Minimising Disputes in PPP Infrastructure Projects Through Risk Allocation and Early Detection
At a capacity building workshop on 25 March 2022, SIMC Board Member Prof Lawrence Boo and Mr Kirindeep Singh, Senior Partner and Co-Head of Construction and Infrastructure practice at Dentons Rodyk, were invited to share best practices on effective dispute resolution for PPP infrastructure projects.
The workshop, co-organized by Infrastructure Asia, the PPP Center and the Department of Justice in the Philippines, aimed to help national government agencies and local government units adopt alternative dispute resolution (ADR) mechanisms in their projects.
The fireside chat was moderated by Mr Kow Juan Tiang, Deputy Executive Director of Infrastructure Asia, a Singapore infrastructure financing and development facilitation office.
We share some highlights here.
A new way to resolve disputes
If there is a silver lining to the pandemic, it may be the accelerated digitization of dispute resolution.
Unprecedented lockdowns and travel restrictions around the world led to disruptions across all aspects of life, and arbitration and mediation proceedings were no exceptions.
Mr Kow recalled these challenges even as he also celebrated Singapore’s lifting of border control measures announced just a day before the workshop. It has, after all, been two years since the start of Singapore’s Circuit Breaker, and some introspection is timely, if not necessary.
Did the pandemic kill the effectiveness that ADR purported to promise? For a while it seemed so. However, the uncertainty of times also led businesses to consider a more sustainable way to manage their disputes.
“(The pandemic) hastened the use of digital. Teleconferencing became obsolete in the advent of Zoom. We are not ‘baby boomers’ but ‘baby zoomers’ now,” Prof Boo said.
Institutions like SIMC were quick to reinvent themselves, introducing online mediations. Parties and lawyers followed suit, learning how to read, manage and exchange bundles of e-information securely. Arbitration and mediation proceedings went digital the way it never would have, if not for necessity.
“SIMC saw an increase in caseload over 2020 – 2021. Many people felt it was better to attempt alternative dispute resolution instead of turning to adversarial methods. It gave people a chance to resolve disputes in an amicable way, especially for many who were engaged in big value disputes,” said Prof Boo.
To illustrate his point, he shared two successful case studies: one involving a JV dispute between Japanese and Indian parties; the other, a multi-party energy dispute. All mediations were conducted entirely online with the SIMC secretariat providing full support to the satisfaction of all parties.
Chiming in, Mr Singh also said that he experienced no fewer cases—in fact, he got busier. Hearings were now simple to arrange even if parties hailed from different time zones and different jurisdictions.
The perils of pulling a Zoom all-nighter
Online hearings were not without its own unique set of challenges, however. Prof Boo and Mr Singh admitted that with increased screen time, one could also feel jetlagged without getting on a plane. Mr Singh observed that he was far busier during this period because the convenience of getting people online meant there was no excuse of not attending a hearing at all.
He said, “With virtual hearings, you must contend with crazy hours. I had one hearing that lasted from 4pm to 1130pm SGT. It meant going back to the office at 2am to follow up on matters. You almost work round the clock which is very punishing and not efficient at all.”
In his experience, in-person hearings are also preferred where witness cross-examination is concerned. “There is simply no substitute for an in-person interaction with a witness. Further, in an online format, you never know if the witness is being prompted or looking at help during questioning,” he said.
Prof Boo agreed, adding that in-person mediations allowed the mediator to read non-verbal communication cues – an important part of facilitating negotiations.
However, Prof Boo concluded that the overall efficiencies of online ADR outweighed its perceived disadvantages. The numbers show: Between 2020 and 2021, about half of SIMC’s caseload had an online or hybrid element. The settlement rate was maintained at 70 per cent, suggesting that online mediations can be as effective as in-person ones.
As an arbitrator he also found more time to write awards simply because he did not have to recover from travel. In other words, decisions could be issued earlier.
