Termination payments

PPP contracts usually require the Authority to make payments to the PPP Company if and when the contract is terminated. These provisions are generally complex and need to be carefully drafted with the assistance of advisers, taking into account a number of factors, such as:

•  fairness;

•  incentives for the PPP Company and its lenders; and

•  bankability.

Specifying termination payments can be important even if the PPP contract is never terminated. For example, if the parties are renegotiating the contract, the Authority should not accept a less favourable outcome than simply terminating and making the required payment. The termination payment can act as the reference price in the renegotiations.

The following paragraphs summarise the approaches used for calculating the termination payment in the various cases of termination.  Guidance 107, 108, 109