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PPP TOOLKIT for Improving PPP
Decision-Making Processes

Sector: State Highway  |  Module 2: Work through the PPP process

Other issues related to contract management

Dispute resolution

The special nature of PPP arrangements mean that dispute resolution mechanisms are of particular importance to a potential investor. These characteristics include the many opportunities for conflicts, the long-term nature of PPP contracts, the political and social sensitivity sometimes attached to them and the complexity of the issues involved. Dispute resolution mechanisms need to be rapid in nature, while still ensuring that decisions are taken by an entity with the necessary technical, economic and financial expertise and that the parties remain on good terms.

A guiding principle for contract management should be that it is best to identify and resolve issues at an early stage before they escalate into major disputes. This should be one of the goals of the monitoring activities.

Dispute Resolution in India

The dispute resolution process in India typically comprises two sequential stages:

  • Amicable resolution (mutual discussions),
  • Arbitration

An alternative to amicable resolution or a successive step that may be adopted is mediation. Each of these options is briefly described below.

The concession agreement for any project typically specifies the dispute resolution process that would be adopted. The occurrence of a dispute needs to first be notified in writing by one party to the other.

Amicable resolution (mutual discussions)

As a first step, representatives of the public and private entity would meet at a mutually convenient time and attempt to amicably resolve the dispute within a specific number of days. If the dispute is not amicably settled within such a specified time limit, then either party may refer the dispute to mediation or arbitration.

The typical process for amicable resolution would be:

  • Aggrieved party should issue a written notice of the dispute to the other party
  • Parties to have mutual discussions in good faith to resolve the dispute
  • If no resolution within the contract specified number of days the matter should be referred to arbitration.

Mediation is a non-binding approach, similar to amicable resolution, in which an impartial third party – the conciliator/mediator – assists the parties to a dispute in reaching a mutually satisfactory and agreed settlement of the dispute.

A mediator may help to formulate alternatives and help a party clarify how those alternatives fit in with that party's goals and how they might work. A mediator also serves as a conduit for information between the parties, especially where the parties have difficulty communicating directly with one another.

The typical process for mediation would be:

  • Aggrieved party should refer the dispute to the identified mediator in writing, with a copy to the other party. Such a reference should contain a description of the nature of the dispute, the quantum in dispute (if any) and the relief or remedy sought suitable.
  • The mediator shall use his best endeavours to conclude the mediation within a certain number of days of his appointment.
  • If no resolution can be reached through mutual discussion or mediation within the set number of days then the matter should be referred to Arbitration.

Arbitration is a method whereby parties can resolve their disputes privately. By Indian law, a contract providing for adjudication of disputes by arbitration, outside the jurisdiction of the courts, is valid.

Instead of filing a case in a court, parties can refer their case to an arbitral tribunal (arbitration panel), which is the forum where arbitration proceedings are conducted. The arbitral tribunal will consider the questions over which the parties are in conflict and will arrive at a decision. This decision is known as an 'award'.

India has well-developed procedures for arbitration and conciliation set out in the Arbitration and Conciliation Act 1996. It is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985.

The Act applies to both domestic arbitration in India and to international arbitration. Compliance with the Act is binding on all parties including State Governments.

The arbitration agreement must be in writing. It may be in the form of an arbitration clause in a contract or it may be in the form of a separate agreement.

The concession agreement should ideally specify the following with respect to arbitration:

  • Applicable law to arbitration
  • Location of Arbitration
  • Number of Arbitrators
  • Language of Arbitration
  • Discovery procedure
  • Interim measures/Provisional Remedies
  • Privacy
  • Applicable rules
  • Appeal & Enforcement
  • Survival after Termination of the main agreement.
Typical Process for Arbitration
  • In the event that the parties are unable to resolve a dispute through Mutual Discussions / Mediation, the Parties refer the dispute to arbitration.
  • The arbitration panel typically comprises three arbitrators of whom each party shall select 1 and the third shall be appointed by the two arbitrators appointed by the Parties.
  • The costs incurred on the process of arbitration, including the fees of the arbitration panel, and the proceedings are borne by the Parties in equal proportions.


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