Dispute settlement in public private partnership projects

Like any other contract, public private partnership projects are susceptible to disputes. The likelihood of disputes in conventional procurement is minimal in supply contracts.

PURCHASING & SUPPLY: NYASHA CHIZU

Given that such projects have an interest of the public that is higher than ordinary procurement, mechanisms for communicating the performance of the project to the public must be available

Given that such projects have an interest of the public that is higher than ordinary procurement, mechanisms for communicating the performance of the project to the public must be available

Works contracts tend to be candidates of disputes in the same manner as the public private partnerships, given the prolonged engagement typical with such projects.

The longer the business marriage, the more the circumstances change and the more expectations also change giving rise to disputes. The safety net is always the inclusion of dispute resolution mechanisms in every contract. This provides a legal means of settling disputes that bind the parties.

The public private partnership contract must clearly spell out obligations for both parties that are necessary for monitoring the performance of the project.

One of such obligations is that the procuring entity should periodically gather data on the performance of the project. The private partner must provide periodic operational and financial data to the procuring entity.

Both parties must identify and monitor the project risks and risk mitigation measures must exist in all contracts. Given that such projects have an interest of the public that is higher than ordinary procurement, mechanisms for communicating the performance of the project to the public must be available.

Mechanisms for dispute settlement are aimed at reducing the risk of renegotiation of the project and to some extent, to threaten the existence of well-meaning projects.

Changes can be made and problems resolved within the framework of the contract. One of the safeguards on a joint venture project is the involvement of investors, contractors and lenders to ensure that disputes that may arise could be resolved fairly and efficiently.

Such involvement harnesses the implementation of projects in a manner that avoids disputes or facilitates settling them expeditiously. The benefits are that the project implementation is then smoothened and overall administration costs are reduced.

Some public private partnership contracts recognise that such ventures are supported by lenders and they provide leverage through lender step-in rights in the event of a dispute.

They allow that the lender, with the consent of the procuring entity, selects a replacement concessionaire to perform the on-going project when the risk of the original partner threatens the project.

This instrument provides lenders with additional security against default by the private party in a contract. It also acts as an external guarantee on the performance of such a contract and assures the procuring entity with undisrupted implementation of the projects.

Although such provision of lender step-in gives so much benefit to procuring entities and the general citizenry at large, most regulatory frameworks did not provide for them.

Zambia, Morocco and Tunisia in Africa have provisions for lender step-in. Most regulations defer to the contract the involvement of lenders when disputes arise.

Dispute resolution mechanisms may be prescribed in the laws of a country. Most countries with public private partnerships laws provide for dispute resolutions in the regulations.

The majority of such laws provide that the dispute resolution mechanisms shall be regulated in the contract. Some provide specific dispute resolution mechanisms while others limit it to arbitration. Chile’s regulatory framework identifies a technical panel for resolving disputes and that there must be consent of both parties.

Guatemala law stipulates the creation of an ad hoc commission for resolving such disputes. Uruguay regulations identify the sources of disputes and direct them to arbitration.
The laws recognise that the dispute may arise from the application, interpretation, execution, performance and termination of the contract.

Disputes are risks that generally affect the performance of public private partnership contracts and need to be effectively regulated and managed if the objective of leveraging from private sector resources will bring forth the desired benefits.

Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: nya.chizu@gmail.com Skype: nyasha.chizu