Whilst institutional conflict can stimulate negotiation skills in the search for agreements with the aim of bringing divergent interests together, in a context of poorly managed institutional tensions, it may also generate negative and disappointing results in terms of urban governance. The purpose of this article is to discuss the institutional conflict within a public-private partnership created to facilitate access to public funding. The article is based upon a case study dating back to 2001 and the preparation of the European Capital of Culture event in Porto, focusing on the institutional conflict that arose in the context of an economic revitalization project related to intervention in the public space. From analysis of the November 2013 decision of the Court of Appeal in Porto, which confirmed the guilty verdict against Sociedade Porto 2001 with regard to poor planning and coordination of works in central Porto, I assess the lessons for urban governance. The findings of this study confirm the importance of better management of tensions and contradictions related to the actions of the various actors involved. They also confirm that the public interest is not something scientifically identifiable, but a social construction that requires better recognition of the diversity of interests that make up society.