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Operations and Handback

88. Relationship Management, Issue Management, and Dispute Resolution

8.1. Effective Relationship Management

In chapter 7, relationship management was clearly established as being a collaborative working relationship, together with systems and communications that actively support and enhance the relationship throughout the life of the project. Due to the nature of PPP projects, this item might be one of the most important elements when managing and delivering the project. It is therefore important that policies and procedures are clearly established, as are lines of reporting and when and how to raise an issue. The sharing of knowledge and information also needs to be addressed. If this is not implemented, issues and disputes might arise. The following sections describe how to deal with such situations.

8.2. Issue Management

Research[14] has shown that there are two key sources of conflict.

The first source of conflict relates to situations that arise where there is potential for significant financial impact or unforeseen cost burdens that can shape government VfM outcomes. Examples of these types of disputes, relating particularly to the delivery of services for social infrastructure projects, occur where:

  • The government rigidly applies abatement for delay or under-performance during the transition phase into operations, that is, when systems and processes are still being established, which results in resistance from the private partner;
  • Decisions taken by the government hinder the private partner in some way. For example, double bunking in prison cells due to over-capacity that leads to higher operational costs (such as energy consumption) being absorbed by the private partner; and
  • Where there is non-performance or under-performance by the private partner for the delivery of defined services.

The second source of conflict relates to the failure of one party to meet the expectations of the other where:

  • The intent of a service specification has been misunderstood; and
  • Where a key performance indicator (KPI) has not been adequately defined.

Disputes can occur because the private partner has a different understanding of the service it is supposed to be delivering — or over how wording contained in contractual clauses should be interpreted. Different perceptions and interpretations can therefore have a profound effect on achieving VfM outcomes where the ‘word’ can outlive the ‘intent’ in agreements.

Before enacting formal dispute resolution mechanisms, partners should make sufficient attempts to resolve the issue and at least develop a shared understanding of what the facts are and what the consequences should be under the contractual framework. The degree to which the partners are able to do this may come down to the type (or quality) of relationship that the partners have, and the level of confidence and capability that government employees possess in dealing with their private partner counterparts.

Within this context, having the right experience can be crucial to achieving positive outcomes, as less experienced employees tend to seek expensive legal advice too often. They do this without first considering what the government’s position should be, and then attempting to reach that desired outcome through negotiation with the private partner.

8.3. Dispute Resolution

As with other issues and areas of management, the key issues and good practices associated with dispute resolution are much the same in the Operations Phase as in the Construction Phase. The reader may refer to chapter 7.11.2.

 

[14] Steven McCann, Guillermo Aranda-Mena and Peter J. Edwards (2014), Managing Partnership Relations and Contractual Performance in the Operating Phase of Public Private Partnership: Interview Findings, International Public Management Review Vol. 15, Issue. 2, www.ipmr.net

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