Practical ppp project dispute resolution: Costly legal lessons and risk-preventive contract drafting techniques

In our legal practice, we have observed that the majority of disputes in Public-Private Partnership (PPP) investment projects do not arise from the parties' lack of goodwill, nor entirely from market fluctuations, but primarily stem from a very “mundane” yet severely critical cause: the parties' failure to fully anticipate and provide for risk allocation mechanisms, coordination procedures, and dispute resolution methods right from the contract's execution.

Lawyer Ho Vuong Quoc Su – CEO of LS LAW FIRM: “When a multi-trillion-dong infrastructure project collapses not due to a lack of capital, but because… a contract clause was not drafted clearly enough.”

A PPP project can mobilize trillions of dong, directly impacting public interests, the state budget, the financial system, and investor confidence. In this context, a PPP contract is not merely a legal document, but a “private constitution” governing the entire lifecycle of the project.

PPP – An Inevitable Trend in Modern Infrastructure Development

The PPP model reflects a fundamental shift in national governance mindset.

In the past, the State played the leading role, directly allocating capital and organizing investments. However, as the demand for infrastructure development grows and budget pressures increase, mobilizing resources from the private sector has become an inevitable requirement.

Based on our observations, PPP is transitioning from the role of “supplementary capital” to becoming the default method for implementing key infrastructure projects in the future.

This demonstrates that: PPP is not merely a financial solution, but a long-term national development strategy, manifesting the transition from a model where the “State acts in place of the market” to a “Constructive State that guides the market”.

Why are PPP disputes often more complex than ordinary commercial disputes?

PPP disputes have a “hybrid” nature, crossing between: Public authority relations; Investment relations; Construction relations; Financial relations; and Operation and maintenance relations.

Therefore, each dispute not only involves the economic interests of the parties but also impacts: Public assets; Development planning and policies; Essential public services; The reputation of regulatory agencies; and Future capital mobilization capabilities.

Therefore, PPP disputes require a resolution mechanism that ensures legality while balancing national and commercial interests.

Commercial Arbitration – The most suitable dispute resolution tool for PPP contracts

Article 97 of the Law on Public-Private Partnership Investment 2020 allows parties to choose negotiation, mediation, arbitration, or the Court to resolve disputes. Concurrently, pursuant to Point b, Clause 5, Article 86 of the Construction Law, priority is given to the use of domestic arbitration institutions for public investment and PPP projects.

Outstanding advantages of arbitration in PPP projects

1. 1. Ensuring equality: Arbitration allows the State and investors to participate in proceedings on a more equal footing.
   2. Confidentiality: Particularly crucial for strategic infrastructure projects and the capital raising process.
   3. Procedural flexibility: Saves time, reduces costs, and minimizes project disruptions.
   4. Favorable application of Vietnamese law: When domestic arbitration is selected, arbitral awards are generally more favorably enforced and aligned with the Vietnamese legal context.
   5. Harmonizing national and corporate interests: Allows for dispute resolution while ensuring control over matters relating to public assets, land, and planning.

Three core risk categories commonly found in PPP contracts: 

First, risks borne by the Project Owner/State Agency

-Site clearance;
-Delays in approvals;
-Revenue guarantees.

Second, risks borne by the Investor/Contractor

-Design and construction;
-Operation and maintenance;
-Finance and market.

Third, shared risks

-Revenue fluctuations;
-Force majeure;
-Objective impediments;
-Change in law.

The real causes leading to disputes:

It is not the occurrence of the risk itself, but rather the contract’s failure to clearly stipulate how to handle it. The parties may have “agreed” on risk allocation, but when an event arises, it becomes impossible to clearly determine who bears responsibility and to what extent.

Common causes include: Vague risk definitions; Unclear conditions for triggering liability; Lack of stipulated timeframes for resolution; Absence of compensation calculation formulas, and failure to determine specific financial consequences.

Practical lessons:

A risk allocation clause is only truly valuable when it answers the following five questions:

1. 1. What event is considered a risk?
   2. Who bears the responsibility?
   3. To what extent
   4. Within what timeframe?
   5. How are the financial consequences calculated?

The greatest conflict in PPP: Differences in speed and decision-making mechanisms

This is precisely the “systemic collision point” that frequently causes disputes.

Four contract drafting techniques to help minimize PPP disputes

First, detail the risk structure: Specifically stipulate each risk, triggering conditions, the responsible party, timeframes, and financial consequences.

Second, establish a “default approval” mechanism: If the competent party fails to respond within a specified timeframe, it shall be deemed approved.

Third, establish a Joint Working Group: Comprising representatives of the State, the investor, and independent experts to promptly resolve disagreements.

Fourth, build a multi-tiered dispute resolution mechanism: Negotiation → Mediation → Dispute Adjudication/Resolution Board (DAB/DRB) → Arbitration or Court.

• Mediation – A strategic solution to protect cooperative relations
• Benefits for the Project Owner: Protects political reputation and public order; Reduces liability and budgetary pressure; Controls outcomes and increases legal certainty.
• Benefits for the Investor/Contractor: Protects cash flow; Reduces litigation costs; Maintains project schedule; Preserves long-term cooperative relations.

Model dispute resolution clause that should be clearly stated in PPP contracts

Example: “Any dispute arising out of or in connection with this Contract must first be resolved through good faith negotiation within 30 days. If no agreement is reached, the dispute shall be finally resolved at VIAC in accordance with the Rules of Arbitration of VIAC. The seat of arbitration shall be Ho Chi Minh City. The language of arbitration shall be Vietnamese and/or English, as agreed by the parties.”

A good contract is not a “thick” contract, but a contract that anticipates crises

After many years of advising and resolving disputes in the fields of investment, construction, and infrastructure, I believe that the greatest value of a lawyer lies not in “winning the case” after a dispute occurs, but in the ability to design a contract structure tight enough to prevent disputes from escalating. In PPP projects, every clause correctly drafted from the outset can help save tens of billions of dong in costs, protect the schedule, maintain investor confidence, and avoid legal ramifications that drag on for years.

Conclusion

PPP is the future of modern infrastructure development. However, PPP only fully realizes its effectiveness when the parties treat the contract as a comprehensive risk management mechanism, rather than merely a document recording obligations. Above all, a well-drafted PPP contract is the most robust “legal shield” to protect the interests of the State, the investors, and society as a whole.

LS LAW FIRM – Always accompany your development.