Public Private Partnership Dispute Resolution in Zambia: An Exploratory Review

Public Private Partnership Dispute Resolution in Zambia: An Exploratory Review?

11th November 2024

By Kaumbu Mwondela, LLB, LLM, AHCZ, FCIArb

Introduction

Public Private Partnerships (PPPs) have become increasingly topical globally as governments appear to shift towards a preference for purchasing infrastructure services as opposed to financing, designing and operating the physical infrastructure with its attendant risks. Consequently, the concept of PPP has gained prominence over the traditional form of public infrastructure and service procurement.? Notable projects recorded in the last two decades include capital-intensive road projects such as the Athens ring road, the massive sports infrastructure as showcased in the Beijing Olympic infrastructure of China, Australia's Sydney SuperDome, coal fired electric power stations in China and the construction of hydro-electric stations in South Africa. In Bulgaria, housing developments were encouraged by ensuring that land owned by municipalities was given to private developers to ease the housing problem.

In Zambia and the region, the attractiveness and utility of PPPs are self-evident as they deliver much needed value for money public sector infrastructure and services, within the context of stretched public purses and heavily in demand resources. Among the chief attractions for the private sector is the prospect of leveraging private sector efficiency and expertise to deliver quality, fit for purpose projects which are fundamental to driving economic growth and development, while simultaneously receiving fair value by way of return on their investment. Success stories in the SADC region include such infrastructure projects as the Kazungula Bridge Project (Botswana and Zambia), Kasomeno Mwenda Toll Road (DRC and Zambia), New Limpopo Bridge (South Africa and Zimbabwe), the N4 Toll Road from South Africa to Mozambique,? etc. The Zambian Government’s economic agenda is anchored on promoting joint ventures between private and public sector to drive economic growth. There is thus a very deliberate drive to invite PPPs in strategic areas for the development of critical infrastructure envisaged as necessary for economic growth. ? See <https://www.dhirubhai.net/posts/kaumbu-mwondela-fciarb-24b960142_call-for-proposals-for-ppp-projects-activity-7255686352095105024-ab5W?utm_source=share&utm_medium=member_desktop> and <https://www.dhirubhai.net/posts/kaumbu-mwondela-fciarb-24b960142_zambialobitorail-africaninfrastructure-regionaldevelopment-activity-7244937684228423681-T-cy?utm_source=share&utm_medium=member_desktop>

The complexities that attend PPPs and particularly infrastructure projects with factors such as project intricacy, lengthy durations, numerous uncertainties, and the involvement of many stakeholders, make disputes commonplace. When not well managed, disputes would undermine the successful delivery of the project.?

There is therefore great value in paying attention to the dispute management aspects within the PPP framework if the positive outcomes expected of PPPs are to be achieved.?

This article is the first in a short series that will explore dispute resolution within the PPP framework generally and in Zambia particularly.?

An Overview of PPPs

Much has been written about PPPs: what they are, how they operate, critical success factors, concession agreements etc (see generally Chongo SM <https://www.dhirubhai.net/in/sombomulenga/> for a concise and comprehensive treatment of the above).?

For purposes of this series, PPPs are contractual relationships between the public sector and the private sector by which public assets and services are procured largely with private financing and expertise. The public party may be a local authority or public agency which is responsible for delivering the particular asset or service.? An example would be a road development agency being responsible for delivering transport infrastructure like roads and bridges, or an aviation authority responsible for the operation and management of airports. In a PPP, the public party contracts with a private party (which may be a consortium of various private parties) to deliver the infrastructure and or the required management service. The public have the benefit of the infrastructure or service, while the private party is remunerated through agreed mechanisms that may include being sourced from the public’s use of the infrastructure and or service.?

In Zambia, the life cycle of a PPP will ordinarily begin with a competitive procurement process that is either solicited by the public party or is unsolicited, at the instance and initiative of private parties. Complex processes that included pre-feasibility and feasibility studies, financial modelling, risk analysis, Environmental Impact Assessments (EIA) etc are undertaken even before any ground is broken to begin construction. Evidently, PPPs are complex and involve multiple stakeholders with divergent interests.?

