No.

CCB/DRB/LMNHP-EW II(WB-11)/2012 (camp: Patna) date:

Sub: Four Laning from Km 440 to Km 480 of Gopalganj – Muzaffarpur Section of NH-
28 in Bihar – Contract Package No. LMNHP-EW-II (WB-11) – Refund of Cess
deducted from IPCs: - Request for recommendation of the Board in pursuance
to Clause 67 of Conditions of Contract / COPA (Dispute No. 6)

Background

M/s Madhucon Projects Ltd has referred Dispute No. 6 to the DRB on the subject work vide
his reference No. MPL/ND/DRB/2012/113 dated 21.07.2012 (received by Chairman, DRB on
25.07.2012 for DRB’s recommendation. The Chairman requested the Project Director to
forward the Employer’s reply on the dispute issue (ref. Chairman’s memo of even no. dated
25.07.2012). Accordingly, the Project Director has forwarded replies vide his ref. no.
31029/02/2007/NHAI/PIU/MUZ/1441 dated 24.08.2012. The rejoinder statement to PD’s
reply was submitted by Contractor’s letter dated ……………….. Since the time schedule of
56 days for DRB’s recommendation could not be adhered to (ref. Chairman’s letter of even
no. dated 24.08.12), on DRB’s request, both parties at the outset conveyed their agreement
for extension of time schedule for hearing on dispute issue till its final disposal thereafter.
The DRB held hearings followed up with their internal meetings from 5 th to 6th October, 2012
to examine the related issues and finalized their recommendations on merit of the case.

Contractor’s Submission

The Contractor has submitted that the levy of cess towards Building and Construction Works
(B&OCW) Welfare Cess @ 1% from work done bills / IPCs is not applicable in the contract
since the said Act came into force as per the Notice published in the newspaper by Bihar
Labour Welfare Department, a Board constituted in 2007-08 to effect deduction towards
cess @ 1% of work done (Ann. C-1). He has stated that the bid for the subject work was
submitted on 24.05.2005, much prior to the date on which the Bihar Labour Welfare Deptt.
issued the said Order by virtue of which the cess @ 1% is to be deducted. Therefore, the
provision of levy of cess @ 1% is not applicable in his contract. Further, the Contractor has
taken reliance on the provisions of sub-clause 70.8 (Subsequent Legislation) of COPA,
according to which any changes to any National or State Statute etc. causing additional or
reduced cost to the contract is required to be determined by the Engineer and to be added to
or deducted from the contract price.

He has further stated that he has not received any reply to his reference on the case either
from the Engineer or the Project Director and does agree with the views of the Team Leader
communicated through his letter dated 18.06.2012. Hence he has referred the case to the
DRB for its consideration.

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Employer’s Submission

Employer has submitted that the Contractor was well informed before base date of
submission of bid about the provision of B&OCW Act, 1996 according to which he has to pay
cess not exceeding 2% of the cost of construction as per sub-clause 34.2 of COPA (Encl. 2)
which inter-alia includes B&OCW Act, 1996 and the Cess Act of 1996 (ref. para xv). The
cess rate of 1% of the construction cost was notified vide Notification no. S.O.2899 dated
26.9.1996 (Encl. 1). Therefore, since the Contractor was aware about his liability to pay
BOCW Cess, question of applying the provision of Sub-Clause 70.8 of COPA does not arise.
However, as per the rule of the Central Govt. BOCW cess amount has to be deposited to the
Welfare Board formed by the State Govt. In the present case, Govt. of Bihar formed the
Board in the financial year 2007-2008 and accordingly, BOCW cess is being deducted since
IPC-04 i.e. from April, 2007. After getting the information regarding formation of Welfare
Board by the Govt. of Bihar, the deduction started in IPC-11 for the month of June, 2008
(Encl. 3) and the Contractor continued to submit his monthly IPCs after deducting the BOCW
Cess himself without any objection till IPC-22. The Contractor raised his objection for
effective period of payment of BOCW cess (Encl. 4) and not the applicability of the same in
its entirety as claimed now.

The Contractor’s intention to claim additional payment is also in violation of the provision of
Clause 53.1 since he had not notified his intension within 28 days after the event giving rise
to the claim first arisen i.e. in IPC-11 for the month of June, 2008. In view of the above,
payment deducted towards BOCW cess cannot be considered under Sub-Clause 70.8 of
COPA. NHAI has felt that the payment of BOCW cess by the Contractor cannot be a matter
of dispute and requested the DRB to reject the Contractor’s claim.

DRB’s observations and analysis

The Contractor’s contention is that the labour welfare cess under B&OCW Cess Act has
come into effect from the financial year 2007-08 published through press notice dated nil (C-
1). As such the levy of welfare cess of 1% on total value of construction has not been taken
into account in his contract price submitted on 25.05.2005. Therefore, the provision of levy
of cess @ 1% is not applicable in his case. Hence, levy of cess comes under the coverage
of Sub-clause 70.8 (Subsequent Legislation) and the amount deducted from his bills has to
be added to his contract price.

The Employer has brought out that under sub-clause 34.2 of CoPA read with provisions in
para XV, the Contractor has been sufficiently informed about his obligation towards levy of
cess (enacted in 1996) during the currency of contract. He has also refuted the contention of
the Contractor that the Bihar Rules 2007 should be considered under Subsequent Legislation
as per Sub-Clause 70.8 of COPA and the amount deducted from his bills should be added to
his contract price.

The DRB members have taken note of the written submissions of both sides and heard
respective arguments during hearings. The DRB hold that the Contractor was well aware of
his liability as per B&OCW Welfare Cess Act, 1996 read with Notification No. S.O. 2899
dated 29.09.1996 (ref. Enclo-1 of Employer) before submission of his bid and he was
required to consider the component of cess in his contract price as per Sub-Clause 34.2 of
bid document under COPA.

The Contractor’s argument that the B&OCW Welfare Cess Act, 1996 coming into force by
Bihar Rules, 2007 w.e.f. 01.04.2007, the additional cost towards cess according to said rules
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does not come under his obligation as per sub-clause 70.8 of CoPA being Subsequent
Legislation. This contention does not stand to reason since the cess is considered embedded
in contract price as observed in previous para and the additional cost is not separately
payable to him in terms of contract provision in last sentence of sub-clause 70.8 of CoPA.

The Employer’s reference to provision under Clause 53.1 of GCC by which the Contractor
should have notified his intension after deduction of labour cess @ 1% starting from IPC 11
for June, 2008 and thereafter Contractor himself deducting the cess from his bills up to IPC
22 also substantiate enough about the Contractor’s acceptance of such deduction as per
Welfare Cess Act.

Recommendation
In view of above observations and analysis the DRB’s recommendation is as under:
(i) Under terms of the contract provisions, the levy of Welfare Cess is payable by the
Contractor.
(ii) The claim of the Contractor for reimbursement of cess deducted from his bills is
not justified since the same does not attract provisions under Sub-Clause 70.8 of
COPA.

(I.D. Singhal) (I.M. Singh) (C.C. Bhattacharya)

Member Member Chairman

Place: Patna

Date:

Forwarded to:

1) The Chairman, NHAI

2) The Project Director, PIU, NHAI
3) The Vice President (Tech), M/s MPL
4) Team Leader, CES (I) Ltd