Dispute Settlement Mechanism in Public Private Partnership - PPP

Dispute Resolution is a Corner stone in Environmental Social & Governance - ESG Principals creating an impact of Governance and Transparency for PPP projects all in line with DRBF (Dispute Resolution Board Foundation) a Non-profit organization which Promotes Fostering Common Sense in Dispute Resolution World Wide. DBRF was founded in 1996, It does not directly involve in resolving contract disputes itself, but rather promotes the use of Dispute Boards (DBs). DBRF outlines the broad functioning parameters of DB and their functioning during construction and operation phase.  DRBF also defines qualification, expertise and experience requirement of DB members. DBRF guides project teams to focus on common goals and avoid big tsunami waves of claims resulting into deep routed disputes. DB is well defined in European International Contractors (EIC) White Book on BOT/PPP (2003).

Disputes normally arise due to selfish desires and unwillingness to compromise. The Disputes are very well defined in the dynamics of “Sigmund Freud’s” Theses on the Psyche of humans” can be visualized in the form of ICE BERG model, it symbolizes that many conflict motives are concealed and can fuel the development of the dispute, The visible part of the Iceberg represents topics, facts & Opinions, Water Line represents Pride & Values, the Invisible Part of the Iceberg that can ignite disputes are Mood, Temper, & Sentiment. The Nine Steps of Conflict Escalation by Friedrich an Austrian known Conflict Researcher and Management Consultant defines conflict escalation steps into three categories, that is Facilitation, Mediation & Forceable Intervention which can be classified as win-win, win-lose & Lose-Lose respectively each category is further subdivided in three further steps, Facilitation steps are Tension, Debate & Action replace words. Mediation and at this stage the situation are Mostly Factual. Mediation Steps are Coalitions, Loss of Face & Threats, at this level conflict is about the relationship. Forceable Intervention steps are Opponents not seen as human. Damage them! Own Loses okay if they lose more, Opponents and their supporters are annihilated with all means, Personal annihilation acceptable as long as opponents go down too. These conflict Escalation steps cause adverse effects on Business which can be Loss of Opportunity Cost, Loss of Reputation, Locked in Past issues instead of shaping future, Dissatisfaction of work force and last but not least Litigation, Arbitration is very expensive and the outcome is “It’s cheaper to prevent than to heal the Conflict

Moreover, the negotiators are people first, they have emotions, deeply held values, different backgrounds and viewpoints make them unpredictable.  For preventing Disputes in Projects, it is recommended to adopt conflict avoidance and prevention policies to anticipate the possibility that a dispute may emerge. The human factor in shaping deals is based on Basics of Non-Violent Communication-NYC & Interpersonal Relation. Basics of NYC are Observations Feelings Needs & Requests and Interpersonal Relation are not undefined about what is said but in particular how it is said, the human factor tends towards egoism and incapacity to pardon past injuries, the best way is to separate people from the problems to successfully manage deals and prevent disputes, and avoid moral degradation during conversation. The Intercultural Communication of High Context & Low Context plays an important role in shaping deals, such as negotiators from Subcontinent, China, MENA region & Japan falls into the category where Relationship and shared understanding is valued and the negotiators from Europe, USA, Netherland & Australia falls into the category of less reliance on situational & relational context.

Designing future-proof contracts they need to be made resilient against unexpected changes. Compliance with the 17 ESG (Environmental Social & Governance) principals can ensure Inclusive and Resilient Contracts with PPP impact assessment tool developed by UNECE (United Nations Economic Commission for Europe), which are End Poverty, Zero Hunger, Good health and Wellbeing, Quality Education, Gender Equality, Clean Water and Sanitation, Affordable and Clean Energy, Decent Work & Economic Growth, Industry Innovation & Infrastructure, Reduced Inequalities, Sustainable Cities and Communities Responsible Consumption & Production, Climate Action, Life Below Water, Life on Land, Peace Justice & Strong Institutions &  Partnerships for the Goals.

The Control Process for Dispute Avoidance and Resolution can be well-defined in Four steps systematically which are Dispute Avoidance, Mediation, Arbitration & Litigation and Disputes increasingly lose control as third party increasingly intrudes as we move from Dispute Avoidance to Litigation stepwise. Disputes arises of Uncertainty such as when Commercial Interests are adversely impacted whereas Dispute Avoidance recognizes that disagreements always occur in Projects but Proactive Dispute Avoidance allows problems to be dealt with before they become formal disputes. As construction projects are affected by many external parameters and every project is a prototype not Product. Dispute Avoidance is the base towards Dispute Resolution, which encourage Parties to take action on its own to avoid dispute in anticipation, the right strategy would be Pre-Contract Contract Management including but not limited to due diligence, Applicable Contract with right pricing. Post Contract management involves regular monitoring, good record keeping and regular negotiation when problem arises. This must be kept in mind that it is not always possible for the parties to resolve issues on their own. PPP are complex processes, a lot of grooming required to deliver good results. Effective Dispute avoidance in PPP comprises of six processes, which are Deal Facilitation & Mediation by introducing Facilitator, Principled Negotiation by separating people from the Problem, Scrum Posture through transparency Inspection and adaption, Retrospectives by setting a stage gather data, identify root cause, generate action items. Partnering by adopting Partnering Charter, forming Partnering team Issue identification & Resolution. Finally, the factor supporting Dispute Avoidance is Escalation Management that is Escalation Management triggers Escalation of dispute calling for Escalation in Levels, Empowered Representatives to make decisions resulting into continuous improvement.

