[Word count: 1,110 words]
Dispute Resolution in Public
Contracts: Lessons from Select
International Best Practices
Sandeep Verma1
Most countries relying on PPP
concessions and similar hybrid
contracting models as the primary
route for infrastructure rollout, have
needed to deal with repeated requests
for multiple contract renegotiations,
sometimes forced by unscrupulous
winning concessionaires2 who are in a
position to adversely affect delivery of
public services by delaying contract
execution on one pretext or the other.
Latin America, for instance, has been
particularly prone to this problem,
with strong potential for integrity
abuses during the PPP renegotiation
process3. Such situations have
generally arisen because of (i)
regulatory and government capture;
and (ii) absence of basic contracting
and risk-allocation skills amongst
government entities4-problems that are
1 © 2013, Sandeep Verma. The author holds an LLM with
highest honours, having specialised in Government
Procurement Law from The George Washington University
Law School, Washington DC. In 2009, he established
www.BuyLawsIndia.com, a website dedicated to the
advancement of public procurement law in India. Views
expressed are personal and academic; and do not reflect the
official position or policy of the government of India or any of
her departments or agencies. This draft paper is presently under
submission for its possible publication in the forthcoming issue
of the Materials Management Review—the Journal of the Indian
Institute of Materials Management.
2 Cruz, C.O. and Marques, R.C. (2012), Endogenous
Determinants for Renegotiating Concessions: Evidence from
Local Infrastructures, University of Barcelona, available
online http://www.ub.edu/catedramaragall/cat/WP-1-
2012final.pdf. See, also, Guasch, J.L. (2007), Negotiating and
Renegotiating Infrastructure PPPs and Concessions: Key Issues
for Policy Makers, available online
https://www.imf.org/external/np/seminars/eng/2007/
ppp/pdf/jlg.pdf.
3 See, e.g., Roach, S.A. (2011), Law and Politics in PPPs:
Transparency, Conflict of Interest and Renegotiation in
Concession Arrangements (PhD Thesis), available online
http://dspace.uta.edu/bitstream/handle/10106/5845/Ro
ach_uta_2502D_11103.pdf?seque.
4 Ahadzi, M. and Bowles, G. (2004), PPPs and Contract
Negotiations, Construction Management and Economics,
available online
universal to almost all developing
countries as well.
India, on its part, was recently
witness to an order by one of its
electricity regulators5 that passed on to
consumers certain input cost risks that,
under contract, were required to be
absorbed by electricity producers. The
initial electricity rates were the result
of a fixed-price contract arising out of
a competitive bidding process. Certain
electricity producers subsequently
made claims for higher tariffs,
ostensibly attributable to the rollout of
new coal pricing regulations by the
Indonesian Government. The Indian
regulator, in allowing the claim by for
compensatory tariffs, has ended up
making Indian electricity consumers
pay for public and private welfare6 in
Indonesia, leaving virtually no
incentive for electricity producers in
India to minimise their costs by
looking for alternate sources, and also
by extension, no incentive for the
Indonesian Government to keep its
pricing regulations within reasonable
policy limits.
Decisions like these, in effect,
convert fixed-price contracts into more
lucrative cost-plus contracts once a
contract has been awarded, and
therefore fundamentally disregard the
sanctity of a competitive contracting
process7. In the process, such instances
also serve to highlight regulatory
http://www.tamu.edu/faculty/choudhury/articles/28.p
df.
5 Coastal Gujrat Power Ltd. vs. Gujrat Urja Vikas Nigam Ltd &
Others, CERC Petition No. 159/MP/2012 [15 April 2013],
available online
http://www.cercind.gov.in/2013/orders/159_mp_2012.p
df.
6 Gulzar, N. (2013), Moral Hazard from CERC Ruling is a
Reflection of India’s corporate Culture (Urbanomics), available
online http://gulzar05.blogspot.in/2013/04/moral-
hazard-from-cerc-ruling-is.html.
7 Varottil, U. (2013), CERC Order in the Adani Power Case
(IndiaCorp Law), available online
http://indiacorplaw.blogspot.in/2013/04/cerc-order-in-
adani-power-case.html.
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incapacities in developing countries8;
and it may therefore be incumbent
upon governments, in the larger
public interest, to take greater care in
designing abuse-proof systems for
handling contractual disputes.
Most practitioners acknowledge
that ensuring transparency and
competition in awarding government
contracts are only the tip of an iceberg;
and that the real challenges lie in
ensuring efficiency, accountability and
value-for-money during the post-
award phase. This is generally so
because pre-award competitive
instincts amongst both participating
and potential bidders act as a strong
pressure for disciplining public
authorities during the initial tendering
phase, while these pressures are
generally absent in the post-award
phase when there is only one
contractor on the one side and a
procuring entity on the other. It is also
during this latter phase, therefore, that
imbalances in professional capacities
amongst the two contracting parties
begin to have a visible effect against
the government, as the latter, typically
more so in developing countries, tends
to have far less access to adequate
professional, technical and legal
resources matching those available
with contractors.