A seismic shift to non-adversarial dispute resolution
Considering the impact of manpower and supply chain issues on mega construction projects, Mr Kow invited Prof Boo and Mr Singh to provide their thoughts on how the industry could be better equipped to mitigate such volatilities in future.
Prof Boo shared that difficult times have led companies to rethink dispute management: “Parties may not find it worthwhile to spend time and money in court. They therefore seek a more productive way to find value for what is already negative value. Mediation in particular, helps move parties forward with the possibility of an out-of-court settlement and this helps to minimize loss.”
Mr Singh encouraged addressing disputes even before they occurred. For example, incorporating clauses related to adjustments to payment, movement to price changes, inflation indices, extensions of time, variations, and force majeure.
“The best way to address these issues is in the contract,” he said. “See to it that they are comprehensively drafted. If you deal with all these issues in the contract, you can minimize disputes.”
“Government agencies need to rethink risk allocation and how to manage disputes when they arise. It is simple, but not easy to implement.”
– Prof Lawrence Boo
Minimizing disputes through realistic risk allocation
Prof Boo and Mr Singh also shared that disputes can be minimized through realistic risk allocation in contract negotiations.
For example, parties could agree on a common goal: to complete the project on time. Therefore the project owner (in this case, the public sector) could consider undertaking some risks especially those with regard to policy matters, such as the cross-border movement of goods and labour.
“Don’t tilt risk allocation into your favour as it may really turn out to not be in your favour after all. Try to even out the risks, and do so objectively,” said Mr Singh.
He shared a case study: Many years ago, an export ban on sand from Indonesia and Malaysia stalled several construction projects in Singapore. It was an unprecedented occurrence but something that the government could step in to manage. And yet to expect contractors to bear the full cost of it seemed somewhat unfair.
Prof Boo added, “If you make your contractors and partners bear all the risks, the cost can go up. When something goes wrong, the project will be delayed and this is not in the interest of all parties involved. Government agencies need to rethink risk allocation and how to manage disputes when they arise. It is simple, but not easy to implement.”
“Take DRB (dispute review board) or DAB proceedings seriously. A DAB comprising legal and industry experts should be convened at the start of a project… if a DAB is convened at the end, it could become a ‘mini arbitration’, therefore defeating its purpose entirely.
– Kirindeep Singh, Senior Partner and Co-Head of Construction and Infrastructure Practice, Dentons Rodyk
Managing disputes well by managing them early
Still, disputes are the norm rather than the exception. For parties embroiled in a current dispute, there is a full suite of cost- and time-effective ADR options Singapore can offer. One example is the Singapore Infrastructure Dispute-Management Protocol (SIDP) which provides possible options for early resolution.
Mr Singh alluded that the SIDP is a dispute ‘slow kill’ and a bit of a reality check: “It helps parties to realize that if mediations and DABs (dispute adjudication boards) are already so troublesome, then they don’t want to know what a full-blown arbitration or litigation is like. It is stressful, time-consuming, and it takes people away from their real jobs.”
Mr Singh also advised parties to take DRB (dispute review board) or DAB proceedings seriously. A DAB comprising legal and industry experts should be convened at the start of a project. This helps the Board to be familiar with a project such that when a problem occurs they know what exactly to address. Conversely, if a DAB is convened at the end, it could become a ‘mini arbitration’, therefore defeating its purpose entirely.
“It’s really about managing things right from the start. Small problems can become big if delayed and entire projects could get derailed in that way,” Prof Boo added.
In his experience, he has seen fewer construction disputes going for mega arbitrations simply because parties have managed small disagreements through adjudication.
Finally, Mr Singh, who is an accredited adjudicator under Singapore’s Building and Construction Industry Security of Payment Act, advocated the use of the Act, which some may see as ‘pay now, argue later’. In his view, the Act, and its equivalent in other jurisdictions, has been successful in countries such as Singapore, Malaysia, Australia and the UK.
“It is fair to contractors as it allows them to deal with cashflow problems very quickly. If contractors get paid on time, the projects are completed and delivered to the public on time. Delays and disputes are reduced as a result.”