The legal basis for the settlement of disputes is an important consideration in implementation of PPP projects. Private parties (concessionaire, financiers and contractors) feel encouraged to participate in PPP projects when they have the confidence that any disputes between the contracting authority and other governmental agencies and the concessionaire, or between the concessionaire and other parties (for example, the users or customers of the facility), or between the private parties themselves can be resolved fairly and efficiently. Disputes may arise in all phases of a PPP project namely, construction, operation, and final handover to the government. The agreed methods of dispute resolution between the parties are generally mentioned in the contract agreement as allowed under the legal framework of dispute resolution in the country.

Legal basis

The legal framework for dispute resolution may be embodied in a number of legal instruments and relevant rules and procedures of the country. The legal instruments may include the PPP/private contract law, company law, tax law, competition law, consumer protection law, insolvency law, infrastructure sector laws, property law, foreign investment law, intellectual property law, environmental law, public procurement law or rules, acquisition or appropriation law, and various other laws. The commonly used methods for dispute resolution include:

Legal framework of dispute resolution

• Facilitated negotiation

• Conciliation and mediation

• Non-binding expert appraisal

• Review of technical disputes by independent experts

• Arbitration

• Legal proceedings

Methods of dispute resolution

It is important that the settlement mechanisms considered are in line with the international practices, particularly when large-scale investments from the foreign private sector are expected.

Generally, the contract agreement(s) specifies what methods of dispute resolution would be followed to settle any disputes arising between the parties and the rules and procedures to be followed for that. The United Nations Commission on International Trade Law (UNCITRAL) has prepared a Legislative Guide on Privately Financed Infrastructure Projects.46 The Guide provides guidance on clauses related to dispute resolution that may be considered for inclusion in the contract document.

UNCITRAL guidance

MAJOR ISSUES CONCERNING CONTRACT AGREEMENT…

• The preparation of contract documents is a major administrative task in PPP development. The availability of standardized contract documents with alternative model clauses can greatly help in streamlining the administrative process through significant reduction in time taken for preparing contract documents and getting them cleared from the concerned government agencies. It also reduces the cost of legal fees for preparing such documents.

• A contract management process needs to be in place from the outset to ensure timely completion and operation of a project. A separate process may also be considered to monitor PPP programme performance as a whole. A contract management process not only helps to fix responsibilities, but also allows timely response to any deviation in project implementation or operation from the provisions in the contract agreements and thus helps to avoid disputes between the parties at later stages.

• The legal basis for the settlement of disputes is an important issue in PPP development. Private parties (concessionaire, lenders and contractors) feel encouraged to participate in PPP projects when they have the confidence that any disputes between the contracting authority and other government agencies and the concessionaire, or between the concessionaire and other parties, or between the private parties themselves can be resolved fairly and efficiently.

• A wide range of dispute settlement mechanisms should be available in order to avoid court cases that may be both lengthy and costly. It is important that the settlement mechanisms are in line with the international practices, particularly when large-scale investments from the foreign private sector are expected.