(a) In circumstances where government believes that the private party is unlikely to perform any of its specified ongoing obligations after expiry or early termination of the project agreement, government may either:
(i) withhold part of the final scheduled payment (in the event of contract expiry) or the relevant Termination Payment (where there is an early termination); or
(ii) require a performance bond to be provided in respect of those obligations.
(b) Any monies withheld by government will be payable to the private party on the earlier of the outstanding obligations being satisfied and the end of a specified period (to the extent that the private party has met its obligations arising up to the end of that specified period).
(c) Government may make a demand under the performance bond to the extent that the private party fails to perform its obligations. The performance bond will expire at the end of a specified period. This period will be determined on a project-specific basis depending on the nature of the obligations, but would generally be expected to be a 12 month period.
(d) The amount of any withheld monies and the value of any bond (which may be a bid item) is intended to reflect the costs and losses which government is likely to incur as a result of the private party's failure to perform its ongoing obligations.
(e) Whether government seeks to withhold any funds, or requires a performance bond, is a value for money consideration dependent on a number of issues. These include whether government will continue using the facility at the end of the contract term (and, in particular, whether it will be re-tendering the services), the risk and effect on government of the private party not complying with its end- of-term obligations and whether the private party is a special purpose vehicle or a company of substance financing the project on balance sheet.