Risk in PPPs

At the heart of the PPP discourse is the effective identification, allocation and management of risk. In Zambia, risks are identified in the development phases of the project. The risks are then allocated and detailed in a risk matrix that forms part of the PPP agreement or concession. Risks are apportioned to the party which is best placed to address the risk. Thus, factors such as financial, technical and operational risks in relation to the performance of the project are more often than not borne largely by the private party. On the other hand, risks brought about by changes in the regulatory framework or matters to do with land access for instance, are often borne by the public party.?

Disputes in PPPs

Among the identified critical success factors for PPP projects are an enabling regulatory environment as well as the effective management of disputes. As noted above, disputes in PPPs are inevitable given the complexities that attend particularly infrastructure projects. Extended project timelines, increased costs, frayed relationships and an erosion of the public trust may all result in disputes which if not well managed, would undermine the successful delivery of the project.?

A study published in the International Journal of Engineering Research & Technology (IJERT) in September 2021 assessed critical dispute factors impacting on PPPs. The study identified 41 distinct dispute factors that were then grouped into 6 useful heads which follow the PPP life cycle. The critical dispute factor groups are: planning, contract, design, construction, operation and handover, and external factors. The researchers employed the Frequency Adjusted Importance Index (FAII) and Confirmatory Factor Analysis (CFA) to assess risk and rank the factors. The results were quite telling and are useful to consider.??

The study found that the most significant factors contributing to disputes in PPPs are related to construction and design.?

●Construction-Related Factors: Issues arising during construction are the most likely to trigger disputes. This group includes problems like construction cost overruns, excessive variation orders issued by the public partner, delays in securing land or permits (which are the responsibility of the public partner), and poor workmanship. Disputes under this head may be as between the public and private partner, the private partner and down stream contractors, or indeed with third party members of the public.

●Design-Related Factors: Closely trailing construction issues, design-related problems also have a high risk of causing disputes. These can include incompetence or lack of expertise in design preparation by the private partner, design flaws or deficiencies, and designs that don't comply with contract requirements or statutory standards.

●Importance of Planning and Contracts: While not as high-risk as construction and design, issues during the planning and contract phases can lay the groundwork for later disputes. Unrealistic deadlines imposed by the public partner, incomplete contract documents, and unclear contractual language can all contribute to disagreements.

The proverbial ostrich buries its head in the sand when it observes danger approaching. A momentary albeit highly misguided solution to imminent threats. Wisdom on the other hand is to perceive or observe danger afar off and to take mitigatory steps before trouble becomes a bedfellow that never leaves.

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Mitigating Disputes

A few nuggets to stir up dispute mitigation reflection for the present:

●Clear and Comprehensive Contracts: Contracts should clearly define responsibilities, obligations, and performance standards for each partner. They should also include a dispute resolution mechanism and a framework for managing changes to the project.

●Collaborative Design Process: Involving all stakeholders in the design process can ensure buy-in and reduce the risk of design-related disputes.

●Robust Construction Management: A comprehensive construction plan with clear timelines, budgets, and quality standards can help prevent cost overruns and delays. Implementing a quality control program and a proper documentation system for variation instructions and claims is also crucial.

●Effective Operation and Handover: A clear and comprehensive operations and maintenance plan, ongoing communication between stakeholders, and a well-defined penalty system for default events can help ensure a smooth handover process.

●Proactive Risk Management: Regular risk assessments can help identify potential problems, including policy and regulatory changes and macroeconomic fluctuations. Establishing contingency plans and keeping stakeholders informed about changes can mitigate the impact of these external factors.

By focusing on these preventative measures, stakeholders can significantly reduce the risk of disputes and contribute to the successful completion of PPP infrastructure projects.

In our next article, we will explore the regulatory framework for PPPs in Zambia with a focus on dispute resolution, as well as consider dispute resolution mechanisms available to parties and stakeholders.?

About the author: Kaumbu Mwondela, LLB, LLM, AHCZ, FCIARB is a legal practitioner and international arbitrator. He is qualified at the Zambian bar and is a member of various professional bodies and organisations.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.