[00:00:00] Marta: Welcome to Bestek, the public procurement podcast. Today I’ll be talking about whether public contract disputes should be open to be resolved by arbitral tribunal.

[00:00:11] Bestek Intro/Outro: Welcome to Bestek, the public procurement podcast. In this podcast, Dr. Willem Janssen and Dr. Marta Andhov discuss public procurement law issues, their love of food, and academic life. In each episode, Willem, Marta, and their guests search for answers to intriguing public procurement questions. This is Bestek.

[00:00:36] Let’s dish up public procurement law.

[00:00:42] Marta: Hello, hello. It’s just me today. If you are an OG listener, you’re probably already sensing something is a little different, right? Normally, this is a full sit-down, myself and Willem, sometimes a guest, where we divide our conversation across a starter, our main course, and dessert, the whole thing.

[00:01:04] Today, I want to try something else with you, dear listener. Think about this segment and this series of podcasts that are upcoming in the next weeks and months as more of an aperitif. A little something before the dinner. This will be quick, a bit sharp, just enough to hopefully whet your appetite on one topic before you’re back out the door.

[00:01:28] Hopefully this will be bite sizes, so shorter, maybe something that you can listen to, while you… in between the meetings or just running out the door, before heading into the car. So here’s the setup. A few weeks ago, I had a pleasure of hosting the PurpLE Conference on Public Procurement and Contracts in Copenhagen, Denmark.

[00:01:50] It was a fantastic occasion with brilliant panels and great audience. Very luckily, we managed to secure support from Dreyers Foundation, and this project was, funded by Carlsberg Foundation. So, as a consequence of that, we are right now really in the process of trying to get as much of this great content to you, our dear listeners, who did not manage to join us for the conference. So the final panel that was closing that conference, this two-day event, was on arbitration in public contracts.

[00:02:26] It was chaired by Peter Trepte from the University of Nottingham, and let me just tell you, it was absolutely great panel to end this on. We all were left wanting more and hearing more. The four panellists covered the advantages of arbitration, the legal limits on using it, the practical constraints contracting authorities actually run into in different jurisdictions.

[00:02:49] So there was a lot in that panel. But there was one question that kept the room particularly engaged at the beginning of the panel, and that was what I want to pull out today because I think it’s the one most of you already sitting with if you’re working with practice, even if you haven’t put it into words.

[00:03:08] And that is the question, should public contracts even be allowed to go to arbitration in the first place? Not how we do it, not when we do it, but whether actually as a starting point they should be allowed to. And here’s why that’s not just an academic question, If there is a breach of a contractual relationship or you think you have been wronged as a supplier or as a contracting authority, where do you take that fight and who gets to decide it?

[00:03:38] And this question or these question change everything about how fast we are made whole again, how much it will cost us to get there, and whether details of the potential mess that has been caused by one of the contracting parties, is made public or whether it’s kept confidential. This informing ultimately, whether the public ever finds out exactly what happened.

[00:04:03] And due to this public-private nature of public contract, this is one of the more consequential questions when it comes to discussion around public contracts, in my personal opinion. Four voices are going to walk you through it today, and I’ll introduce each one of them properly as they come in. First up, you’re going to hear from Roxana Vornicu.

[00:04:26] She’s a senior lecturer at the King’s College in London, and she’s also a managing partner at Sîrbu and Vornicu Law back in Romania. So she’s working in both the academic and in the practitioner’s world, at the same time. Let’s start with her, and her case for the arbitration and public procurement in the first place.

[00:04:48] Roxana: First of all, the worldwide international construction industry is really a village. and it’s mostly formed by the same actors that move from one country to another because it is organized on main contractors, subcontractors and suppliers. The main contractors are obviously international companies that have the ability to act as integrators [in big construction projects]. And main contractors usually operate with international teams, which might be dedicated to a project in Bangladesh today and a project in Lithuania tomorrow.

[00:05:26] When you get to the second layer of specialist subcontractors, whatever they might do in a project, electrical, engineering or HVAC engineering or so on and so forth, which tend to be a little bit more local. And then the third layer are suppliers, which are again international. In reality, although the public procurement reality is a national reality, the construction industry, and the construction, and the reality of a construction site is generally very international.

[00:05:57] Marta: Okay, so the construction industry is a village. I love that, right? What Roxana’s really pointing to is that you got the same handful of contractors, the same engineers, the same suppliers turning up on infrastructure projects in one country after another, working on a hospital in one place this year and bridge somewhere else next.

[00:06:20] And none of them particularly trust a local judge who might be handling a construction dispute for maybe the second time in their whole career, which when you think about it, is a pretty reasonable thing to worry about. So there’s a real practical logic to wanting someone who knows the field deciding your case.

[00:06:45] But Roxana doesn’t stop at expertise. She goes straight at the biggest objection to all of this, the thing that makes people nervous about arbitration and public money in the first place, privacy. Here she’s on that topic.

[00:07:01] Roxana: So first of all, one of the biggest tensions here in arbitration versus, procurement is obviously confidentiality versus transparency. I do acknowledge this tension, but, I also need to say that procurement legislation itself protects the confidentiality of sensitive information when it comes to offers.

