Module 20: Managing Conflict

20.4. Mechanisms of conflict resolution

In cases when the conflict can not be prevented, there are commonly used mechanisms to resolve them. How conflicts are resolved will have a significant impact on the success or failure of the PPP. The ultimate goal is to resolve any difficulties quickly, in privacy, without disruption in service to the end user and in a manner that opens channels of communication and reduces the potential for disputes further on in the life of the PPP.

There are many alternatives for conflict resolution. Deciding on the type of dispute mechanism to use depends on a variety of factors including:

◊ the nature of the dispute;
◊ the relationship between the two partners;
◊ the sensitivity of the issues involved; and
◊ the likely outcome and cost of litigation.

When these factors are considered, mediation and/or arbitration are the most commonly chosen options.

A. Negotiation

Negotiation offers the best option and opportunity for peaceful conflict-resolution. When properly managed, conflicts can deepen relationships and strengthen the community, be it local or global. The basic rules of dispute-resolution are deceptively simple:

Play fair
Apply the golden rules and principles of equality, justice and honesty. If one party keeps on moving the goal posts and changing the rules of the game, the other party will eventually cry “foul” and stop playing.

Listen attentively and proactively
Try to understand each other's assumptions, ideas and intentions.

Respect each other
Respect is the key to keeping the dialogue going. Don't insult, don't lie and don't play the "blaming" game.

Find the common ground
Focus on sameness and common interests.

Be clear about the objective
When either party is vague about its desired objective, it is difficult to reach an agreement. Be willing to consider other alternatives and be prepared to explore those various alternatives in order to find a win-win solution.

Focus on facts
Separate facts from fiction and emotion. Agree on the basic set of realities that are directly relevant to the dispute.

Use reason
Settle differences through meaning-clarification, problem-solving, mediation or third-party arbitration. Simply do what is reasonable according to most rational, objective observers.

Resist the temptation to use force
When there is a power differential, the stronger one may want to settle the difference through force or threats of force. Be careful about achieving an unjust victory through superior might, because there are always negative side effects.

Accept and tolerate differences
It is alright for a person to have deep convictions about his or her own beliefs and values, but that does not give him or her the right to attack those who hold different beliefs, no matter how offensive their views might be.

Learn to co-exist
When there are irreconcilable differences, then the only solution is to agree to (a) go separate ways and (b) live apart in peace.

Forgive each other
Both parties have to let go of past grievances and forgive each other in order to repair relationships.

Be prepared to compromise
There has to be some give and take for both parties. It is possible for a person to compromise without sacrificing his or her principles.

B. Mediation

Mediation serves to satisfy the needs of the two disputing partners, while at the same time preserving or strengthening their future relationship. A mediator sits down with the two partners and guides their discussion. The mediator is a neutral third party, with no independent authority or ability to impose a settlement – his or her role is not to make the final decision, but to guide the partners to a mutually-agreed-upon solution.

Mediation works best when the partners want to retain control over the outcome of the conflict resolution process.

Mediation...
... a confidential problem-solving process where the mediator assists the participants to reach a negotiated settlement of their differences.

C. Arbitration

Arbitration differs significantly from mediation. While the arbitrator is a neutral third party, the parties to the public-private partnership both argue their side of the dispute in arbitration, rather than working together to come to a solution, as is the case in mediation. The arbitrator then renders a final binding decision as to the solution to the dispute (unless the partners have agreed otherwise beforehand).

In addition to saving time and money, the advantages of using either of these methods include:

• confidentiality – discussions to remedy the dispute are conducted in private, in front of a mediator or arbitrator, not in a public courtroom;

• the business relationship, which might be lost in the acrimonious environment of a courtroom, can be preserved;

• the dispute can be resolved privately and by using terms that both partners have agreed to in advance;

• complicated facts can be considered by the parties to the dispute, with the advice of outside experts from the field if necessary, rather than a decision being made by a judge or jury composed of lay people; and

• the distractions that can be caused among employees when litigation is involved are minimised.

In order to resolve a problem, using either mediation or arbitration, the partners should:

◊ create the right atmosphere – find neutral territory where the problem can be discussed civilly;

◊ clarify perceptions – determine where each partner is coming from (perception is often stronger than the reality of the situation);

◊ focus on individual and shared needs;

◊ build shared power – find out what needs to be done so that both partners ca work together rather than working against each other;

◊ look to the future, but learn from the past by discussing how they have solved problems in the past;

◊ generate options – brainstorm to find many options to solving the problem;

◊ develop actual methods and tasks to solve the problem based on the solutions that came from the brainstorming session; and

◊ make mutual benefit agreements to create the best solutions for both partners.

If using alternate dispute mechanisms fails, the then partners have two options – take the dispute to court or agree to exercise the “off ramps” in the contract and dissolve the partnership.

Arbitration ...
... a method of resolving disputes where parties argue their case (with or without legal representation) and the arbitrator renders a decision or award.

D. Litigation

Taking the case to court is the least preferred option – it increases the acrimony; it turns the conflict into a situation where the final outcome is a win-loss one; and pursuing legal action can be a drain on time and resources.

Requirements for arbitration procedures and judiciaries

Clear and fair arbitration procedures and independent judiciaries provide institutional safeguards because they provide accountability, and thus help make the contracting environment predictable and credible. These institutions help establish and maintain a high level of trust and co-operation between the public and private sectors.

Certainty is increased for both parties when clear procedures exist for dispute resolution through arbitration or, when arbitration fails, through independent courts. The quality of these institutions is critical in signalling the government’s commitment to constraining the discretionary power of regulators.

Thus, independent judiciaries provide a fundamental backstop to a country’s legal and regulatory system. An independent judiciary with a reputation for fairness adds credibility and transparency to the legal framework and thus gives comfort to investors.

Ideally, domestic judicial or arbitral forums should not only be in place, but should also have a track record of predictability and fairness in decision-making. A consistent track record can produce potentially significant reductions in the risks associated with projects and with the associated pricing of project delivery.

Recognition of the decisions of foreign judgments or awards can also help. This can be promoted most appropriately through a country being both a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and through the introduction of appropriate domestic legislation to implement the Convention.
For projects in countries without independent judiciary systems, international arbitration or the court system of a predetermined third country is often used.

There are a number of international rules that could be applied:

◊ International Center for Settlement of Investment Disputes (ICSID);

◊ International Chamber of Commerce (ICC);

◊ United Nations Commission on International Trade Law (UNCITRAL); and

◊ other rules.

E. Off ramps

Rather than taking the other party to court, it might be better for all concerned to realise that things aren’t going to be resolved and to fall back on the “off ramp” clauses that the contract contains to formally dissolve the partnership.
The reasons for invoking off ramp clauses must be spelled out in the contract and should cover such factors as dissolving the partnership because (of):

◊ either partner feels that it should not continue in the relationship;

◊ the financial situation of the private partner;

◊ the scope of work or the price of subsequent phases of the project have been assessed as being unrealistic;

◊ the private partner may not be able to successfully complete the project; or

◊ the municipality may be unable to achieve satisfactory participation by the private partner.

Much like the decision to partner, the local government should know the costs and benefits associated with the use of off ramp provisions before they are used. The local government should also have a contingency plan to mitigate service interruption should a public-private partnership off ramp be used.

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