Adequate performance monitoring by the Procuring Authority is an essential aspect of managing disputes. Although significant risks and management responsibilities are typically allocated to the Project Company under a PPP contract the Procuring Authority must ensure that adequate systems are in place to track the Project Company's progress and compliance with the PPP contract. Without these systems the Procuring Authority can encounter difficulties regarding early claims recognition; potential mitigation and management; and reduced visibility on program slippage and service quality, due to asymmetries of information.
As detailed in Section 3.2 (Performance monitoring) it is essential that the Procuring Authority establishes systems that provide adequate warning of any potential issues.
A Procuring Authority that carefully monitors the project, maintains good records of activities and runs an efficient document management system will be well-prepared for disputes as they arise. If the Procuring Authority fails to implement and manage such controls it will struggle to accurately assess the full details of any disputes that arise. This may increase the chances of dispute or add to the time and cost implications of managing any dispute. Information management is detailed in Section 3.4 (Information management).
When the underlying economics of a project are not working well, or the Project Company isn't adequately resourced, there is often an increased risk of dispute. For example, if the Project Company is struggling to make a profit it will be under more pressure to seek compensation from the Procuring Authority. The effect of this may be then that the Project Company is seeking compensation opportunistically in circumstances where it has no legitimate right to claim compensation. This will increase the likelihood of a dispute arising in the hope that an agreement or decision in favour of the Project Company will help it financially. This will also mean that the dispute is less likely to be settled amicably at an early stage.
The Procuring Authority should ensure that the Project Company is a properly functioning entity at all times, putting pressure on equity investors to allocate more resourcing to the Project Company if required. It may be difficult for the Procuring Authority to actively avoid all of these types of disputes after financial close has been reached and in these circumstances the Procuring Authority should be considering other options such as termination, detailed in Chapter 7 (Default and termination).