Amogh N P
✦ In loving memory of Amogh N P — Architect · Designer · Visionary ✦
A formal boardroom negotiation table with bound documents and empty chairs — where claims are substantiated and disputes are resolved, ideally at the lowest, earliest rung of the ladder.
Unit VProject Cost & Contract Management

Claims, Disputes & Resolution

Heads of claim, LD vs penalty (s.74), and the resolution ladder.

≈ 45 min + studio task

A claim asserts an entitlement to more time, more money, or both. Learn the heads of claim (delay, disruption, variation, loss & expense) and how contemporaneous records substantiate them; the India-specific liquidated-damages-vs-penalty distinction (Section 74 abolishes the divide); risk identification and allocation; the dispute-resolution ladder (negotiation → mediation → conciliation → DAB → arbitration → litigation); arbitration under the Arbitration & Conciliation Act 1996; contract closure; and the architect's ethics as an impartial certifier.

Learning objectives

By the end of this lesson, you will be able to — mapped to the course outcomes for Project Cost & Contract Management:

1
CO5 · Understand

Identify the heads of claim and how contemporaneous records substantiate them.

2
CO5 · Evaluate

Explain liquidated damages vs penalty — and the India-specific Section 74 position.

3
CO5 · Analyse

Apply risk allocation and the tiered dispute-resolution ladder, including arbitration.

4
CO6 · Evaluate

Uphold the architect's impartial, ethical duty and close the contract.

Records win; s.74 changes the rule

Claims & liquidated damages

Claims need entitlement, causation and quantum — proven by contemporaneous records; and in India, Section 74 caps liquidated damages at reasonable compensation, with some loss to be shown.[2, 3, 6]

Heads of claim Delayaffects the completion date (time → EOT) Disruptionlost productivity — money WITHOUT delay Variationpayment for instructed / constructive change Loss & expenseprolongation, overheads, finance, idle plant A valid claim needs ENTITLEMENT + CAUSATION + QUANTUM — proven by contemporaneous records & timely notice. Delay ≠ disruption: delay moves the end date; disruption is lost productivity that may cost money without delaying.
DiagramThe heads of claim — delay, disruption, variation, and loss and expense

Time, money, or both

A CLAIM asserts an entitlement to more time and/or money. The heads: DELAY (entitlement to EOT for excusable delay); DISRUPTION (loss of productivity even without overall delay — work made harder/slower); VARIATION (payment for instructed/constructive change); and LOSS & EXPENSE (extra cost — prolongation, overheads, finance, idle plant — from employer breach/risk). A valid claim needs ENTITLEMENT, CAUSATION and QUANTUM. MISCONCEPTION→correct: 'delay and disruption are the same' — delay affects the completion date; disruption is lost productivity that may cost money WITHOUT changing the end date.[3, 6]

Liquidated damages vs penalty Liquidated damages genuine pre-estimate of loss → enforceable Penalty (intl.) a deterrent sum → unenforceable INDIA — s.74 distinction abolished; reasonable compensation ≤ the named sum India differs: Section 74, Contract Act 1872 treats LD and penalty alike — a ceiling on reasonable compensation, loss to be shown.
DiagramLiquidated damages vs penalty — and the India-specific Section 74 cap on reasonable compensation
Lowest rung first, certify impartially

Risk, the resolution ladder & ethics

Allocate risk to whoever manages it best; escalate disputes lowest-rung-first to arbitration (Act 1996); close out the contract; and certify impartially throughout.[1, 3, 5]

The dispute-resolution ladder Negotiation Mediation (non-binding) Conciliation Dispute board (DAB) Arbitration (binding) Litigation (last resort) Resolve at the lowest, earliest, cheapest rung. Mediation/conciliation are consensual; arbitration gives a binding award (Act 1996).
DiagramThe dispute-resolution ladder — negotiation, mediation, conciliation, dispute board, arbitration, litigation

To whoever manages it best

Good contracting IDENTIFIES risks (ground, design, weather, price, regulatory, force majeure) then ALLOCATES each to the party BEST ABLE to control, manage or absorb it — the contractor takes workmanship/productivity risk, the employer takes site-access/design (in DBB)/force-majeure risk, some are shared via escalation. Mis-allocating risk to a party who can't manage it just gets priced back into the bid as contingency (or breeds disputes), so good allocation LOWERS total cost.[3]

LD vs penalty vs India s.74

At a glance

AspectLiquidated damagesPenalty / India s.74
NatureLD: a genuine pre-estimate of lossPenalty (intl.): a deterrent sum
Enforceable?LD: yesPenalty: no (English law)
India — s.74Distinction abolishedReasonable compensation ≤ named sum
Proof of loss (India)Generally requiredNamed sum is the ceiling
Binding outcomeArbitration: yes (award)Mediation/conciliation: no (consensual)
Vocabulary

Key terms

Claim

An assertion of entitlement to more time and/or money under the contract.

Liquidated damages

A contractually fixed sum payable on a specified breach (usually delay).

Penalty

A sum meant to deter breach, not estimate loss — unenforceable in English law.

Conciliation

A consensual process where a conciliator may propose settlement terms (Part III, Act 1996).

Arbitration

A private, binding dispute-resolution process producing an enforceable award.

DAAB

Dispute Avoidance/Adjudication Board — a standing panel giving interim-binding decisions.

Apply it

Studio task

Take a delay scenario and draft a one-page claim outline — its head (delay/disruption/variation/loss & expense), the entitlement, the causation, and the records you'd rely on. Explain how Section 74 of the Indian Contract Act would treat the liquidated-damages clause, and map the dispute up the resolution ladder, naming where arbitration under the Act 1996 would begin.

Check your understanding

Self-assessment

1. Under Section 74 of the Indian Contract Act 1872, a sum named as liquidated damages —

2. Which dispute step produces a BINDING, enforceable award?

3. The guiding principle of risk allocation is to place each risk with —

In a nutshell

Recap

Claims (delay, disruption, variation, loss & expense) need entitlement, causation and quantum — proven by records.
Internationally a penalty is unenforceable; in India s.74 caps recovery at reasonable compensation ≤ the named sum.
Allocate each risk to the party best able to manage it — mis-allocation just reappears as contingency or disputes.
Escalate disputes lowest-rung-first: negotiation → mediation → conciliation → DAB → arbitration → litigation.
Arbitration (Act 1996) gives a binding award; close out with the final account and an impartial, ethical certifier.
The evidence

References & further reading

  1. [1]The Arbitration and Conciliation Act, 1996 (India), as amended 2015/2019/2021 — arbitration, conciliation, s.34, s.29A.
  2. [2]The Indian Contract Act, 1872, Section 74 + Fateh Chand v Balkishan Das (1963), ONGC v Saw Pipes (2003), Kailash Nath v DDA (2015).
  3. [3]B.S. Patil, Building and Engineering Contracts — claims, LDs, arbitration in Indian construction practice.
  4. [4]FIDIC Conditions of Contract (2017) cl. 20 (claims) & cl. 21 (disputes / DAAB).
  5. [5]Council of Architecture, Architects (Professional Conduct) Regulations — impartial certification and ethics; SCL Delay & Disruption Protocol.

Further reading

  • B.S. Patil — Building and Engineering Contracts.
  • The Arbitration and Conciliation Act, 1996 (bare act with commentary).
  • SCL Delay and Disruption Protocol (2nd ed.).

Sources gathered and fact-checked June 2026. Published values vary by source, sample and method — treat as indicative and confirm against the cited standard before structural use.