When progress can’t wait, mediate


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In public private partnerships (PPPs), it’s easy to forget that third “P,” but it’s this concept of a partnership that ensures the health and sustainability of the public-private relationship. Conflict can undermine the PPP relationship, or be used to strengthen it – and that’s why mediation is an important option for PPPs. 

Mediation is simply a facilitated negotiation.  It is a very flexible format for resolving differences in international infrastructure projects, as each mediator can structure the process in the manner most appropriate to the situation.  Resolution achieved by mediation is not limited to remedies provided by law, allowing for bespoke settlements that satisfy both parties.

The mediator’s job is straightforward, despite how complicated a situation may be: he or she discusses with the interested parties the issue at hand, drawing out their interests and exploring alternative solutions. It’s an especially effective solution for infrastructure projects, which, due to their scope, the number of different organizations involved, and the varied backgrounds and experiences of the people staffing those organizations, are particularly vulnerable to conflict. Through mediation, that conflict can be used to build (or re-build) a relationship, and sustain the partnership.

Culture, culture everywhere
Mediation is particularly effective at managing cultural differences; these cultural considerations are not limited to issues of national origin.  Different technical orientations and different commercial experiences can create cultural differences.  For example, an Independent Power Project may involve several construction contractors from different industries, an operator from a utility, a coal or gas supplier, a separate utility purchasing the power (or possibly the national grid), and finally financial institutions providing funding.  The interests of these commercial players will vary significantly, and so there is ample room for cultural conflict.

The parties will be best served by a procedure for resolution that takes these interests into consideration – a procedure that reinforces their relationship, rather than tears it down. The mediator can assist the parties to understand the other's cultural background and assist in finding a mutually satisfactory negotiated solution. Each of these considerations will need to be addressed in the project documentation and the method of management of a project.

The many faces of mediation in PPP
Mediation is already used in PPP, though principally limited to layered dispute resolution mechanisms. There are several additional ways mediation can be used to support PPP projects: 

“Consultation” mediation
During project preparation, Governments need to get much better at consulting stakeholders (community groups, labor unions, land owners, government staff, etc).  During these processes there may be the opportunity for a mediator to help facilitate dialogue and open processes for sharing of issues while managing stress and frustrations.

“Negotiation” mediation
During negotiation, there might be an opportunity for a mediator to help resolve deadlock on specific issues, or more generally to help bridge cultural divides between the parties in order to finalize the deal.

“Initiation” mediation
At the very beginning of a project, once the ink dries on the contracts and the difficult work of implementation begins, it would be useful to bring the parties together. At this point the mediator could  walk them through the practical process of implementation, setting out or affirming implementation plans, teasing out details of how things will be done in practice, and clarifying who is responsible for what and when. Ideally, this is done through the negotiation of the contract, but in practice these issues are often overlooked or swept under the carpet in order to get the deal done (“don’t worry, the implementation team will figure this out”). The mediator can bring a fresh pair of eyes, a practical query, and assistance to bridge any gaps in understanding or agreement. These challenges will come to light eventually, so it’s best to resolve them in the beginning before money is spent unnecessarily. This process reflects concepts of partnering that are increasingly used in the construction industry, such as in the UK.

“Dispute Review Board/Adjudication” mediation
Some form of conflict management mechanism is generally included in an infrastructure deal -- for example, a dispute review board, independent expert, or adjudicator. This mechanism can be reinforced with a mediator (e.g., as the independent member of the Board or panel) or mediation may be made available where the mechanism is encountering challenges.

“Deal” mediation
There are a number of changes, conflicts, and challenges that arise in a project.  These may not amount to a “dispute” and therefore might not be caught by the above mechanisms. For example, where there is an opportunity for refinancing, there may be disagreements about timing, currency, or tenor that a mediator could help resolve, but that no one will want to bring up to the formal dispute resolution mechanism. Variation requests can also be mediated before they become contentious, and this can help bring together relevant stakeholders who may not otherwise be part of variation discussions.

“Dispute” mediation
Where there is a full-blown dispute, whether or not the parties have included mediation in the contract, access to mediation can help avoid costs and delay.

Mediation can be adopted as an ad hoc dispute resolution procedure at the time a need arises, or drafted into the project agreements. It can be mandatory for the parties when a conflict arises, or made available to the parties as and when they desire.

Mediation is particularly appropriate for international infrastructure projects, but the benefits will be realized only when parties, governments, lending institutions, and others understand the process and gains it offers.

