Dissecting PPP contracts #8: ADR

During the life of a public-private partnership (PPP) arrangement, which may last for 50 years, disputes and controversies may arise. These cases typically come about after the term of the officials who vetted and awarded the project. Philippine PPP history has seen the effects of such successor risk.

Cases have been lodged in connection with canceled contracts, changes in interpretation of contractual provisions and breach of material obligations. These happen unilaterally or without the knowledge, consent or participation of the other contracting party. Aggrieved parties may either seek redress and relief from courts, quasi-judicial bodies or “neutral third persons.”

Publicized arbitration cases. In at least three instances, the Philippine Government, through its implementing agencies, has been hailed to arbitration proceedings before international neutral third persons. The private sector proponents of Metropolitan Waterworks and Sewerage System, Ninoy Aquino International Airport Terminal 3 and Laguna Lake Rehabilitation and Dredging Project filed arbitration cases after unilateral adverse action by the successor administration.

Executive Order 78, series of 2012. Under this executive issuance, referral to “neutral third persons” is now the rule. Provisions on Alternative Dispute Resolution (ADR) mechanisms must be included in PPP, Build-Operate-and-Transfer Law-related and joint venture agreements, whether entered into by national government agencies, government corporations or local government units. This executive order is anchored on Republic Act 9285, or the ADR Act of 2004.

What is ADR? The implementing rules of this landmark law defined the ADR system as a “process or procedure used to resolve a dispute or controversy, other than by adjudication of a presiding judge of a court or an officer of a government agency, xxx, in which a neutral third person participates to assist in the resolution of issues, including arbitration, mediation, conciliation, early neutral evaluation, minitrial or any combination thereof.”

Mechanisms differentiated. In arbitration, the neutral third person decides, resolves the dispute and renders an award, while in mediation, s/he facilitates communication and negotiation and assists the parties in arriving at a voluntary agreement. The mediator does not determine who is right or wrong. But before involving “outsiders,” parties may contractually bind themselves to undertake mutual discussions.  Referral to a Panel of Experts may also be stipulated. The panel can also act as the arbitrators or mediators.

Sample Text. An ADR provision may be worded this way: “The Parties hereto agree that, in the event of any dispute or difference between them arising out of this agreement or in the interpretation of its provisions, they shall endeavor to meet together in an effort to resolve such dispute amicably. In appropriate cases, the Parties may execute a supplementary agreement to clarify issues. If a dispute cannot be settled by mutual discussion within 30 days from commencement of discussions, the Parties shall refer the matter for Mediation-Arbitration in accordance with the Alternative Dispute Resolution Act of 2004 and other applicable laws and rules.” This is a simplified or short version.

The ADR is one way by which successor risk and breach of trust are addressed. Consistency and integrity of policies and contracts seem to the challenge in cross-administration PPP contracts.