The private party under a public private partnership project usually incurs substantial up-front design and construction costs to develop project assets. Any unanticipated increase in these costs, whether through delay or otherwise, may have a significant impact on the financial outcomes of the project and/or the delivery of services.
In approaching this risk, it is important to remember that public private partnership projects have the potential to differ significantly from traditional 'design and construct' contracts. Under the traditional approach, government appoints design and/or construction companies to design and build the asset on their behalf. Payment is typically made in stages when the works are deemed fit for use or occupation. The contractor has no ongoing responsibility to maintain or service the facility once it has been built.
Although there are some similarities between the development obligations imposed on the private party in a public private partnership contract and the builder in a public procurement, there are likely to be critical differences. As noted in earlier chapters, under the public private partnership policy, government is not necessarily procuring the asset but focusing on the services delivered through it. This means that:
• government makes no payment during the design and construction period
• the scope for government-initiated change to design and construction processes is likely to be limited
• government rights during design, construction and commissioning are likely to focus on reporting and monitoring rather than the broader rights exercised under a design and construct contract
• 'commercial acceptance' is likely to take the place of 'practical completion', i.e. acceptance by government that service delivery (to agreed service standards) from a technically complete facility can begin and, therefore, so can payment of service charges
• if there are defects, correction of these during a specified 'defects liability' period are likely to be less relevant to government, as payment will most likely be abated if the service falls short of the specified outputs as a result of the defects.
Completion generally occurs when the capital works and service outputs are tested under the full range of operating environments (i.e. commissioning and operational commissioning) and a final certificate of completion is issued. This indicates that the project assets are able to deliver the services to specification. Government accepts that the private party will typically look for objectivity in issuing certificates at commissioning/operational commissioning.