The legal basis for the settlement of disputes is an important consideration in the implementation of PPP projects. Private parties (concessionaire, financiers and contractors) feel encouraged to participate in PPP projects when they have the confidence that the 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) 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.
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:
• Facilitated negotiation. A facilitator is appointed by the parties in the contract. The facilitator aids the parties in resolving any dispute through negotiation. He/She does not provide any opinion but assists the parties in analyzing the merits of their cases.
• Conciliation and mediation. A person or a panel appointed by the parties provides independent and impartial assistance to them in resolving a dispute. This process may end either in the settlement of the dispute agreed by the parties or it may end unsuccessfully.
• Non-binding expert appraisal. A neutral third party provides an appraisal on the merits of the cases of parties in dispute and also suggests an outcome for their consideration. The process is usually followed by negotiations between parties.
• Review of technical disputes by independent experts. This method is often used for the settlement of technical disputes between parties in contract. To review disagreements, the contesting parties refer such matters to an independent expert appointed by them. The decision of the independent expert may either be binding or non-binding, as agreed in the contract agreement.
• Arbitration. In this process, the matter in dispute is referred to a board or tribunal of arbitrators appointed by the parties according to an agreed procedure set forth in the contract agreement. Such arbitration is held in accordance with the rules and at a place as agreed in the contract agreement. Any award made by the arbitral board or tribunal is binding on parties.
• Adjudication by Regulatory Authority. If a statutory Regulatory Authority exists with powers to adjudicate upon disputes between the contracting government agency and the concessionaire, matters of dispute may be referred to the Regulatory Authority. An appellate tribunal or a court of law as defined in the contract agreement can consider an appeal against such adjudication.
• Legal proceedings. In accordance with the legal provisions, parties in dispute may go to the domestic judiciary for the settlement of their disputes.
It is important that the settlement mechanisms considered in the contract agreement are in line with the international practices and requirements, 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 dispute 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.35 The UNCITRAL Guide provides clauses related to dispute resolution that may be considered for inclusion in the contract document.
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35 Available at <http://www.uncitral.org/pdf/english/texts/procurem/pfip/guide/pfip-e.pdf>.