Given the magnitude of the
capacity problem, the lack of
international model frameworks for
addressing dispute-resolution in post-
award phases of government contracts
is somewhat perplexing. One plausible
reason, perhaps, could be that a strong
but misplaced emphasis on market
access in government procurement
markets ensures that most
8See, e.g., Dhramadhikary, S. (2013), Corporate Interests Rise
Above All (India Together), available online
http://www.indiatogether.org/2013/may/eco-
power.htm.
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international frameworks tend to focus
only on ensuring competition during
the tendering phase. The UNCITRAL
Model Law (2011) on public
procurement, for instance, expects
developing countries to adopt
regulations unconditionally granting
equal access and national treatment to
foreign bidders vis-à-vis domestic
entities9, even as developed countries,
under their own domestic
procurement laws, do not provide any
meaningful access, either de jure or de
facto, to bidders from developing
countries10.
Given the importance of
efficient contract administration, and
the relative absence of model
international frameworks for handling
post-award disputes, it may therefore
be worthwhile for developing
countries to draw lessons from
international best practices. One
leading country in this respect is the
United States of America (US), which
arguably has the most efficient
systems for handling disputes in
government procurement contracts,
both during the competitive tendering
phase and during the post-award
phase, that are to be found anywhere
in the World.
An important feature of the US
system is its strong emphasis on
employing capable and professional
contracting officers (COs) in various
departments, who act as an important
9 Article 8, UNCITRAL Model Law on Public Procurement
(2011), available online
http://www.uncitral.org/pdf/english/texts/procurem/
ml-procurement-
2011/ML_Public_Procurement_A_66_17_E.pdf.
10 Verma, S. (2009), Rising Barriers in Public Procurement
Systems, Financial Express [26 Aug 2009]. Also see, e.g.,
Kettel, R. and Lember, V. (2010), Public Procurement as an
Industrial Policy Tool: An Option for Developing Countries?,
Journal of Public Procurement, Vol. 10 Issue 3, Fall 2010;
and, Yukins, C.R. and Schooner, S.L. (2009), Tempering ‘Buy
American’ in the Recovery Act: Steering Clear of a Trade War,
SSRN, available online
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=135
8624.
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fulcrum of accountability and
authority. The strength of their
delegated authority can be judged
from the fact that if a contractor
presents a monetary claim against the
US Government (USG), and if the
decision of a contracting officer
thereon is favourable to the contractor,
such decisions cannot be appealed
against by the USG before tribunals
and/ or federal courts11. Of course,
this expansive authority comes
coupled with strong integrity
enforcement by various government
institutions such as the Government
Accountability Office (GAO) and the
FBI, ensuring that there is little
possibility of abuse by COs.
At the same time, the US public
procurement system also has strong
mechanisms to prevent non-
performance due to frequent litigation
of disputes by government
contractors. For instance, while
successful contractors in the US can
pursue and litigate monetary claims
against the USG, they can be required
by USG to continue contract
performance pending the resolution of
such disputes12. This ensures that
successful contractors are not in a
strong position to bring contract
execution to a deliberate slowdown or
standstill, thereby delaying the rollout
of public services so as to force the
USG into unwarranted renegotiation
of its public contracts.
Another set of solutions for
resolving contract disputes consists of
preventive approaches, where a
number of special contractual designs
1141 United States Code (U.S.C.) 7104.
1241 U.S.C. 7103(g); Federal Acquisition Regulation (FAR)
52.233-1(i). The definition of a “claim” under FAR 2.101,
however, includes an “interpretation of contract terms”;
and a request for such an interpretation, if appealed by a
contractor to a board or the court after denial by the
contracting officer, would in effect be seeking
nonmonetary relief.
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are employed so as to prevent disputes
from arising in the first place, and in
particular, clauses that clearly address
foreseeable risks in contract
implementation and any attendant
allocation of risks, liabilities and costs.
For instance, in the case of
overbidding for toll-road concessions,
some countries have already started
experimenting with, inter alia, flexible-
term concessions, “availability-based”
payment mechanisms, pass-through
tolls, bundling of new construction
with existing assets, and “construct-
then-concession” approaches13.
In summary, addressing
dispute resolution for efficiency and
value-for-money may well turn out to
be a delicate task requiring a nuanced
approach, as any ad-hoc policy
proposals proving easy access to
injunctive relief could easily render
dispute resolution fora into convenient
arbitrage tools for contract
renegotiations favouring private
contractors over public interest. The
bouquet of solutions seems to consist,
in the first instance, of contractual
measures that prevent disputes or
address foreseeable risks in the first
instance, as emerging from
international experience world-wide,
and in the second, through clever
designing of the various attributes of a
dispute resolution forum, particularly
by limiting injunctive relief, in order
that the frameworks are not easily
amenable to possible stalling of the
contract implementation process
through multiple litigation and overly
broad injunctive interventions.
13Australian Government (2012), Disincentivising
Overbidding from Toll-Road Concessions, available online
http://www.infrastructure.gov.au/infrastructure/infrast
ructure_reforms/files/Disincentivising_Overbidding_Toll
_Road_Concessions.pdf. See, also, Carpentiro, S. and
Barcham, R. (2012), Private Toll Roads: Lessons from Latin
America, available online http://www.ipcsit.com/vol26/19-
ICTTE2012-T1009.pdf.
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