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1.2.12 Residual Value/State of the Asset at Contract Expiration – Hand-Back Requirements

When, as is commonly the case in most PPPs, the asset will be "handed back" to the authority at the end of the contract, this should be done in an appropriate physical state. The authority should not be exposed to the risk of the asset having a short remaining life, a low residual value, or being in an improper technical state. The contract should clearly define what technical state the asset has to meet at the contract expiration date within the hand-back requirements/specifications.

This risk is borne by the private partner, but taking into account that the hand-back will happen at the end of the contract (unless terminated early, in which case the provisions are specifically provided in the contract), the partner may have less incentive to properly manage the residual value risk so as to meet the specified standard. The mechanisms to handle this risk in the contract itself are explained in chapter 5.8.9.

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