2.4 Reliable dispute-resolution mechanisms
Even if a highly reliable administration is in place, disputes may still arise between public and private stakeholders, given their differing interests and the very long-term (and naturally imperfect) nature of contracts, not least PPP contracts. These disputes require prompt and efficient resolution, without damaging the long-term relationship between the two parties. If justice is done in a predictable, timely and efficient way, the risk of inequitable regulatory decisions diminishes.
Range of dispute-resolution options
Disputes will vary in severity, so dispute-resolution options should likewise be varied, or tiered according to the severity of the dispute. The courtroom is not the only arena for discussion!
To settle disputes, a set of options, which has been used in the context of PPPs, includes mediators, non-binding expert panels, binding expert panels, national regulators, and international jurisdiction or arbitration.56
EXAMPLE: Since 2004, Chile has been using permanent expert panels to resolve disputes in the electricity sector (between public and private sectors, and between regulated companies). Initially, the panels have a conciliation function, but cases can be escalated to an arbitration level, where the panels’ decisions are binding.57
Effective judicial capacity
Since some disputes will end up going to court, an effective judicial process is essential for hearing and resolving them. Well-developed international standards can guide countries that want to improve their judiciary; such standards include the Core Principles of the European Bank for Reconstruction and Development (EBRD), the UN Basic Principles on the Independence of the Judiciary, and the Bangalore Principles of Judicial Conduct.58 Figure 10 summarizes the essential building blocks of an effective judicial capacity, and promising measures to acquire them. By conscientiously implementing those standards, countries can reduce judicial risks considerably.
Figure 10: Effective Judicial Capacity
Source: EBRD (2010)