Nr | Question | YES | NO | User comments | Reference to MGDD | |
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VI. Availability risk, including penalties/bonuses Availability risk covers cases where, during the operation of the asset(s), the responsibility of the non-government partner is called upon, because of insufficient management performance, resulting in a lower volume of services than was contractually agreed or in services not meeting the quality standards specified in the PPP contract. The essence of an availability scheme is that government payment to a non-government partner is made only when the infrastructure service provided is made "available" (i.e. is provided according to a contractually specified standard). When: (i) the PPP contract does not provide for automatic and significant non-performance penalties to be applied in case of non-performance by the non-government partner, or (ii) when such penalties are not systematically applied, government bears the majority of the availability risk. | Eurostat | |||||
52 | Are there performance indicators mentioned in the contract? |
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| If "yes", availability risk would be a core feature of the analysis of risk sharing. For instance, the available number of beds in a hospital, of classrooms, of places in a prison, of lanes on a highway opened to traffic, etc. If the answer is "no", this is an indication that the availability risk is on the government side. | VI.5.4.2/82 |
53 | Does the government payment depend on the actual degree of availability ensured by the partner for a given period of time? |
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| If the answer is "no", the availability risk is on the government side. | VI.5.4.2/82 |
54 | Is government entitled to reduce significantly its periodic payments if the partner is defaulting in its service obligations (i.e. certain performance criteria are not met)? |
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| If the answer is "no", the availability risk is on the government side. This would apply mainly where the partner does not meet the required quality standards, resulting from a lack of performance. It may be reflected in non-availability of the service, in a low level of effective demand by final users, or low level of user satisfaction. In some cases, the partner could invoke an "external cause", such as a major policy change or "force majeure". But such exceptions should be accepted only under very restrictive conditions, explicitly stated in the contract. | VI.5.3.2/44 VI.5.4.2/82 |
55 | Does the private partner bear the costs because of inadequate management (bad performance)? |
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| If the answer is "no", the availability risk is on the government side. Inadequate management ("bad performance") results in a volume of services lower than what was contractually agreed, or in services not meeting the quality standards specified in the contract. | VI.5.1/5 |
56 | Is the application of penalties for the non-respect of quality standards or under-performance clearly set in the contract? |
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| If the answer is "no", the availability risk is on the government side. | VI.5.3.2/44 |
57 | Do the penalising mechanisms have a significant effect on the partner's revenues/profit? |
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| Penalising mechanisms must not be purely symbolic or "cosmetic". They must significantly affect the operating margin of the unit and could even exceed it in some cases, so that the partner would be severely penalized financially for inadequate performance. They may also take the form of automatic renegotiation of the contract and even, in an extreme case, of dismissal from the contract of the original partner. The existence of marginal penalties would be evidenced by a reduction in the government payment far less than proportional to the amount of services not provided, and such a situation would be contrary to the basic philosophy of a significant transfer of risks to the partner. | VI.5.3.2/44 |
58 | Does the contract state a maximum amount or percentage of penalties that could be applicable in the event of inadequate performance? |
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| If "yes", this would suggest that this risk has not been significantly transferred to the private partner. | VI.5.4.3/84 |
59 | Are the government payments to the private partner expected to fall to zero if the asset is not available for a significant period of time? |
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| This mechanism plays a key role in risk distribution. The payments in question might be independent from guarantees of debt to financial institutions. | VI.5.3.2/44 |
60 | Is the private partner entitled to keep all or most of the profit resulting from its own initiative? |
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| When private partner bears the availability risk, he should not only be penalised for bad performance, but also should be entitled to keep all or most of the subsequent profit resulting from its own initiative. | VI.5.3.2/44 |
61 | Does government bear the availability risk? |
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| Government bears the availability risk if the answer to any of the following questions is "no": 53 or 54 or 55 or 56 or 57 or 58 or 59. | VI.5.1/5 |