All private firms will seek fair enforcement mechanisms in the partnership arrangement. Foreign firms in particular will be concerned that they will not be treated fairly or in a timely fashion in local regulatory proceedings or court actions. As such, they will push to have any disputes heard by an international arbitrator. On the other hand, municipalities will seek to have local enforcement mechanisms apply. How the negotiations will proceed will vary, often with the level of capital investment the municipality is seeking from the private firm; the higher the amount of capital to be invested by foreign- owned private firms, the greater the likelihood of international arbitration.
Municipalities need to be willing to hold their partners to their obligations if the partnership arrangement is going to increase the efficiency and cost effectiveness of service delivery. For large-scale partnerships involving the international private sector, the arrangement will include a framework of legal and contractual requirements - for performance, for fees, for reporting. If the government is not willing to force the private firm to meet its commitments, its incentives to do so will be severely reduced, if not destroyed. The partners need to know that if they do not meet their obligations, effective enforcement will follow. Not surprisingly, negotiations over enforcement mechanisms will be particularly important to private partners, particularly those from other countries.
Typical enforcement arrangements include:
• information gathering, such as reporting by the private partner, complaints by users and inspections by the municipality;
• hearings, such as by regulatory bodies (increasingly including user representatives), courts or international arbitrators; and
• penalties, such as liquidated damages under the contract (amounts due if the contract requirements are not met), fines under local law or termination of the partnership arrangement.