You are here

1.1.6 Completion and Commissioning

The completion risk or the commissioning risk refers to the risk of failure to meet the construction outcome as prescribed, and/or the project as constructed failing to meet the completion acceptance criteria, thereby causing a delay in earning revenue. It is, in essence, a construction or a design and construction risk that has to be borne by the private partner as a general rule — subject to the exceptions that the contract may provide, based on some specific risks events covered in this section materializing.

The impact of this risk is a delay in service delivery (though rarely a direct impact on costs, as the works are supposed to be progressively monitored by both parties and the lenders). The risk will be transferred naturally to the private party by means of missed revenues and also explicit penalties (up to potential termination for default).

These risks, such as general design and construction risks are generally transferred to the contractors by the SPV.

It should be noted that “completion” refers to finalizing the construction works, whereas “commissioning” is the term frequently used to refer to an authorization to commence operations.

Commissioning (or any other name used to signify that the works are finalized in accordance with the construction requirements and are ready for being opened for service) will generally trigger the payments.

It is not uncommon to grant a kind of "provisional acceptance of the works" or provisional completion approval in order to open the facility for use. This can be done as long as the potential list of defects or outstanding issues are not material to the service (usually named the "punch list"). A limited period is granted to solve those issues and receive the definitive authorization to operate.

The transition from completing the works to commissioning is very important and can be demanding in some projects. A good example is transportation projects, especially in urban areas (such as a metro system or a light rail). There will be a trial period to test that the service works as expected before granting the final acceptance.

Add new comment