In PPPs, liquidated damages are the preferred remedy for late service commencement. Liquidated damages are a payment representing a genuine pre-estimate of the actual losses or damages suffered if the private partner fails to achieve service commencement on time. The events giving rise to liquidated damages, and the amounts, should be set out in the contract.

When dealing with under-performance and non-compliance in the Construction Phase, the issue is not the standard of services provided but rather the time taken to complete the asset and the quality of the asset on completion. In general terms, the private partner is incentivized to bring the asset into revenue-earning operation, but the government may suffer some losses in cases of delay and may create a right to claim some form of liquidated damages.

Monitoring the performance of the private partner is a primary function of the contract management team of the government. In most PPPs, the performance monitoring and reporting is done by the private partner, making the function largely one of assurance that the reporting is accurate and auditing performance measures when it is not. During the term of the PPP contract, it is almost certain that the private party will not meet the required standards and not comply with the specification in the PPP contract.

A very strict process of processing claims, as listed below, must be followed.

· The government must be notified of all claims within a limited period of time after the event. Claims submitted long after the event become impossible to evaluate, and the private partner will struggle to show how it dealt with the event and mitigated its consequences;

· The notices must contain complete information, otherwise the notice should be rejected; 

Force majeure events are a limited set of events which may arise during the term of the PPP contract through no fault of either party. These are best managed by the private partner. They are more severe than relief events, will typically last longer and may result in termination of the PPP contract. They are, by definition, unusual and rare events, and the contract management team should deal with these as exceptions.

The private partner will have a limited set of events for which it can claim to:

9.1. Importance of Claims Management

The cost of complying with a law that is current or foreseen at the time of entering into the PPP contract is usually built into the price that the private partner bids in order to provide the services. It may, however, not be possible for the private partner to price specific costs that may arise from changes in a law which are not foreseen at the time it signed the PPP contract. The issue that arises from this is who should be responsible for the costs due to changes in a law and how such costs should be funded.

In troubled projects, financial restructuring may be considered. A method of dealing with a project in financial difficulty is for the PPP contract to be auctioned by the government, whereby a new bidder will pay the actual worth of the project and then continue to provide the service. This is consistent with the risk allocation to the private partner and is the preferred method of dealing with such projects. However, in less mature PPP markets, there is a risk that there will be no buyers willing or able to take over the project.