[00:07:20] So the fact that we prolong this protection during arbitral disputes is not incompatible with it. And we also… sorry for zooming in on the specificity of the construction sector, but, confidentiality and the confidential relationship or integration by a main contractor with supply chain, it is the most prized commodity because main contractors are really integrators of various schemes.

[00:07:49] So the way that they negotiate with their subcontractors is their trade. So I think that in reality, transparency in terms of this is could be a tension, danger. I advocate for transparency as well, but when contractors do it, do it willingly with the right contractual instruments.

[00:08:08] Marta: So Roxana’s argument basically is that procurement law already protects sensitive bid information before a contract is even signed. Things like pricing strategy, technical methods, the stuff competitors would love to get their hands on. So protecting that same information a little longer during an arbitration isn’t some radical new secrecy.

[00:08:36] It’s the same rule, just extended a bit further down the line. That’s her position, and I think it’s a fair one, even if it doesn’t settle the whole debate. Now, let me bring in a second voice because I think this is where it gets quite interesting. Cesar Pareira is the President of the Chartered Institute of Arbitrators based in São Paulo, Brazil, and he sits as an arbitrator himself in disputes involving government contracts.

[00:09:07] So this is someone who’s in the room when these calls get made, and his starting point is refreshingly blunt.

[00:09:14] Cesar: Business people are not in the business of burning money, right? Theyre- they don’t go to arbitration because it’s fun, because arbitration lawyers are charming or arbitration hearings are very exciting. They do that basically because they see arbitration as a means to achieve more efficiency and more fairness, because that’s basically what everybody is after i- in a dispute.

[00:09:40] Neutrality, even confidentiality, these are instruments to reach efficiency, fairness, to reach the best possible result.

[00:09:49] Marta: Efficiency and fairness, not in Cesar’s words, because arbitration hearings are fun night out. Fair enough, right? I don’t think anyone’s ever accused a hearing room of being a great time. So if that’s really what businesses are after, the obvious next question is why a government wouldn’t want the exact same thing.

[00:10:13] But not everyone on this panel thinks it’s that simple, and I think that’s what makes this conversation worth having rather than just a parade of people agreeing with each other. Nicholas Jobidon is a professor of public law at the Université du Québec in Canada, and he’s about to raise something that goes well beyond arbitration itself.

[00:10:32] What happens when anybody, public or private, gets to opt out of being reviewed by anyone else at all? Here’s Nicholas’ point.

[00:10:43] Nicholas: We tried to do something like that, my government, many years ago. It was because the- the judges who do judicial review are named by the federal government. It was during some troubles we had, the separation and that kind of stuff, and so the Quebec government tried to make a professional review board that would be immune from judicial review.

[00:11:02] We’re going to name three of our own judges of the provincial court, not the federal one, and their word is going to be final. There’s not going to be any judicial review. And the Supreme Court, I think, very correctly said, “You can’t do that. This is one step towards, not arbitration, but towards arbitrariness.”

[00:11:19] If you have the power to remove judicial review, then essentially you can be an autocrat. You can do whatever you like and so that’s not, that’s not gonna fly, and that’s a rule we’ve been applying ever since.

[00:11:31] Marta: Autocrat is a strong word, right? But listen to what he’s really objecting to because it’s more precise than it sounds at first. His point isn’t that arbitration is bad; it’s that you should know exactly what you’re giving up when you remove judicial review from the picture entirely.

[00:11:51] And that’s true whether it’s a government doing the removing or a private company. I think that’s a fair thing to check before anyone signs away that kind of oversight. So here’s a useful gut check on Nicholas’ point. Does every country even agree on how much arbitration should be allowed in the first place?

[00:12:14] Miguel Assis Raimundo is an Associate Professor at the University of Lisbon, and he researched exactly this question, comparing three countries in detail for our anthology: France, Spain, and Portugal. Turns out, no, they don’t agree at all, and the differences are bigger than you expect from three neighbouring countries with fairly similar legal traditions.

[00:12:38] Miguel: France is perhaps, we can say, a paradigm of this situation because it allows for arbitration in big projects, complex contracts. There are exceptions which are designed for specific entities, which is interesting. By and large, we can say that the utilities entities in- in France benefit from exceptions in the law.

[00:13:00] These- these exceptions that I’m talking about are all provided for in the law, and they benefit from exceptions which are present in the law regarding their own activities. So this is interesting. Spain has a more, we can say, more- more closed system regarding arbitration.

[00:13:22] But on the other hand, Portugal has adopted a completely generous view on arbitration, which allows for arbitration, this will surely surprise you, allows for arbitration, including in matters which regard to the validity, lawfulness of administrative acts, including in terms of, for example, we have tax arbitration, which most of you will simply find shocking, but it’s an absolute reality, for more than a decade now.

[00:13:44] We have a very generous standard regarding arbitration, and we do have that standard. It’s also present in case of public contract.

[00:13:52] Marta: So France allows arbitration for big complex projects with some carve-outs for specific entities. Spain keeps things fairly closed, and Portugal, of all places, turns out to be the most generous of the three, allowing arbitration even in some surprising areas like tax disputes, which apparently raises eyebrows even among people who work in the field every day.

