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Transparency and Visibility Issues in Indian Real estate Sector

Since 2005 there is revolution in Indian real estate sector especially the growth which has been witnessed in tier1 and tier 2 cities. The industry is highly fragmented and unorganized which is now on the verge of becoming more organized, which is a good sign for customer. Still I believe the sector has long way to go. The way transactions happens there is lack of transparency and visibility for customers the acronyms used by sales staff are unknown to customer and probably which they only understand. There are several perennial issues around selling process. This process really needs to be buyer centric rather than seller the yield will be increased level of confidence on each from both sides.

The transparency issue could be best resolved to a certain extend with the help of Information Technology, there are application software like SmartBuilder, which are developed in customer requirements in mind. The beauty of the software is its highly generic and customized further it exactly delivers what customer wants. Visit http://www.smartbuilder.co.in it provides a complete holistic view for the buyer queries and has all necessary information around project which buyer wants to know. 

Software like this can certainly make a huge difference in the way transaction happens and would foster the confidence, trust in both parties. Looking forward for more such technology ideas which helps to make congenial market place.

 

 

 

 

 

PPP CONTRACTS: “Swiss Challenge Method” And The Indian Law

Public Private Partnership (PPP) Contract:

Infrastructure development projects in the past were thought of as a way of providing infrastructure at no extra cost to the public. For this reason the projects used to be generally investigated, designed and financed by the Public Works Department of the State or Central Government. The projects needed several years for realization from the stage of conception to become operational.  After the need for a project would be felt, project report based on preliminary survey and investigations used to be prepared and based on the approximate estimates, its feasibility determined and administratively approved by the concerned department. After the administrative approval, provision would be made in the annual budget for sanctioning the funds for preparation of detailed investigation, designs and drawings and estimates to be given approval or technical sanction. The project would then wait for requisite finance to be provided in the annual budget. By the time budget provision was made several years used to pass rendering the estimates outdated requiring further revision and further sanctions. Even the ongoing projects were required to be suspended or slowed down for want of funds. This resulted in claims and litigations and further delays and escalation in cost. Since the public utility projects earned little or no revenue, no private parties ventured into the field of construction of such projects. When it was realized in recent times that the users of the facilities created by such projects would not mind paying for the facility, the traditional scenario changed dramatically. The law and the Courts in India too had to take cognizance of this development.

The Development in Law in India

Even as early as in 1986[1]the Supreme Court  of India held that when the State Government is granting licence for putting up a new industry, it is not at all necessary that it should advertise and invite offers for putting up such industry. The State Government is entitled to negotiate with those who have come up with an offer to set up such industry. In a later case, in 2009, the Supreme Court of India observed: [2]

Recently, there has been shift towards encouraging private participation in the government works and promoting of public-private partnership. The Ministry of Housing and Urban Poverty Alleviation in its National Urban Housing Habitat Policy, 2007 specifically mentions participation of private sector as one of its aims. It envisages that the State Government and the Central Government shall act as facilitators and enablers. .. Pursuant to the declared policy by the Central and State Governments, the Maharashtra State Housing Board and MHADA are well within their rights to apply the Swiss Challenge Method with respect to the MHADA lands that were lying undeveloped since the same was being applied only on trial basis as a method of encouraging private participation.

Swiss Challenge Method

As per the Swiss Challenge method the developer who has given the original proposal has the opportunity (first right of refusal). However, the said developer has to match/raise his bid (rate) with the highest proposal tendered. The original proposer shall have the opportunity to take up the project on highest offer, and in the event if he refuses, then the highest bidder shall have right to implement the project….However, if such highest bidder refuses the offer then the amount deposited shall be forfeited.

It was highlighted by the appellants in the case before the Supreme Court that Swiss Challenge Method is adopted in Chile, Coasta Rica, Guram (U.S. Territory), Indonesia, Korea, Philippines, South Africa, Sri Lanka, Taiwan (China), Virginia (U.S.) and also in India by Andhra Pradesh, Rajasthan, Madhya Pradesh, Chhattisgarh, Gujarat, Uttaranchal, Punjab States and Cochin Port authorities.

It was further held in the latter case: “The decision to apply Swiss Challenge Method clearly fell within the realm of executive discretion…..It is not possible to reject the claim of State of Maharashtra and MHADA, in view of shortage of land, increasing cost in housing sector, the Central and State Governments recommended strongly for public private joint ventures and in the said category Swiss Challenge method is the acceptable democratic method as compared to other options.”

Conclusion:

PPPs are emerging as an important means for implementation of long-term infrastructure assets and related services such as roads, under the National Highway Authority of India. Now a days a new model is also being discussed: PPCP (Public-Private Community Partnership) aimed at social welfare schemes eliminating the prime focus on profit.


