• 1.2.9 Other Operating Costs
    General project company costs General company costs include the permanent staff of the company, which is usually more of an administrative centre with limited personnel. For instance, it could include staff to manage the finance of the project and interact with the procuring authority and the...
  • 1.2.10 Technological Obsolescence and Technical Enhancements
    Technological obsolescence risk refers to the risk of certain equipment becoming inadequate for the purpose of the service — or the service becoming poorer in comparison with more recent services being provided in the course of the project. When the private partner is exposed to market risk (...
  • 1.2.11 Other Costs – Taxes
    The risk of the taxation framework changing during the course of a contract is generally borne by the private partner when referring to taxes that are part of the common business environment, with exceptions. In some contexts, a value-added tax (VAT) may be an exception to the general rule, and...
  • 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...
  • 1.3 Financial-Related Risks and Potential Allocation
  • 1.3.1 Financial Costs
    Financing the asset is an essential obligation in a PPP, and the risks of availability and cost of the financing should generally be borne by the private partner (with the exception and to the limit established in the contract in those projects under a co-financing scheme – see chapter 5.4)....
  • 1.3.2 Availability of Finance
    There is a risk of funding not being available at financial close or only being available at a significantly worse price (margin and fees) and conditions (including debt service cover ratio [DSCR] or maximum term) than anticipated. This risk is generally to be assumed by the private partner....
  • 1.3.3 Unexpected Needs for Funding
    Generally speaking, the project company has to adequately plan its financial needs, building up in the financial plan the necessary contingent funds. Reserves for renewals and major maintenance have already been mentioned. Another common reserve, as requested by the lenders, is the debt service...
  • 1.3.4 Refinancing
    Generally, refinancing is not considered a downside risk but an upside benefit. When the project performs well, the private partner will have the ability to renegotiate the debt on better terms or refinance the debt, including an increase in the debt level so as to amortize share capital early (“...
  • 1.3.5 Transfer of Shares/Changes in Ownership
    This risk refers to the risk for the public partner of a worsening in the performance of the project if the new shareholder (when there is a change in control) is not as capable as, and does not have the capacity, of the original partner. It is common practice to require the private partner to...
  • 1.4 Describing other Risks that Affect or may Occur in Both Phases of the Contract, and its Potential Allocation
  • 1.4.1 Changes in Law –Specific and Discriminatory Changes in Law
    The risk of changes in law refers to the risk of changes that may affect the project outcome, impacting on the costs (capital costs by means of new investments) or current operating costs (higher maintenance costs or higher operating costs). Law is broadly defined for this purpose as laws,...
  • 1.4.2 Changes in Service/Scope of Works
    Setting aside the potential limits established by the procurement regulations in a number of countries, changes in scope of works (changing the design prescriptions) and changes in service requirements are always a risk event to be allocated clearly to the public partner. This is one of the areas...
  • 1.4.3 Force Majeure
    Force majeure has been introduced in this chapter (see section 5.6). As described in the referred section, force majeure may have different meanings (and therefore a different scope in terms of events included within the category or general term) in different jurisdictions, and it may even be a...
  • 1.4.4 Vandalism and Strikes
    Vandalism is the risk of intentioned acts against the asset or parts of the asset. Generally, vandalism is a risk to be allocated to the private partner, as it is the economic owner of the asset and as such has the first responsibility to protect the asset’s physical and operational state. However...
  • 1.4.5 Insurance Requirements and Uninsurable Risks
    A risk originally insurable (at the inception of the contract), and for which a requirement to be so insured has been included in the contract, may become uninsurable during the life of the contract. Unless specifically imputable to the private partner, this risk (of becoming uninsurable) should...
  • 1.4.6 Private Perspective – Early Termination Risk
    From the perspective of the public partner, early termination risk is mainly a budgetary risk (in addition to the concern of how the service will be provided after the termination, at least until the private partner is replaced by a new contractor) which relates to the ability to meet the...
  • Body of Knowledge:
    Tendering and Awarding the Contract
    Introduction
    This phase covers the period from the launching of the project to the point of financial close. This chapter assumes that the government has chosen to tender the project, rather than negotiating directly with a potential private sector contractor. The benefits of choosing a tender process are...
  • Body of Knowledge:
    Tendering and Awarding the Contract
    1. Where We are in the Project Cycle
    During the previous phase, the contract structure was developed (with particular attention to financial and risk elements), the tender package was drafted, and authorization was sought to launch the tender process. See figure 6.1. This phase covers the period from the launch of the project (which...
  • Body of Knowledge:
    Tendering and Awarding the Contract
    2. Objectives of this Phase
    The objectives of this phase are as follows: To conduct a smooth procurement process and avoid interruptions and re-scheduling. To deliver a contract that will demonstrate Value for Money (VfM) and will benefit both parties. To secure a prompt, rapid, and effective approval for signature. To...