[00:14:19] So does that mean the whole question just comes down to which country you happen to be in? Not quite. Miguel has a more helpful take on why these differences exist and why would you need to be true, for the fear around arbitration to mostly go away.

[00:14:36] Miguel: I think that these approaches to arbitration, maybe demonstrate, that’s my hypothesis, maybe demonstrate that if you provide the adequate institutional architecture and regime to arbitration courts, maybe some of the- the fears and difficulties and, some of the reasons why we tend to fear arbitration in the use of, in public law contexts, can in some cases go completely away.

[00:15:04] Marta: So for Miguel, it’s not about trusting arbitration blindly. It’s about building the right institutions around it, and if you do that properly, a lot of the fear just goes away on its own. Let’s bring Nicholas back in for a second because after everything you’ve just heard, four different arguments, four different angles, here’s where he lands on the big question.

[00:15:29] Nicholas: I don’t think arbitration has anything to prove anymore. I think it’s clear the advantages that- that it offers. What’s more, the contracting authorities make the decision whether they want arbitration or not.

[00:15:40] It’s essentially single-sided. They decide if they want to put that in their documents or not. So it’s an incredibly useful tool for them to have, and it is definitely the most appropriate tool in some circumstances. What my- my position is, that it’s not the best tool for every situation.

[00:15:58] Marta: Arbitration doesn’t have anything left to prove, in Nicholas’ words, but that’s not the same as saying it’s the right tool for everything. I think that’s pretty fair place to land, honestly, after four very different perspectives that still somehow don’t fully cancel each other out. So last clip, we opened this episode with Roxana naming the tensions that scares people most about arbitration and public money, privacy versus transparency.

[00:16:26] Let’s close that loop properly. Here’s Cesar with, I think, the most persuasive answer anyone gives on the whole panel.

[00:16:34] Cesar: I do think that we need to look at the- at Brazil’s experience and other- some other countries, but Brazil I think is the extreme experience in terms of transparency, and understand that in- in contract-based arbitration with the state, a good level of transparency is essential for the necessary public scrutiny of the process.

[00:16:56] Because it creates an incredible amount of confidence and reliability, and trust in the process. The fact that you know exactly what’s happening, that you have access to every procedural order, o- of course, with the protection of confidential information, the of trade secrets or other things that would be protected anyway, national security, contracts and everything.

[00:17:21] But- but if you, if arbitrators know that everybody’s looking, if everybody knows that they can look, it’s a complete different level of trust. And I think that’s a very important thing to create a reliable system of contract-based arbitration with the state.

[00:17:39] Marta: If everybody knows they can look, it’s completely different level of trust. That might be the whole episode in one line, honestly. So to pull this all together, should public contract even be allowed to go to arbitration for people, for countries?

[00:17:57] And I don’t think anyone on this panel will give you a flat yes or no, and I think that’s the right instinct, even if it’s a little unsatisfying to hear. What they’re giving you instead is a list of condition. Roxana might say, only if you got real technical expertise on the table, people who understand what they’re ruling on.

[00:18:18] Cesar might say, only if the government invests in the people who use the tool, not just the tool itself, because a badly resourced arbitration program is worse than none at all. Nicholas might say, only if you’re honest about which parts of the process shouldn’t be handled to the arbitrator in the first place, because some decisions really do need to stay reviewable with the public courts.

[00:18:46] And Miguel might say, only if you build the legal architecture around it properly, safeguards, transparency rules, all of it, rather than just bolting arbitration onto your existing system and hoping for the best. So maybe that’s the real answer to today’s question. It comes down to conditions, not a verdict, and those conditions are doing almost all the- all of the work.

[00:19:12] I think that’s a more honest place to land than either side of the debate usually admits. That’s it for this aperitif. A quick bit of context before I let you go. This whole panel came out of the PurpLE project, Purchase Power – Sustainable Public Procurement through Private Law Enforcement, funded by Carlsberg Foundation. And this conference was its capstone, closing out a few years of work, looking at how procurement law and commercial contracts law interact across Europe.

[00:19:39] It brought together more than 40 expert speakers from across Europe, but far also beyond, several of whom you’ve heard clips of right here. And none of it could happen without the PurpLE team, who are instrumental to the project, the resulting book that we launched at that conference, and to the funding bodies that allow us to proceed with the project.

[00:20:05] The same panel actually has enough in it for a second episode, too. Next time, we’re digging into a different question these four go into. When you win an arbitration against the government, can you actually collect? That one’s coming soon, so keep an eye out for it. If you want to learn more about these panellists, you find link to them in the show notes along with the link to our new book this conversation was built around, “Public Procurement and Contract Law: Exploring Intersections, Defining Boundaries.”

[00:20:38] I’m Marta. This has been Bestek, the public procurement podcast, and I’ll catch you up next time.

[00:20:43] Bestek Intro/Outro: This was Bestek, the public procurement podcast. Do you want to contribute to today’s discussion? Then share your thoughts on LinkedIn or Twitter. Do you have an idea for a future episode? Write to us at www.bestekpodcast.com

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