[1]  State of M.P. and Others vs. Nandlal Jaiswal and Others, (1986) 4 SCC 566), (State of M.P. and Others vs. Nandlal Jaiswal and Others, (1986) 4 SCC 566),

[2] (Ravi Development v. Shree Krishna Prathisthan, AIR 2009 SC 2519):

About Author -

B.S.PATIL, B.E. (Civil), LL.B. F.I.E.

 Contracts and Arbitration Consultant; Author of Building and Engineering Contracts; The Law of Arbitration and Conciliation,. etc.

Claims for Losses on Account of Overheads and Profit due to Delay in Performance of Construction Contracts

Construction projects invariably get delayed for variety of reasons in India and also elsewhere.  Under the well settled   law, a contractor is entitled to compensation for the delayed completion, if the delay is caused by breaches of contract conditions committed by the Employer. Claims of compensations invariably include significant sums by way of overheads and expected profit. A contractor seeking compensation has to prove the actual loss incurred. The overheads include several dozens of heads of expenses incurred by the head office for a company as a whole and which are neither attributable to an item of work in a given contract nor for a given contract as a whole. It is, therefore, difficult to establish actual loss on account of overheads in a given contract except on pro-rata basis. The books of accounts and balance sheets of a company show the actual overheads for the company as a whole for each year as also the total turnover of the company or receipts from the contracts. From these known elements the percentage of overheads incurred by a company vis-a-vis its turnover can be worked out. Compensation for overheads is generally worked out based on the said percentage.

The following three formulae have been traditionally used in calculating such loss.

The Hudson Formula

The Emden Formula, and

The Eichleay Formula.

Unfortunately all of them have crucial defects in their use in practice. It is high time the industry as also judiciary takes note of the fourth method   suggested by B. S. Patil in his book: Building and Engineering Contracts now in its 6th edition of 2011. (Published by Mrs. S. B. Patil, “Saish”, 120, National Society, Pune 411007 India). The method suggested by the author is not only based on the basic principle of assessing damages but also incorporates all the best features of the above three well-known formulae minus the deficiencies noticed in them. The author claims he had successfully used the method suggested by him in his practice in India for the past over 32 years. The reason for success, it appears is its basis: the universally accepted principle for assessing damages.

The Principle for Assessment of Damages:

This has been stated in Anson’s Law of contract, 26th Ed. at page 494 thus:

The object in award of damages for breach of contract is to place the plaintiff, so far as money can do it, in the same situation, with respect to damages in respect of the loss of gains of which he has been deprived by the breach.

To apply the above principle Patil divides the period of performance of a contract into   two parts: Period originally stipulated in the contract and the extended period beyond the said original period.

Unfortunately none of the three popular formulae take cognizance of the actual loss incurred at the end of the stipulated period and consider only the extended period as the basis for assessing damages.

He suggests the expected gain lost at the end of the originally stipulated period should be worked out based on the reduced turnover. The reduced turnover from a contract is worked out by deducting the actual turnover from the contract sum. Assessment of damages is done thus:

Damages = Percentage of OHP (overheads and profit expected)  x  Reduced Turnover.

The continuing loss during the extended period is also to be ascertained on the same basis by ascertaining the reduced turnover, if any. To ascertain the reduced turnover, pro-rata turnover agreed in the contract per week/month is multiplied by the delay in weeks/months and actual turnover achieved in the said period deducted from it. Thus, this method takes care of additional work, if any, executed during both the periods, original as also extended. It is also possible to add to the turnover disputed claims allowed in the adjudicating proceedings to assess the reduced turnover. The author, it is noteworthy, does not stop by giving the format to calculate the damages, but also insists on the proof to be tendered.

Patil claims, and rightly so, it is submitted,  many advantages his formula has over the other formulae, none of which unfortunately will give even an approximation of the true loss of overheads and profit in most prolongation situations.. It incorporates all the best features of the other three formulae minus almost all deficiencies pointed out in the other formulae. Other main advantages include: applicability to cases where the delay is disproportionate to the balance work, additions and alterations resulting in change of  the scope and cost of the contract work; termination of contract before full performance during the extended period, flexibility available to adjudicatory tribunals to correctly assess the actual loss in any factual matrix different from the originally contemplated by the parties. For example, some of the delay period might be for non-reimbursable events, and adjustments could be made in any reimbursement calculations. Similarly, the nature of the Contracting company’s business and the way the components making up head office costs interrelate can  be analysed in sufficient detail on the basis of evidence expected to be  produced;  and the overheads’ percentage accordingly adjusted. There is no possibility of duplication of relief.

It seems The Patil Formula recommends itself rather than placing reliance upon the traditional formulae.

About Author -

Bajirao Patil has published many books on civil engineering and contract law. Visit http://www.bspatil.com to know more about his books,

Book- 1. Nine Steps to Realize God;

Book- 2. Building and Engineering Contracts

Book- 3. The Law of Arbitration and Conciliation
Book- 4. Civil Engineering Contracts and Estimates Crown Size

 

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