LexNATIONAL HIGHWAY AUTHORITY OF INDIA versus M/S. PROGRESSIVEMVR (JV)
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A B C D E F G H 1015 NATIONAL HIGHWAY AUTHORITY OF INDIA v. M/S. PROGRESSIVEMVR (JV) (Civil Appeal No. 458 of 2018) FEBRUARY 23, 2018 [A. K. SIKRI AND ASHOK BHUSHAN, JJ.] Contract – NHAI Contracts – Price adjustment formula, ‘note’ appended thereto – Interpretation of – Respondents-contractors awarded contracts by appellant-NHAI for construction of roads etc. – Tender document envisaged a ‘Price Adjustment formulae – Sub-clause 70.3 of the Contract provided for the ‘adjustment formulae’ for calculating the price adjustment amount wherein the work is divided into seven components for which specific percentages were given to govern the price adjustment– However, such specific percentages were given only for 4 components, and for rest three components i.e. bitumen, cement and steel, variable percentages were given as x%, y%, z% which were to be worked out – ‘Note’ after sub-para (xi) of sub-clause 70.3 mentioned that x, y, z were the actual percentage of the cost of material of bitumen, cement and steel respectively which were used for execution of the work – Dispute between parties as to basis for calculation of actual percentage of cost of material of bitumen – Plea of NHAI that base rate (i.e. the rate prevailing 28 days prior to the submission of the bid) of these materials should be considered while applying the formula – Respondents contended that it is the prevailing rate in that particular month which would be the determining factor – Dispute Review Board (DRB) held in favour of NHAI – Respondents invoked arbitration – Arbitration Tribunal allowed the claim – NHAI filed objections u/s.34, 1996 Act before High Court – Objections dismissed by High Court – On appeal, held: Clause relating to price adjustment indicates that certain components which go into the execution of the projects like labour component, cement component, steel component, plant and machinery and spares component, bitumen component etc. may not remain static insofar as their price is concerned – There is a possibility that from the date when the price of these components was quoted by the contractor in his bid, there may be increase or decrease in the said price from time to time [2018] 2 S.C.R. 1015 1015 A B C D E F G H 1016 SUPREME COURT REPORTS [2018] 2 S.C.R. during the execution of the contract – Towards this, adjustment formula for working out the cost, at the time of execution of the contract, is provided – This adjustment has to be arrived at, in comparison with the base price/rates referred by the contractor/ bidder – Thus, while applying price adjustment formula for calculating the price adjustment of bitumen, it is the base rate which is to be applied and not the current rate – Arbitration and Conciliation Act, 1996 – s.34. Allowing the appeals, the Court HELD: 1.1 Clause 70 of Conditions of Particular Application (COPA) of the contract pertains to price adjustment. Clause 70.3(v) deals with ‘Adjustment for Bitumen Component’. As per this clause, the price adjustment for increase or decrease in the cost of bitumen is to be paid in accordance with the following formula: “ Vb=0.85 x Pb/100 x R1 x (Bi – Bo)/Bo” Vb is increase or decrease in the cost of work during the month under consideration due to changes in the rate of bitumen. Pb denotes percentage of bitumen component of the work and R1 is the total value of the work. Bi denotes current rate/cost as it is the average official retail price of bitumen at IOC Depot at Barauni/Haldia on the day 28 days prior to the submission of bids, which makes it clear that it is equivalent to the base rate. Thus, when this formula is considered of its own, Bo clearly refers to the base rate. [Paras 14-16] [1029-E-F, G-H; 1030-F-G, G] 1.2 Pb = X% is calculated by NHAI by following mathematical formula: “Pb = Quantity of Bitumen consumed during the month x base rate of bitumen x 100 Total Work done during the month of x BOQ rates.” [Para 18] [1031-B-C] 1.3 The issue relates to price adjustment and such an adjustment can be made in respect of various components which are used in the contract. The contractual provisions specifically deal with adjustment for labour component, cement, steel etc. These components are seven in numbers which may undergo A B C D E F G H 1017 price adjustment during the period when the contract is in progress, depending upon the market conditions, namely, increase or decrease in market prices of these components from time to time. The very nature of this price adjustme
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