The hallmark of a PPP contract compared to most other contracts is the long project duration. If the project is to be a success, the parties need to have a means of resolving disputes that will not destroy the working relationship between the parties. Unfortunately, dispute resolution procedures such as arbitration and litigation tend to create very formal, adverse relationships between the parties, and they are also time-consuming and expensive to conduct. This can also take up a lot of management time on both sides.

For this reason, PPP contracts tend to adopt a tiered dispute resolution approach, to maximise the opportunity for speedy, cost effective resolution of disputes.

(a)        Escalation to management

Many PPP contracts mandate that disputes should first be escalated to a more senior management level for discussion for a minimum period of time before it can be escalated contractually. Bringing new personalities into the discussion, who may be able to take an overview of the wider project, can often be a way of unlocking a disagreement.

(b)        Mediation

Mediation is a consensual process by which the parties agree to appoint a neutral third party to mediate and act as a “go-between” in order to help the parties find a solution. Each party puts their position forward and the mediator speaks to each party in turn in confidence. By doing so, the mediator may be able to unlock sticking points and help the parties find a consensual solution, which may involve commercial trade-offs that a formal dispute resolution tribunal would not be permitted to do. By contrast to arbitration and/or litigation, the costs of conducting a mediation hearing are relatively low.

(c)        Adjudication / Expert determination/ Fast track DRP

These are different terms which relate to similar concepts. The idea is that some disputes (particularly technical disputes or single-issue disputes) may be well-suited to an abbreviated form of dispute resolution in front of a suitable independent expert. A typical “fast track” procedure may allow for disputes to be determined within a matter of a few weeks. The procedures normally provide that such decisions can be fully re-opened in litigation or arbitration if so required, but evidence shows that in many cases parties are content to live with the decisions reached having had their “day in court”.

(d)        Litigation / Arbitration

This is the default dispute resolution forum. Hopefully, if the parties have followed the preceding dispute resolution options discussed above then they may not need to escalate the dispute this far. In PPP contracts in emerging markets, international arbitration procedures in a neutral judicial seat tend to be the norm because investors and lenders will take more comfort where the process is being run by an established institution (or by arbitrators appointed by an established body) and where the rules governing the arbitration process are well understood and capable of being upheld by national courts with a suitable reputation.

(e)        Enforcement issues

The issue of an award does not guarantee immediate payment. Where compensation is sought, each party needs to consider where the assets of the other party are located and how enforcement might be sought.

In the case of an award against a government entity, enforcement may essentially become a political issue because the courts will generally not permit enforcement against government assets. In this case the investors and lenders may need to consider what other protections are available to them, which is discussed later.