12. Anything that can be done to reduce either the number of disputes in operating PFI Contracts, or the percentage of disputes being referred to formal dispute resolution is, in our view, in the public interest. It is also in the best interests of both market efficiency and efficient use of public funds. We make three recommendations in this regard:
(a) PFI Dispute Resolution Forum - given how many operational PFI projects there are that will not expire for many years to come, and that PFI Contracts are unique and inherently complex, we believe that there are very compelling reasons why the PFI Industry should seek to ensure that all disputes are heard and determined consistently. In particular, it is imperative that the PFI industry begins to benefit from a meaningful bank of jurisprudential precedent that is publicly available.
For the most part, PFI disputes are (in accordance with the terms of the relevant PFI Contract) being heard privately by adjudicators. However, this approach is, in our view, flawed for two key reasons:
(i) The complexity of many PFI disputes is often beyond the experience and capabilities of the adjudicator, resulting in poor decisions; and
(ii) Adjudicative decisions are private, meaning that jurisprudence is playing less of a role in the evolution of the PFI market than it should be. Significant time and money is being wasted across the PFI market due to the same disputes being heard time and time again,
In its "Project Autumn" Report, the law firm DLA Piper highlighted these flaws in the context of concerns related to the number of disputes that may arise with respect to the expiry and handback of PFI projects. In its report, DLA Piper recommended the creation of an "Expiry and Handback Resolution Council" that would be used, across industry, to hear disputes related to expiry and handback. The recommendation suggested that the Council should consist of five leading adjudicators/arbitrators with experience of PPP and PFI Projects and that a "Chair" should be elected to manage referrals and to advise on structure and format. By agreement of the parties to a PFI Contract, disputes would be referred to a member (or members) of the Council to ensure that an element of consistency could be developed and monitored across the board.
Although we support DLA Piper's recommendation, there are three key enhancements that we would make to that recommendation:
(i) A "PFI Dispute Resolution Forum" should be established that has jurisdiction to hear any type of PFI dispute (not just disputes relating to handback and expiry). It is clear to us that the PFI Industry is in dire need of this;
(ii) Given the technical complexity associated with so many PFI disputes, adjudicators should be able to call for support from non-legal PFI experts (eg engineers and financial advisors) that are accredited by the PFI Dispute Resolution Forum; and
(iii) The establishment of the PFI Disputes Resolution Forum should not come at the cost of the promotion of the use of mediation by parties to disputes. There will be a significant administrative role associated with the establishment of the PFI Dispute Resolution Forum and, as part of that, we would recommend that a database of fully accredited "PFI mediators" is developed, so that parties to disputes have access to mediators with relevant experience and skills.
The establishment of the PFI Dispute Resolution Forum will provide the following benefits to the PFI industry:
(i) Anonymised versions of adjudicative decisions will be made publicly available, thereby allowing a body of "PFI common law" to develop and help reduce the inefficiencies that are created by the same disputes being referred to private dispute resolution forums time and time again;
(ii) The quality of decisions should improve if members of the PFI Dispute Resolution
Forum have access to non-legal PFI experts; and
(iii) By making a bank of accredited mediators available to the PFI market, less disputes should be referred to adjudication.
(b) Access to Information - Government Departments must have access to information related to any disputes in operational PFI Contracts entered into by the Public Authorities that they fund, including the decisions of any formal adjudication processes. To the extent that information is not flowing to relevant Government Departments due to legal issues, then this should be investigated and addressed as a priority. Until such time as this issue is addressed, we have real concerns that the management and leadership of disputes by Public Authorities will be increasingly outsourced to advisers, on the basis that they have visibility of other disputes in the market that they are involved in. To the extent that Public Authorities are being advised that disclosure of an adjudicative decision to a sponsoring Department or the IPA would represent a breach of confidentiality, we would encourage the relevant Public Authorities and sponsoring Departments to strongly challenge that advice and, if necessary, approach the relevant SPV for confirmation that they have no objection to such disclosure. Based on feedback from consultees, we do not believe that the private sector has any objection to Public Authorities sharing the details of the outcomes of formal dispute resolution processes with sponsoring Government Departments; in fact, we received strong support for this.
(c) Contingent Fee arrangements - given the complexity of many disputes relating to PFI disputes, Public Authorities may often need to supplement their internal resource by engaging external advisers. This can be a positive step given the lack of internal public sector resource available. We do, however, feel strongly that, in such circumstances, Public Authorities should not engage their advisers on the basis of contingent fee arrangements. In the context of a major PFI Contract dispute, it is imperative that all decisions are made on the basis of what is in the best public interest and, in our view, contingent fee arrangements can run the risk of compromising this principle (eg achieving the highest financial settlement isn't always in the best public interest).