4.1.4  Managing changes not provided for in the PPP contract

Given the long life of PPP contracts, unforeseen changes in contractual specifications (during construction or operation) are not unusual. The contract management team needs to address these issues and strike a satisfactory balance between:

•  encouraging the PPP Company to manage its risks; and

•  preventing poor performance by the PPP Company from endangering the viability of the PPP contract.

While contract renegotiations triggered by changes that are not permitted in the PPP contract may be a common feature of PPPs in some countries  Guidance 101, the associated risks should be acknowledged and mitigated. PPP contracts can be designed to minimise major renegotiations at a later stage. Contract renegotiations require careful analysis and a dialogue between the parties before contract changes are agreed and implemented. The use of an experienced, trusted and neutral facilitator may be beneficial. While some renegotiations are efficient, many are opportunistic and should be discouraged.

Renegotiations of significant aspects of the PPP contract have considerable implications for the parties and are in principle forbidden under EU law. They are generally regarded as undesirable because:

•  competitive bidding may be distorted: the most likely winner is not the most efficient company but the one most skilled in renegotiation;

•  as renegotiations are carried out bilaterally, the positive effects of competitive pressure are lost; and

•  renegotiations often reduce the overall economic benefits of PPP arrangements and might have a negative impact.

It should be noted that lenders will often have contractual rights to prevent changes to the PPP contract which would, in their opinion, alter the credit status or risk profile of the PPP Company (i.e. their borrower).  Guidance 102