FinMin issues draft scheme for settling disputes related to govt contracts

The finance ministry on Wednesday came out with a draft scheme for settlement of pending disputes related to government contracts.

Under the Vivad se Vishwas II (Contractual Disputes) scheme, contractors would be offered settlement amounts depending on the status of a dispute.

In cases of disputes where court or arbitral order have been passed, the settlement amount would be 80 per cent or 60 per cent of the amount awarded by the court or the arbitral tribunal.

With respect to cases of ongoing litigation for disputes arising out of contracts in which physical activity has been stopped or contracts terminated, the settlement amount would be 30 per cent of the net claim amount.

For ongoing litigation where physical activity in the disputed contract is ongoing, the settlement amount would be 20 per cent of the net claim amount — claims by the contractors minus counter-claim by the procuring entity.

In cases where the total claim amount exceeds Rs 500 crore, the procuring entities will have an option not to accept the settlement request of the contractor, as per the draft scheme.

However, the reason would have to be recorded in the file by the procuring entities and has to be approved by the secretary of the concerned ministry/department or the CEO in case of a public sector enterprise.

“The scheme shall apply only for cases involving domestic arbitration and cases under international arbitration are not eligible to be settled under this scheme,” the finance ministry said.

The scheme will be implemented through the Government e-Marketplace (GeM), which shall provide an online functionality for the same.

Stakeholders, including government departments, organisations, contractors and public can submit their suggestions on the draft scheme by March 8.

In 2023-24 Budget, Finance Minister Nirmala Sitharaman said a voluntary settlement scheme will be introduced to settle contractual disputes of government and government undertakings, wherein arbitral award is under challenge in a court.

This will be done by offering graded settlement terms depending on pendency level of the dispute.

In a post Budget interview to PTI, Finance Secretary T V Somanathan had said the scheme would help free up thousands of crores of rupees locked in contractual disputes.

“… if they’re willing to accept that percentage it (disputes) will be settled and the cases will be withdrawn by both sides so that the contractor gets a substantial amount,” Somanathan had said.

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