All public contracts for projects with the private sector must include ADR mechanism, Philippines President rules

Executive Order 78 (3-page / 360KB PDF), recently signed by President Benigno S Aquino III, covers all contracts involving public-private partnerships (PPP), build-operate-transfer (BOT) projects and joint venture (JV) agreements entered into by the government with private entities. The order gives parties the choice of any available ADR mechanism, whether domestic or international, as well as the freedom to stipulate what rules and procedures should be followed.

“We see this Executive Order as a major development in our continuing efforts to improve the PPP policy framework and ultimately send a positive signal to our investors that we are initiating moves to make business in the Philippines easier,” said Sherry Ann Austria, director of the Philippines’ PPP Center.

The Order states that the change is necessary to provide a “more inviting” climate for private investors by insuring less expensive, time-consuming resolution procedures in the event of a dispute. It adds that the country should “encourage and actively promote” the use of ADR mechanisms including conciliation, negotiation and more formal mediation and arbitration procedures as “an efficient tool and an alternative procedure in achieving speedy and impartial justice and de-clogging court dockets”.

Hong Kong-based infrastructure lawyer Carl Watson of Pinsent Masons, the law firm behind Out-Law.com, said that the approach outlined in the Order was aligned with “international practice” in dispute resolution.

“The Philippines is still a young market for PPP projects,” he said. “This development takes a more pragmatic approach to the current, rather straight-jacketed approach, and will help to maintain project momentum in the event a dispute arises.”

Roger Thompson, director of healthcare-related PPP projects with global professional services firm PwC, told Out-Law.com that the announcement tied in with the Philippines’ “international ambitions” for its PPP market.

“If [the new law] is an attempt to internationalise the dispute resolution process then it is to be welcomed,” he said. “In the Philippines, the ambition to create a global PPP market is there but the framework to encourage international players is lacking. Against that background, this can only be seen as a positive sign.”

The use of ADR in the Philippines was previously encouraged under a specific ADR law passed in 2004, the Arbitration Law and Republic Act No. 9285. In addition, the country’s Supreme Court circulated its Special Rules of Court on ADR in 2009, encouraging the use of ADR techniques - particularly arbitration and mediation - as an effective way of resolving disputes.

The Government earmarked P19.6 billion (£300 million) for counterpart funding this year, according to a report by the Philippine Daily Inquirer in February - a 57% increase in the amount allotted for projects last year. The PPP Center was set up in 2010 to facilitate the implementation of the country’s PPP programme, described as a “cornerstone” of the Aquino Presidency on its website. However PPP has played a major role in Filipino infrastructure projects for at least two decades, providing finance to solve the country’s power crisis in the early 1990s as well as improve its transport infrastructure and social services.