PPP projects have characteristics propitious to recurrent disputes;27 they represent long term, complex commercial and financial arrangements, which may require renegotiation to resolve. Renegotiation is often perceived as failure, as a fundamental flaw in the project, or in PPP generally. This perception arises in particular from poorly managed or implemented renegotiation processes.
| Key Lessons for Policy Makers |
| • Be proactive. Establish mechanisms intended to catch disputes as early as possible. Early in the process, options are varied, relative cost is low, and the likelihood of immediate value-added resolution is higher. • Facilitation can help. Softer processes are designed to use and develop relationships as the basis for finding mutually satisfactory solutions and can work better than more formal processes. • Renegotiation can be an opportunity, and can improve the PPP arrangements and protect the poor, if it is contemplated in advance, transparent and well managed when needed. • Get good advice. Do not try to manage disputes or renegotiations with internal staff alone, no matter how good they are. Get the best, external advice. It will cost money, but will save money in the long run. |
There is no doubt that renegotiation is a difficult and easily abused process, but it is typical for long term arrangements (be they PPP contracts, commercial partnerships or marriages) to face change or conflict and need adjustment to address new information and circumstances. Renegotiation is a natural part of most projects and can be an opportunity to adjust the terms of a project to address the needs of the project (and the public) and actual circumstances encountered by the parties, to the benefit of the parties and the intended beneficiaries of the project. PPP projects must therefore be designed to address change and conflict quickly and effectively, and to facilitate renegotiation in a balanced, transparent manner in accordance with the spirit of the project.28
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27 Straub, Laffont, and Guasch, Infrastructure Concessions in Latin America: Government-led renegotiations, 2005. PPP database (preliminary figures): for 2003, 34% of contracts (by investment amounts) in the water sector were classified as distressed and 12% were cancelled, in transport 15% were distressed/ and 9% cancelled), while in energy 12% were distressed and 3% cancelled. See http://PPP.worldbank.org.
28 Delmon and Phillips, "Renegotiation of Private Participation in Infrastructure and the World Bank" (World Bank, 2007).