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Jeff Delmon

Senior PPP Specialist

Predrag Cvetkovic
June 28, 2016

Dear Mr. Delmon,
Thank you for this blog. In the same vain allow me to add the following: as the PPP concept is structured to satisfy the needs, not demands, the mediation as the form of facilitated negotiations (close to the negotiation labeled as the "integrative" one) should take into account the optimization of public needs: optimization is the process of defining the parameters of PPP in each and every concrete case. However, this parameters cannot be (at least in the case of PPP) defined fully ex ante. Therefore certain space for adjusting (followed by the methodologically and normatively defined procedure of such adjusting) has to be available in PPP agreement. Some directions in formulating PPP agreement in the described manner are articulated in the theory of relational contracts. By establishing the adjusting/optimization procedure the parties could prevail the non-definiability of substantive PPP parameters upfront. The provisional list of elements of PPP negotiation procedure aimed to secure adequate optimization framework in the above described manner could include the following features of negotiation process:
1. Implemented in order to manage the relational character of public-private partnership, methodology of relational contracts partnership must ensure that the "known unknowns" as elements of an PPP project are appropriately treated. English term 'known unknowns (e. "Known unknown") is taken from the epistemological trinity formulated by the former Minister of Defense, Donald Rumsfeld. According to him, there are three levels of knowledge: known facts; known unknowns (e. known unknowns "facts that are known to exist, but does not know their content and character); unknown unknowns (e. "unknown unknowns", the facts that are not known to exist). Appropriate treatment of "known unknowns" could be illustrated by the following example: in PPP projects there is a risk that some technology which has been defined as relevant in the contract with a public partner, becomes outdated in the contract period. This situation occurs if a public partner, while defining the conditions for the participation in the process of selecting a private partner, has left out the obligation of interested parties to replace their existing technology with the new one if the existing technology becomes outdated during the contract period (the risk of outdated technology). For the public partner, this lack of this obligation creates “known- unknowns”; in general, a technological development may occur during the implementation of a PPP project (the longevity of these projects only increases the probability). Anyway, the public partner may underestimate this risk or may not have enough information about it. When such technology becomes outdated, the public partner finds himself in the position where he has to pay to the private partner the same amount which he could have used to buy more advanced and more efficient technology (if he had provided himself with such a possibility ex ante). Therefore, in essence, a public partner who has not anticipated the possibility of replacing the outdated technology may potentially suffer economic deprivation. This situation may be overcome by a competitive dialogue as the form of "mediated" negotiations if the participants are required to specify the technology which they will use in a specific case, providing extensive information about its origin, characteristics, the deadline of technological depreciation, etc. Using these data, the public partner can evaluate with more certainty the probability of risk stemming from the outdated technology.
2. Abductive reasoning has the significant role in the process of establishing the position of the parties in possible PPP project. Private actor should use abductive reasoning in order to step into the value system of public partner (based on concrete circumstances of PPP project at stake) and to create proposal which suits the best to the needs of public actor. On the other hand, public actor should use abductive reasoning as the form of backward chaining which purpose to define as much as possible the data and the tools necessary for achieving the needed output of the Project. Especially in developing countries, the ultimate goal of PPP project is known but the methodology and steps necessary to be implemented and conducted are not defined.
3. The knowledge paradigm should have advantage over hierarchical one. During the preparation and implementation of PPP negotiation the "communicative rationality" method should prevail. This method underlines the need of different opinions to be discussed, debated and harmonized without hierarchical coercion: the common accord should be based on "better" solution, not the one chosen during the process of between actors with grossly unequal bargaining power. Communicative rationality is self-reflective: the participants (although from different discourse which is exactly the case with the PPP) learn from one another. Communicative rationality implies certain new normative value. This aspect is of particular importance for PPP bearing in mind that the aim of the PPP and the creation of new quality in service delivery and activities of public interest.
Predrag Cvetkovic

Jeff Delmon
July 05, 2016

Dear Predrag,
Your comment about technology is very important, and can be quite tricky. A good feasibility study produced by and for the government is key. Government cannot simply rely on the private proposal. Assessment must be made of current most appropriate technology and what to do when technology evolves. Trying to reverse engineer new technology into a ppp project is messy and expensive for government.

Chris Shugart
July 07, 2016

Excellent post! Are there good ways that people can build in “initiation” and continuing mediation into PPP contracts? I once wrote a clause that was used in a draft PPP contract (water sector, Asian country – unfortunately the project never took off in that form). The clause (which a number of people initially thought was crazy) obligated the parties to meet periodically throughout the life of the PPP with a trained facilitator “who will work with the Parties to clear up any misunderstandings, help the Parties to see each other’s point of view, explore how to increase the benefits of the arrangement for both Parties, defuse possible disputes, and prevent mistrust from developing between the Parties”. Does anyone know of examples of arrangements like this that have worked in practice?