Disputes

Contractual disputes arise when one party believes the other has not done something it was contractually obliged to do, but the other party disagrees as to what its obligations were, or what should be done to remedy the situation.

The Partnerships Victoria Contract Management Guide [#20, Section 8.3] includes a section on issue management and dispute resolution. A helpful distinction is made between 'issues' and 'disputes', as set out in Table 3.6: Distinction between Service Delivery Issues and Disputes.

Table 3.6: Distinction between Service Delivery Issues and Disputes

Source: Australia, Partnership Victoria (2003), Contract Management Guide. Melbourne

The Partnerships Victoria Contract Management Guide also contains sample templates for specifying how issues may be escalated [#20, Template M] and disputes resolved [#20, Template N]. The practical advice offered focuses on the desirability of speedy informal resolution of disputes, understanding the other side's position, and avoiding inappropriate dispute processes, since these can damage the long term relationship.

While a focus on finding practical solutions quickly and taking account of the realities of the other side's position will almost always be valuable, countries with different administrative and legal traditions and capacities will not necessarily find it appropriate to seek informal dispute resolution. Rather, it will often be desirable to follow the formal steps set out in the contract-but to do so in a way that is directed toward finding a practical solution.

There are numerous examples of the costs that governments end up bearing as a result of choosing inappropriate dispute resolution methods. For example, the Government of Tanzania was justifiably dissatisfied with the performance of the private firm operating the water system in Dar es Salaam. The PPP contract provided a dispute resolution mechanism under which the government could very likely have achieved the redress if sought, and indeed won damages from the contractor. However, as described in a review of the dispute case [#226, page 6]:

"While the contractual relationship was headed inevitably towards dissolution, Tanzanian Government officials, motivated by electoral concerns, among others, took a series of drastic measures that went far beyond the contractually mandated process for termination of the Project Contracts. In May 2005, Tanzanian Government officials, causing public furor, repudiated unilaterally and rather publicly the lease agreement with City Water while calling on the performance bond posted by BGT, reinstated the previously waived VAT on purchases by City Water, repossessed forcibly the assets previously leased to City Water, and deported City Water's BGT-appointed management".

Cases of PPP disputes and how they have been handled are available on the website of the International Center for the Settlement of Investment Disputes (ICSID, a part of the World Bank Group)-see Box 3.10: International Centre for Settlement of Investment Disputes (ICSID). In July 2010, ICSID ruled that the Argentinian government unfairly refused to allow the private concessionaires to raise tariffs during the period after the devaluation of the Argentine peso in 2001 and that the private companies are entitled to damages-see Box 1.6: When PPPs fail-The case of the 1993 water concession in Buenos Aires on this conflict.

Overly [#197] also provides a critical review of the experience of international arbitration, in a range of PPP and similar cases. Many of these cases suggest that governments can minimize the costs of disputes to the public sector if they:

•  Act quickly when problems start to arise

•  Have teams with the right skills and appropriate levels of decision-making authority working on resolving the issue

•  Follow processes set out in the contract

•  Look for win-win solutions, taking into account the broader public interest, as well as the private parties' options

•  Resolve the issues at the lowest level possible and only escalate if they are not resolved.