4.1.5  Dispute resolution

Contractual disputes are common in PPPs for a number of reasons. For example:

•  because the PPP contract is long-term and unexpected circumstances are bound to arise; or

•  because PPP arrangements tend to be complex.

The mechanisms available to resolve disputes and conflicts are a major part of the assessment of contract risks by private investors in PPP projects. The typical dispute resolution mechanisms are:  Guidance 103, 104

•  the national court system (litigation);

•  arbitration (national or international);

•  expert determination of some kind. This is often used for specific issues (e.g. a technical or financial matter) or to give an interim decision which can then be appealed against in litigation or arbitration;

•  mediation or conciliation (where the third party does not give a binding decision but enables the parties to reach an agreement); and

•  a decision by a specialised regulatory body.

The first three mechanisms generally involve a decision strictly based on the PPP contract. The last one (decision by a regulatory body) could be based on the PPP contract but regulators tend to depart from the contract and apply the principles of their own mandate. The regulator may exercise discretion in its judgment. This would be a considerable risk for investors if they do not have confidence in the stability of the regulatory framework or the decisions of the regulator.

Effective relationship management in a PPP project facilitates the easy resolution of disputes in the future. However, if a party resorts to an inappropriate dispute resolution process, the process may damage the relationship.  Guidance 105, 106

It is therefore fundamental that an appropriate dispute resolution process is set out in the PPP contract. This should be done with the support of experienced legal advisers.