Disputes within a PPP project emerge for many reasons. There are often deeper underlying reasons for why disagreements arise in the first place and why they can escalate into a dispute. Some of these relate to the inherent complexities associated with PPPs:
- PPP contracts are long-term and unexpected circumstances are likely to arise at times
- PPP projects tend to be complex in their scope with multiple stakeholders involved
- Contract documents are complex and subject to interpretation (particularly given multiple interfaces between different parties and potential contradictions between a large number of different but interrelated project documents)
Other underlying reasons for why disagreements arise in PPPs are detailed throughout this chapter. These include a lack of understanding of the PPP contract and/or the performance monitoring requirements of a PPP; poor relationship management; ambiguous contract drafting; and weak underlying project economics.
Dispute resolution mechanisms
Many PPP contracts contain pre-agreed dispute resolution mechanisms for the resolution of any disputes that may arise out of the PPP contract. Such mechanisms are aimed at encouraging a less formal resolution of disputes at a relatively early stage before relationships deteriorate and before a significant amount of time and cost is spent in formal court proceedings or arbitration.
Typical dispute resolution mechanisms can include informal meetings of senior executives, mediation, the use of a panel of senior representatives, external dispute resolution boards and finally court proceedings or arbitration. In general terms, parties should seek to address any disputes starting with the least formal mechanism and then stepping up through each level to the final, most formal stage. For example, a disagreement not resolved by a meeting of senior executives, might then proceed to mediation and then finally to court or arbitration.
Typical dispute resolution mechanisms also include time limits. Time limits incentivise the parties to progress disputes and help reduce the risk of wasting time and costs if disputes drag out. For example, a time limit might be a response deadline by which parties are required to respond to a notification of an escalation of dispute. Time limits also include the time period for which a certain dispute resolution mechanism must run before it can be escalated to the next level. It is important that the Procuring Authority follows these timeframes or agrees specific timeframes with the Project Company in cases where more subjective language such as ‘within a reasonable period’ is used in the PPP contract.
The parties should agree that they are free to seek urgent (including injunctive) relief through court proceedings or arbitration without having to go through the full dispute resolution mechanism if either party is dissatisfied with the outcome.
The relevant dispute resolution mechanisms available will also depend on what is permitted under the applicable laws. For example, a local law may require that all disputes relating to a PPP contract need to be referred to the local courts and will not permit arbitration.
The majority of projects investigated in the study had defined dispute resolution mechanisms (78 projects out of 115 for which data was available, i.e. 68%). The 2017 version of the World Bank’s Guidance on PPP Contractual Provisions [1] provides further helpful commentary and example wording for typical dispute resolution mechanisms.
[1] Guidance on PPP Contractual Provisions, 2017 Edition. Available at http://ppp.worldbank.org/public-private-partnership/library/guidance-on-ppp-contractual-provisions-2017-edition