If Dispute avoidance is not working than ultimately formal disputes may be referred to the DAAB (Dispute Avoidance/Adjudication Board) for a temporarily binding decision, which the parties are obliged to implement with any further disagreements referred to International Chamber of Commerce- ICC arbitration. DAABs process can be very flexible, DAABs are highly effective in reducing formal disputes, even in complex contractual frameworks such as PPPs. Out of Court conflict resolution process is Mediation in which Dispute parties sit down at a table with a Neutral & Omni Partial (refers to an approach in dispute resolution, particularly mediation, that emphasizes caring for and considering all sides of a conflict. It's different from neutrality or impartiality) Third party. Mediator(s) moderates the conversation and uses Question and other methods to get the two parties to reach interest-based solution. The pillars of Mediation can be Neutrality. Confidential, Omni partiality. & Self Determination. In mediation Agreement is based on Consensus of both parties and give Transformative approach to overcome imbalances in Power, information or Perception between the Parties. Mediation Process challenge and optimize agreements for mutual benefits, manage psychological barriers in the negotiation process as well as emotional and relationship aspects. The Deal Mediator plays an important role in Mediation process. The Deal Mediator may also have specific expertise in an industry and can assist the parties to anticipate areas of potential dispute. If the Deal Mediator is present from the very early stages of the drafting of the deal, they would possess a thorough understanding of the negotiated agreement. A Deal Mediator could be someone who facilitates agreements between two or more parties in a business deal – Focus on deal structuring and negotiation. A reality check can be in a negotiation between parties with Cultural bias, the Deal Mediator can clarify the difference between the parties resulting from distinct culture. In a reality check two, when parties in negotiations camp on their positions rather than exploring mutual value creation the solution is Involve a deal mediator from the very start of the negotiation process to allow the parties to reflect and anticipate all potential friction points and help adopt a bespoke process adapted to the PPP parties' needs and situation. The reality check three for a deal mediator can be Positional bargaining during the deal making often doesn't leave much room for the under lying interests. The Deal Mediator helps overcome purely positional negotiations and identify interests and solutions that generate mutual advantages. Dig beyond the defined positions and open up a Zone of Possible Agreement (ZOPA) so the parties can start imagine and co-create collaborative and consensual solutions. The Fourth reality check can be Inadequate cost and risk evaluations arouse suspicion and often lead to ill negotiations. The Deal Mediator can provide critical help to avoid unnecessary cost and commercial bargaining due to attempts to transfer all risk on the opposite side transform the feeling of hostility by channeling a rational risk analysis to better control the deal process and ensure sustainable commercial relations. Now question arises why Mediation works so well because it is structured such as Mediation Contract comprising specifically of Mediation Contract defining Confidentiality process, Autonomy and remuneration of mediator which on acceptance leads to Notice to proceed and to identify conflict areas and to capture interest and needs and Generate  solutions and Options and on agreement Sign a written Settlement Agreement which then is implemented thus strengthening the relationship among the conflicting parties. The Coconut example of Mediation best describes the process. Philosophically Hard Shell of Coconut depicts that we strive for inner peace, which can be seen as a form of protection against external pressures. Finding the Sweet Spot in Coconut is Similar to, mediation which can help us find a "sweet spot" in conflict resolution that is finding solutions that satisfy everyone involved. Community and Sharing is that Coconuts grow in clusters, promoting a sense of community. Sustainability and Resource fulness in Coconut trees as they are known for their sustainability, providing food, water, and shelter. finding solutions that don't deplete emotional resources and can be built upon for Future harmony.

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. A comparison of Arbitration and Mediation reveals that in both cases the disputing parties remain in control. In Arbitration Top Industrial Experts gives a formal binding decision and is covered under Specialized treaty on Arbitration. The specialized treaty on arbitration is an international agreement that focuses on dispute resolution through arbitration in a specific field. Unlike general arbitration treaties, these agreements deal with the complexities of a particular area, like investment or maritime law. Whereas the Mediation is Flexible and preserves relationships and addresses parties’ unique needs. If the arbitration decision is not challenged in Court of law from 30 to 90 days it becomes a binding to the parties- in line with terms and condition of Arbitration.

