shared equally by the Owner and Contractor.

(e) Sharing of Expenses on Independent Engineer : All the payments for

holding the meeting, site visits, reimbursement of travel, boarding/lodging
expenses and monthly compensation of 'Independent Engineer' shall be
shared equally by both the parties i.e. Owner and Contractor.

(f) Audit : The Concerned Hydro CPSE shall maintain an account of all the
expenses incurred by it on'Independent Engineer'and such account shall
be subject to Audit.

7. Dispute Avoidance Mechanism through IE as above shall be adopted by all the

Hydro CPSEs executing Power Projects. IE shall be implemented in all cases
irrespective of the fact that the contractor is a CPSE or a private party. Dispute
resolution mechanism through DRB or DAB in existing contracts may be subsumed
by the aforementioned Dispute Avoidance Mechanism through IE with mutual
consent. For future contracts, Dispute Avoidance Mechanism through IE shall only
be provisioned in place of Dispute Resolution Board or Dispute Adjudication Board.
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8. CISEs are directed to take all necessary actions for incorporating the aforesaid
provisions in all their future contracts and to also amend the provisions in existing
contracts with mutual consent of both the parties.

This issues with the approval of the Hon'ble Minister of Power, New and
Renewable Energy.

%$q.-r,,zl
Saini)
(S.8.
Under Secretary to the Govt. of India
Telefax: 23705841
To,
1. The Chairpersory Central Electricity Authority, New Delhi.
2. Member (Hydro), Central Electricity Authority, New Delhi
3. CMDs - NHPC Ltd, SIVN Ltd, THDC (I) Ltd, NEEPCO Ltd and NTPC Ltd.
4. Chairmaru BBMB.

Copy to:
1. PS to HMoP & NRE
2. PS to HMoS for Power
3. Sr. P[5 to Secretary (Power) / Sr. PI5 to AS(SKG) / Sr. PPS to
AS&FA / Sr. PPS to AS(VKD)/PpS to JS(Hydro)
4. All Joint Secretaries / equivalent level Officers of Ministry of Power
5. All Directors / Deputy Secretaries of Ministry of Power
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Annexure'l

Eligibility and Qualification Criteria for Appointment of lE(lndicative

Appropiate formats may be prescibed in the bid document)

ELIGIBILITY CRITERIA FOR APPOINTMENT OF EXPERT OF INDEPENDENT

ENGINEER IN HYDRO POWER CONTRACTS

1. A retired person with the following qualifications and experience shall be

eligible to be nominated as an 'lndependent Engineer' for Hydro Power
Sector:
i. Has held the post of Chairman and Managing Director/Managing Director,
Chief Executive Officer, Functional Director of the Board, Executive Director
(E-9) or above of any CPSE of Govt. of lndia engaged in development /
implementation , operation and maintenance of projects in Hydro Sector
including Hydro Power plants / Pumped Storage Plants / Multipurpose Power
projects.

Or

ii. Has held the post of Chief Engineer in Central Electricity Authority / Central
Water Commission or equivalent in any other body of Govt. of lndia / State
Govt. engaged in planning /designing/ development of projects in Hydro
Sector including Hydro Power plants / Pumped Storage Plants / Multipurpose
Power projects.
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Annexure 2

Standard Operating Procedures (SOPs) for !E

Investigations by Independent Engineer for any contentious issue / disagreement shall be
as per pre-defined Standard Operating Procedure (SOP). IE shall strictly follow the SOPs
and will also document and maintain all the records, Following is a representation of the
SOPs for IE for processing key tasks, roles and responsibilities and commensurate
timelines.

Based on the preliminary hearing of the Parties, IE shall prescribe resolution timeline
depending upon the number and nature of disagreements subject to a maximum duration
of thirty (30) days.

hi*y
*i,u*o{****u^*
-t-xslr g{;ifu4s3ry{r.;rtr &*ttvitg ffi+**rip{l;:* L,
u.ij;,,',,
-;-

*1 Disagreement Contractor Case Fiting A disagreement case begins

- Day O
Filing Client when claimant party submits a demand for
intervention by IE in the prescribed
format along with documentary evidence.
Demand without initial
documentary evidence will not be
admissible for IE intervention.
1 Preliminary Independent Preliminary hearing and Day I to
& Hearing & Engineer scheduling process- IE to organize Day 6
Scheduling Contractor a preliminary hearing with the parties and
Client prescribe suitable timeline for resolution
or settlement.
? Finalisation of Independent
iJ Finalisation of Issues - After due Day 3
Issues Engineer examination and diligence to finalise the to 9
issues requlring resolution,

ngl Independent Hearing / Mediation-The parties and IE Day 4

4 Hea ri
Mediation Engineer meet in person to conduct the Hearings. to 12
Contractor
Client
g Inspection Independent Inspection- IE conducts the Day 5
Engineer inspections involving field to 17
measurements, if any, to further
investigate evidence conferred to the IE
by both padies during the hearing.
Post Inspection Independent Post-Inspection Briefs - After the Day 1O to
# Briefs Engineer inspection takes place; both the parties 30
Contractor may come up with additional
Client testimony, as permitted by the IE.
ry
I
Closure Independent Closure - IE closes the report on the Day 1O
Engineer case and issues a decision, along with any to 3O
claim settlement, if applicable.
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Annexure 3

Standard Format for Disagreement Case Filing (lndicative)

In line with the SOPs, an IE expert should follow a standard format provided below for
disagreement case filing and further investigations.
Disa reement Documentation Report (to be filled by Independent Engineer)
Has
S

tr Yes

Party Representative Name

tr No

Contact
tr Not Applicable

Disagreement Reference

IText]
Evidences to be Annexed
Critical E

^t t. i
tr Engineering
Ec"oroey [ Hydro Mechanicar tr il:::,:"".",
Electrical Quality Assurance &
Design
Works
6;,;1
tr Switchgear Inspection

[Text]
Documentary Evrdences by Parties along with MoM to be Annexed

Brief Narration on discovery process Preliminary hearing & listing of next step to examine the issues a
I

Documentary Evidences to be Annexed

3
IText]
Docu Evidences with Video Records to be Annexed

Documentary Evrdences to be

IEa Parties if a
IText]
Documentary Evidences & to be

Closure &

Documentary Evidences to be An

Final bv Parties