The risk allocation approved by government is reflected in the project agreements. It is critical to ensure that the contract is performed in accordance with its terms and that each party discharges its respective obligations. Failure to do so is contrary to the approval given by government and has the potential to diminish the value of the project.
In addition, it is imperative to ensure that certain actions, or inaction, by the contract management team do not result in government implicitly taking back some of the risks allocated to the private sector party in the project agreements.
The remedies available to government in the event of a project failing to deliver services in accordance with the performance specifications will be clearly defined in the project agreements. The project agreements should comprehensively take into account the implications of non-performance and thereby ensure there are no legal grounds for either party to seek alternative remedies. This should ensure that a value for money outcome is achievable for government, even in circumstances where a project encounters performance difficulties.
The government should consider the potential implications of issues such as performance default, operator insolvency, and project abandonment. Remedies available to government may include payment of liquidated damages, surrender of facilities and step-in rights.
Government should desist from engaging with the private sector party other than as prescribed within project agreements. However, it is recognised that in exceptional circumstances, variations to the project agreements or waivers of rights may be an appropriate response to ensure the government's value for money outcome. Any such variations should be approved by relevant Ministers before any variation agreement is entered into with the private sector party.