Is Arbitration the Right Way to Settle Conflicts in PPP Arrangements?

Abstract

Conflicts are common in the construction industry. The characteristics of public-private partnership (PPP) arrangements make them prone to conflicts, some of which are acute and jeopardize the success of the project. Because litigation is time-consuming and costly, an alternative dispute resolution (ADR) might be a viable substitute for court action. Among the different types of ADRs, arbitration assumes prominence not only because of its extensive use, particularly as the last attempt before litigation, but also because the results of arbitration are attributable to rules, applied according to a contract and the discretion of arbitrators, for which appeal is seldom allowed. Therefore, although the idea of arbitration suggests a beneficial resolution, the public interest, proportionality, and fairness are not always ensured. Through an empirical case study, the sound features of arbitration are presented as are cautions to consider when adopting the ADR strategy of arbitration. Undue use of arbitration can become perverse. In particular, the public partner should avoid arbitration by endowing the contract with good governance practices and by compulsorily trying other types of ADR first. Moreover, the contract should stipulate that continuous information and knowledge about the project are provided to the public sector. Finally, the right to appeal should always be allowed even if the decision is allowed to stand to avoid stopping a project.