You said that the particular issue is not mentioned in the arbitration clause of the tender agreement. If an issue which would likely to be decided by the arbitrator is not mentioned in the agreement, that issue is called a non-arbitrable issue.
Hence, the party cannot execute an arbitration clause and cannot send that issue to the arbitrator for its decision. Arbitration is a mechanism for quick redressal of disputes out of the process of the court.
This is out of the court settlement process hence, agreement between parties is mandatory. The parties to the agreement can settle their dispute through arbitration if these conditions are fulfilled:
- Existence of arbitration clause in the agreement.
- Enforceable claim is existing between the parties
- The dispute is arbitrable i.e. parties are agreed to refer that dispute to the arbitrator.
In your case the third clause is not existing. The particular issue is non-arbitrable because you did not agree to refer that issue to the arbitrator for determination.
Your engineers have committed mistakes in levelling of land. Hence, the slope of drainage is not proper. This is an extraneous condition and you did not think about this at the time of agreement. hence, not included this dispute in the agreement. In lack of particular provision in the agreement (tender agreement) you cannot refer this issue to the arbitrator.
The Supreme Court in KSS KSSIIPL Consortium vs GAIL (India) Ltd (2015) 2 SCC (Civ) has held that before exercising power under Section 11(6) of the Arbitration and Conciliation Act, to make appointment of the arbitrator, court has to determine existence of arbitrable dispute between the parties as per the terms of the contract.
In this situation you should file a civil suit for compensation. However, you cannot avail arbitration but you can still enforce your right through the regular legal process. You should send a legal notice to the department and demand compensation. Upon refusal to pay compensation you should file a civil suit.