Litigation is the process of taking a dispute to a court of law. If parties cannot agree between themselves about the fair and proper outcome of a dispute they will present their respective cases to a court for its judgment. It is a broad term that describes a long and sometimes complex process it induces uncertainty and involves Procedural lengthy issues which are costly and are final and binding. 80% of mediation settlement prevails, hence we cannot afford not to try a Mediation.

In PPP dispute resolution is handled in an innovative way giving weightage to Mediation and Conciliation and avoidance to prevention approach. At the first stage when dispute has surfaced in the form of complaint against an organization or government agency Ombuds is appointed, An Ombuds, short for ombudsman or ombudsperson, is an independent and impartial official appointed to investigate and resolve complaints or grievances against organizations, government agencies, or other entities. Then comes the process of Early Neutral Evaluation (ENE) ENE is a dispute resolution process in which a neutral third party, typically an expert in the subject matter of the dispute, evaluates the strengths and weaknesses of each party's case at an early stage of the proceedings. Mediation Ombuds and ENE are covered in negotiated settlement. Then comes the stage of Fact Finding through a Sector Regulator which is a governmental or semi-governmental body responsible for overseeing and regulating a specific industry or sector, such as telecommunications, energy, or finance such as PPRA, PPPA, OGRA, NEPRA. If the sector regulator is not able to resolve the issue, then comes the Dispute Review Board Issues recommendations that are not immediately binding on the parties involved in the dispute. However, these recommendations can become binding if neither party objects within a specified timeframe (usually 30 days). DRB Established at the outset of a project and can be involved throughout its duration, providing ongoing guidance. The verdict of DRB can be placed at the disposal of DAB Dispute Adjudicating Board Issues decisions that are binding on the parties involved in the dispute immediately. These decisions remain in effect unless challenged through arbitration or litigation, or if both parties agree to revise them. Dispute Avoidance and Adjudication Board (DAAB) This is an evolved version that expands on the DAB's role. The DAAB not only resolves disputes but also has a focus on preventing them in the first place. They might achieve this through Regular site visits and communication with both parties. Identifying potential issues and encouraging early discussion to avoid escalation. Offering informal advice or facilitation to help parties reach agreements. ADR stands for Alternative Dispute Resolution. It refers to various methods for resolving disagreements and conflicts outside of the traditional court system. These methods aim to find solutions that are mutually agreeable to all parties involved, often with the help of a neutral third party.  Common forms of ADR include mediation, arbitration, and negotiation. Each method has its own specific process and level of formality. compared to litigation, ADR can be faster, less expensive, and less stressful for the involved parties. It can also help preserve relationships and create more sustainable solutions. ADR is used in a wide range of contexts, including business disputes, family law matters, contract disagreements, and community conflicts. If you're involved in a dispute, it's worth considering ADR as a potential option. However, it's important to consult with an attorney or other qualified professional to determine if ADR is the right choice for your specific situation. Litigation and Arbitration are termed as Gunboat Strategy approach is the process of resolving disputes through the court system. It's the most formal and adversarial method of dispute settlement. Dispute Boards have been an effective tool for resolving - and, equally importantly, for avoiding - disputes between Government Entity and Private Sector. The Process is supported by Multilateral Development Banks. There has been some limited use of Dispute Boards on PPP projects (e.g. the Channel Tunnel Project) and they have been recommended in the Global Infrastructure Hub's report on Managing PPP Contracts. The Dispute Resolution Board Foundation (DRBF) is now examining how to encourage greater use of this tool in future PPP transactions. Associated cost of DB is relatively small in large PPP transaction. Mechanism to periodically replace DB members (multi- decade life span). Composition of DB can be adjusted to project progress phase, i.e. construction, operation and handover. There are various Challenges in introducing Dispute Boards in PPP which can be Global slowdown in PPP activity in recent years. Some have argued that PPPs are perceived – by both the public and the private sector - as being too inflexible and ill-equipped to deal with unanticipated risks. Arguably, PPP's need to become more collaborative, recognizing that they are supposed to be based on a relationship between partners. A better approach to dispute resolution would help Dispute resolution clauses typically found in PPP contracts often result in disputes rapidly escalating to formal arbitrations. Conceivably, Dispute Boards might also help to address the problematic issue of frequent renegotiation of PPP agreements.

Finally, the Dispute Resolution Board Foundation – DRBF recommendations for Dispute Settlement in PPP projects are: Including both design and construction subcontractors (often referred to as D&C) as well as operation and maintenance (O&M) subcontractors in the dispute resolution process (DAB). Standing DB's in PPPs would assist in the effective management of these projects and resolution of key friction points over their lifetime. The lifetime of the DB should extend beyond the D&C phase to include the O&M phase.