Delay-caused cost escalation can be compensated where employer defaults extend performance and increase execution expenses.

Where an employer's failure to perform its obligations caused delay, interruption of work, longer transport routes for quarry material, and absence of a dumping site, the contractor could recover additional costs incurred during the extended period of performance. The Court noted that the absence of a price-escalation clause, and a supplemental agreement restricting enhanced rates, did not bar compensation for delay-driven extra expenditure when the claims arose from the actual consequences of the disrupted work. On that basis, the arbitrator did not exceed jurisdiction in granting escalation-related claims, and the award was restored after the High Court's interference was found erroneous.

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Issues: Whether, in the absence of a price-escalation clause in the original contract and in the presence of a supplemental agreement restricting enhanced rates, the contractor could still be awarded compensation for additional costs caused by delay, interruption of work, extra transport, and failure to provide a dumping site, and whether the arbitrator exceeded jurisdiction in granting such claims.

Analysis: The contract was delayed because the contractor was prevented from proceeding by law-and-order disturbances at the site, the required quarry material had to be procured from much farther locations, and no suitable dumping yard was provided. These circumstances increased the contractor's costs during the extended period of performance. The Court held that where the employer's failure to discharge its obligations directly causes delay and consequent extra expenditure, the arbitrator may compensate the contractor for the additional costs incurred in executing the work during the extended period. The supplemental agreement did not bar such relief when the claims arose from the actual consequences of the delay and the ground realities of performance.

Conclusion: The arbitrator did not exceed jurisdiction in allowing the escalation-related claims, and the High Court erred in setting aside the award on that basis. The appeal was therefore allowed and the arbitral award restored.

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