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Strategy Delivery and Commissioning

79.2. Dealing with Extension of Time in the Construction Phase

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

  • Extend the completion date by which the asset must be created, commissioned, and operated
  • Extend the expiry of the PPP contract (effectively an extension to the period in which it can earn revenue from operating the asset).

These events will be set out in the PPP contract, and relate to matters outside the control of the private partner. Allowing an extension of time in these circumstances enables the project to continue with the private partner remaining incentivized to complete the project; this is a better Value for Money outcome than initiating a default process as a result of an event beyond the private partner’s control. See chapter 5.5.5 for further information on the basis for this risk allocation.

The role of the contract management team in the government is to ensure that the basis for granting such an extension meets the criteria in the PPP contract in basis of fact and in terms of compliance with the procedure set out therein.

Although the sections below differentiate between relief events (which entitle the private partner to an extension of time) and compensation events (which entitle the private partner to an extension of time and/or payment of an amount of compensation), it should be remembered that time is money to the private partner, and the process followed in both events should be the same.

9.2.1. Relief Events (time only)

Relief events are those events listed in the PPP contract that may arise at any stage during the term of the PPP contract, the consequences of which are best managed by the private partner even though they may not be within its control. The best example of a relief event is unforeseeable adverse weather conditions. The private partner bears the financial risk of relief events but neither liquidated damages nor rights of termination should arise because the private partner is granted an extension to the completion date.

The private partner should give the government notice of the occurrence of any of the relief events specified in the PPP contract. This should be done as soon as reasonably practicable after becoming aware of the occurrence of the event and within a defined period (for example three months). The notice from the private partner should:

· Specify the event that has occurred and explain why it qualifies as a relief event.

· Identify the impact that the event has had or is likely to have upon the performance of the private partner's obligations, its financial arrangements, and its operations.

· Provide details of the additional time required to remedy that impact.

The government must request further details and particulars if it is not satisfied that it has sufficient information to justify the extension of time.

If the government and the private partner agree on the time for extension of the completion date, then the PPP contract will be amended with the new date for completion of the works and the start of operations. If the parties have not agreed, then the matter must be determined in accordance with the DRP.

The government should interrogate the private partner about the information provided. The private partner must minimize the adverse effects of any relief event by taking action to minimize the delays caused by the event.

9.2.2. Compensation Events (time and money)

Compensation events differ from relief events because the private partner is entitled to an amount of compensation and possibly a time extension to the term of the PPP contract. Examples of compensation events are a failure to provide land or a right of way by the public partner or a delay caused by another government agency.

In addition to the requirements for relief events the private partner must:

· Specify the event that has occurred and explain why it qualifies as a compensation event;

· Identify an impact that the event has had or is likely to have upon the performance of the private party's obligations;

· Provide details of the additional time required to remedy that impact; and

· Provide details of the additional liabilities, costs and expenses, and the loss of revenue that the private partner has incurred or is likely to incur.

This must be summarized into a capital cost, for which the private partner must be compensated, and an operating cost that must be covered by an increase in revenue (user fees or government payments) or an extension in the term of the PPP contract.

The government’s contract management team must interrogate and audit these costs closely as they may be overstated. The mitigation costs of the private partner must also be examined to see whether they were effective.

Any unresolved disagreements on the matter must be dealt with through the DRP.

 

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