INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
A split structure (whereby owners appoint an architect for design and a separate contractor for construction) is prevalent for the construction of real estate or manufacturing units. Under this arrangement, the owner bears the sole respon - sibility for design risks, while the contractor is responsible for executing the construction. Con - tractors may seek to shift responsibility for con - struction failures onto design issues, leading to counterclaims. For design-and-build structures, the owner enters into a lump-sum turnkey contract with a qualified entity responsible for the entire project. Owners have a right to review and certify the contractor’s compliance. Contractors are often responsible even after completion, during an agreed defects liability period. 7.3 Management of Construction Risk Warranties as to quality and workmanship, structural stability, fit-for-purpose warranties, adherence to applicable laws, technical specifi - cations and adherence to prudent industry prac - tice are undertaken by contractors, subject to normal wear and tear, with industry-specific and technical exceptions. Contractors may be required to provide the owner with a corporate guarantee or a fund- based performance guarantee. The retention of payments is also common, and such guarantee/ retention amount is released after completion of the defect liability period. Indemnity for claims due to breach of contract/ law, bodily injury, death, loss of property, gross negligence, wilful misconduct or fraud are preva - lent in construction contracts. The overall limita - tion of liability typically varies between 50% and 100% of the contract price.
Contractors are also required to obtain and maintain adequate insurance, including contrac - tor’s all-risk insurance, third-party liability insur - ance and workman insurance. 7.4 Management of Schedule-Related Risk Time is of the essence in construction contacts, with fixed project schedules for key milestones and a target completion date. The project sched - ule is typically subject to the extension of time clauses, which are contractually agreed. To ensure compliance with a time schedule, the owner may require the contractor to furnish a corporate or fund-based performance guaran - tee. The retention of payments is also common. The owner may have the contract performed through a third party in case of non-performance by the contractor, at the contractor’s cost, pur - suant to the Specific Relief (Amendment) Act 2018. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Corporate guarantees, performance bank guar - antees and retention payments are typically sought from contractors to ensure performance. However, in cases where there is a perceived risk regarding the financial standing of the contrac - tor, the owner may negotiate additional security, such as letters of credit, parent guarantees, per - formance bonds, escrow accounts or third-party sureties. Such additional security is typically required in large infrastructure projects devel - oped under a PPP model. It is also common to penalise delays in perfor - mance of work by requiring the contractor to pay damages, or by prescribing liquidated damages.
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