5.1.5 Dispute resolution

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

□ the contract is long term and unexpected circumstances are bound to emerge;

□ PPP projects involve large investments in immovable assets; or

□ PPP projects tend to be large and complex.

These issues are even more relevant in the case of cross border TEN-T projects and, as in the case of any PPP, properly addressing them implies close involvement of legal advisors.

Disputes may occur because of unforeseen outcomes or circumstances. The mechanisms that are available to resolve disputes and conflicts are a major part of the assessment of contract risks by private investors in PPP projects. Some examples are: <1>,<2>

□ the national court system (litigation);

□ arbitration (national or international);

□ expert determination of some kind (often used for limited issues - e.g. a specific technical or financial issue in dispute - or used to give an interim decision which can then be appealed in litigation or arbitration);

□ mediation or conciliation (where the third party does not give a binding decision but the goal is rather to enable the parties to reach agreement); and

□ a decision by a specialised regulatory body or a similar body.

The first three mechanisms generally involve adjudication based strictly on the PPP contract. The last mechanism (decision by a regulatory body) could be based mainly on the PPP contract but some regulators have a tendency to diverge from the PPP contract in certain ways, based on their legal mandate. In some cases, the issues decided by the regulator are not governed by detailed rules in the contract and it is understood that the regulator will exercise a certain amount of discretionary judgment. This may add 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. Likewise, if a party resorts to an inappropriate dispute resolution process, the process can worsen the damage to the relationship resulting from the dispute. <3>,<4>

For this reason, it is vital that an appropriate dispute resolution process is set out beforehand in the PPP contract.