It is likely that the 'real' constructor or operator will not be the design and construction contractor or operator, but the next level of sub-contractor- potentially an operating subsidiary of the design and construction contractor or operator. Where most or all of the responsibilities under the design and construction contract or operating agreement are being sub-contracted, government should consider obtaining direct contractual undertakings or collateral warranties from those sub-contractors. Under a collateral warranty a sub-contractor would:
• warrant that it will properly carry out its duties under the sub-contract
• undertake to provide a parent company guarantee upon request
• undertake to comply with any government rights to take a novation or assignment of the sub-contract.
Where government seeks collateral warranties from sub-contractors it must conduct appropriate due diligence over the sub-contracts to verify that their principles are consistent with the warranties to government.