Revamping dispute resolution in P3 projects

Paliare Roland lawyers call for simpler processes as projects move into critical maintenance phase
Revamping dispute resolution in P3 projects

This article was created in partnership with Paliare Roland Rosenberg Rothstein LLP

With the initial wave 10–15 years in, many of Ontario’s P3 projects are entering the more mature maintenance phase. And while the up-and-coming industry has learned a lot over that time, a major opportunity for improvement has come to light: the complexity of dispute resolution procedures (DRPs).

 Most of the projects include a multi-step DRP, and Gordon Capern, partner at boutique litigation firm Paliare Roland Rosenberg Rothstein LLP, pulls no punches when asked how they function.

“I’ll be blunt – I think they’re working terribly,” Capern says, calling existing DRPs “the triumph of hope over experience.”

“While obviously well intended, in our experience they are cumbersome, time-consuming, and put pressure on relationships in which trust and confidence are essential to deliver the high-quality infrastructure the public deserves. DRPs should be simplified to promote resolution of disputes – the status quo allows for too much gamesmanship.”

Long-term contracts beget range of legal issues

While Paliare Roland works for both constructors and maintainers, the firm has seen a significant shift to work on the maintenance side in the last few years. This presents a different type of litigation atmosphere due to the long-term nature of the relationships between multiple parties including the contracting authority, the project company, the maintainer, the constructor, key subcontractors, and – first and foremost – the public. While the design and construction phase is short term and delivery-based, the maintenance phase can stretch on for much longer.

“The maintenance phase necessitates a more resolution-focused approach than a party that’s there for a good time, not a long time – you’ve got to pick your battles wisely and not engage in trench warfare for every dispute,” says Michael Fenrick, partner at the firm. “We’re mindful of the fact that there are many stakeholders, and you’ve got to keep those relationships strong; otherwise the project’s not going to succeed over 30 years.”

Maintainers on major P3 projects face multiple challenges – “If you can name it, it comes up at some point, in some fashion,” Fenrick notes – that can create friction. While some are relationship-based between the stakeholders, the most complex conflicts arise due to unforeseen issues outside the parties’ control at the time of contract formation. The COVID-19 pandemic and its impact on supply chains and people’s mobility as well as the unprecedented inflation in recent years are prime examples, especially given these are fixed-price contracts.

Agreements entered into in 2015 for projects projected to start maintenance in 2024 could also not foresee how quickly areas like technology would evolve. From security features for a hospital to concern over Russian hackers, the landscape has changed dramatically. Capern points to AI’s rapidly expanding capabilities even over the last 24 months, giving the example of data that’s generated and tracked every second that a public transit system is operating. Quite suddenly, AI has the capabilities to become a very real part of the way those systems are improved and maintained.

“That wouldn’t have been the subject of anybody’s contemplation when that project agreement was signed a decade before,” Capern says. “When dealing with a 30-year contract, it’s difficult to imagine these types of changes, how they’ll impact a project, and who bears the cost of implementing them. That requires very general drafting, which can itself give rise to interpretive disputes down the road.”

Dealing with this issue in a dispute resolution environment is tricky, and, to mitigate this risk, the Paliare Roland team emphasizes to clients the importance of maintaining partnership-style relationships with other stakeholders. That way, there’s a more collaborative focus on how new technologies can be adopted for use in the systems rather than infighting.

How could DRPs be more effective?

Created to provide an expedited and efficient means of resolving disputes between important players in these projects as they roll along, DRPs often end up having the reverse impact. They create more opportunities for parties to exploit the process, exerting financial leverage through delay and driving up the cost of bids. Because of their unwieldy nature, DRPs also contribute to an environment where individual problems accumulate and fester over time rather than being dealt with promptly. Eliminating many of the layers and letting stakeholders use their own good judgment to resolve disputes is step one, Capern says, noting that as drafted the DRPs seem to mandate an excessive number of steps that should be self-evident and not a matter of contractual compulsion.

“If there’s a problem between a maintainer and a contracting authority, there shouldn’t need to be a provision that stipulates the executives on both sides should meet – they’re going to do that anyway.”

Next, there should be a hierarchy for dealing with different types of disputes. Those day-to-day issues with a lower dollar value could be subject to a highly expedited, final, and binding process, while higher ticket items that require more evidence, documentation, and time to organize could remain within the sphere of the more conventional format. Some issues that aren’t having a major impact don’t have to be heavily lawyered: they can be resolved in a better way for the benefit of the project.

“We’re in favour of vastly simplified DRPs – fewer steps and less detail,” Capern sums up. “None of us want the primary beneficiaries of these processes to be litigation lawyers.”

Fenrick agrees, adding that “the system as it stands is not one that is helpful to actually achieving resolution and results for either the public authority or the private sector.”

The future of P3 disputes

On the radar for these inaugural P3 projects is the end of the maintenance term, at which point the asset must be returned to the government authority in good working order. While that horizon might seem far in the future – many of the agreements have 15 or 20 years left – the UK experience shows this is the time to plan for the hand back, Fenrick says. The final step creates fresh opportunities for disputes, again in relation to how the world has changed over the course of operations.

“What exactly are you handing back, and in what condition does it need to be to meet those requirements? We’ve been encouraged by people in the UK to think about those potential friction points now, and not 5 or 10 years from now.”

Ultimately, while the DRPs used in these contracts have undergone some evolution since being adapted from the UK for the Canadian context, there hasn’t been the fundamental rethink that would address some of the issues Capern and Fenrick see in their practice. But there is a lot of discussion happening, they note, from infrastructure conferences to meetings of groups with deep industry expertise, and that discourse is only expected to ramp up.

“The P3 world is still relatively young in Canada, and we’re learning on the go here,” Capern says. “We’re working our way through these agreements now and learning how they actually function. There’s a lot of room for optimism that what we’ve highlighted will be on the agenda and will be advanced.”