Content Headings

Key Issues

Example clauses

Notes and References

Design

The most important obligation of the project company under the concession agreement is likely to be the construction of the infrastructure asset. The common practice is to confer on the private sector the obligation to design and construct the infrastructure asset (subject to government's obligations as discussed below). The requirements, specifications of for the infrastructure need to be carefully defined in the concession agreement. The task of designing and constructing the infrastructure asset is usually subcontracted to a contractor on a fixed price, fixed time and turnkey basis under an EPC agreement. The issues relating to the design and construction of the infrastructure asset dealt with in the concession agreement are as follows: 

Time and price. The price of design and construction is usually not specified, because the project company relies on future revenue flow from the operation of the facility to recover its construction costs. The time for which the facility construction needs to be completed is usually specified in the agreement. If the project company fails to complete the design and construction of the facility within a specified time, the project company is usually required to pay liquidated damages. If the project company completes the construction of the facility within a specified time, there are sometimes provisions for the government to award bonus payments.

Government input. The concession agreement will provide for submission of designs and information to the government. There should be an opportunity for the government to review the design and supervise the construction of the infrastructure facility. There should, however, be no express obligation for the government to approve or provide input, because this may lead to contributory fault by the government if something is wrong in the design or construction of the infrastructure. For example, the private sector may argue that the government has approved the design of the faulty infrastructure asset.

Completion. One of the key milestone in the project is the completion of the construction of the infrastructure facility. Mechanisms for the government to test whether completion of the infrastructure facility has occurred needs to be built into the agreement.

Consequences of late completion. There needs to be target dates for completion of the infrastructure asset. For some projects, other milestones may also be appropriate. The consequences of not completing by those target dates should be dealt with. In general, what the consequences are would depend on whether the failure to complete is caused by the government, the project company (or its sponsors), or something that is the risk or control of either the government or the project company.

Consequences of early completion. The parties may consider a bonus payable to the project company for early completion, and consequently early commencement availability of the infrastructure asset. The reward for early completion, however, may already be inbuilt if the period for termination of the concession period is a fixed date. That is, the project company would benefit from a longer period where the infrastructure asset is operational and generating revenues.

Alternative 1

Overall Responsibility

Concessionaire shall carry out the Works:

(a)  so as to procure satisfaction of the Authority's Construction Requirements;

(b)  in accordance with Concessionaire's Proposals; and

(c)  in accordance with the terms of this Agreement.

To avoid doubt, the obligations in sub-Clauses (a), (b) and (c) are independent obligations. In particular:

(d)  the fact that Concessionaire has complied with Concessionaire's Proposals shall not be a defence to an allegation that Concessionaire has not satisfied the Authority's Construction Requirements; and

(e)  the fact that Concessionaire has satisfied the Authority's Construction Requirements shall not be a defence to an allegation that Concessionaire has failed to comply with Concessionaire's Proposals.

Design responsibility

Concessionaire warrants that it has used, and will continue to use, the degree of skill and care in the design of the Facilities that would reasonably be expected of a competent professional designer experienced in carrying out design activities of a similar nature, scope and complexity to those comprised in the Works.

Thermal and energy efficiency

[For the purposes of this clause an "average year" means an "example weather year" ("EWY") as defined by the Chartered Institute of Building Services Engineers and including data for the [speficy] area.] During the period of [two (2) years] following the Actual Completion Date, the parties shall monitor the actual energy consumption at the Facilities in accordance with the procedure set out in Schedule [Construction Matters], with a view to ascertaining whether and to what extent the thermal and energy efficiency of the Facilities meets the requirements of the Authority's Construction Requirements and Concessionaire's Proposals. [If either of the [two (2) years] referred to above are not average years, then such monitoring shall continue until the earlier of:

(a) there being [two (2)] complete average years; and

(b) five (5] years from the Actual Completion Date.]

If as a result of the monitoring of actual energy consumption over the periods described above there is any indication that the thermal and energy efficiency of the Facilities fails to meet the Authority's Construction Requirements and/or Concessionaire's Proposals, the parties shall jointly investigate the matter to determine the cause of such failure either in the manner agreed between them or in such manner as may be determined in accordance with Schedule [Dispute Resolution Procedure].

If following any investigation pursuant to clause [Reference], it is agreed between the parties or determined in accordance with Schedule[Dispute Resolution Procedure] that such failure arises as a consequence of the design and construction of the Facilities by Concessionaire not complying with the applicable provisions of the Authority's Construction Requirements and/or Concessionaire's Proposals, Concessionaire shall at its own expense procure that such additional work or other remedial work is carried out to remedy the relevant defect or otherwise compensate the Authority in a manner approved by the Authority (such approval not to be unreasonably withheld or delayed) but where the solution adopted is compensation, the Authority should not as a consequence face any additional liability upon early termination of this Agreement and the provisions of Schedule [Dispute resolution procedure] shall be amended as necessary to achieve this.

The Authority design approval

The Authority confirms that, as at the date of this Agreement, it has reviewed such of Concessionaire's Proposals as have been initialled by the Authority and that, subject to any qualifications and/or comments notified by the Authority to Concessionaire in writing and set out in [specify] such proposals satisfy the Authority's requirements in respect of Clinical Functionality, so far as can reasonably be determined given the level of detail of Design Data which has been disclosed to the Authority.

Concessionaire shall develop and finalise the design and specification of the Works and the Authority shall review the Reviewable Design Data in accordance with Schedule [Review Procedure] and the provisions of this clause:

(a)  Concessionaire shall submit the Reviewable Design Data and the design of any Variations developed in accordance with the procedure set out in Schedule [Variation Procedure] to the Authority's Representative for review under Schedule [Review Procedure]. Concessionaire shall not commence or permit the commencement of construction of the part or parts of the Facilities to which such Reviewable Design Data relates until it has submitted the appropriate Reviewable Design Data and either it is confirmed by the Authority's Representative that Concessionaire is entitled to proceed with construction in accordance with paragraph [ref] of Schedule [Review Procedure] or Concessionaire is disputing the status of such Reviewable Design Data pursuant to paragraph [ref] of Schedule [Review Procedure]. [If Concessionaire commences or permits the commencement of construction during such a dispute and it is subsequently determined in accordance with Schedule [Dispute Resolution Procedure] that Concessionaire was not entitled to proceed with construction in accordance with paragraph [ref] of Schedule [Review Procedure] then Concessionaire shall forthwith, at its own cost, undo, remove from the Site and replace (in a manner complying with this Agreement) any parts of the works which it has been determined Concessionaire was not entitled to construct;]

(b)  with effect from the date at which any item of Reviewable Design Data is or becomes an Approved RDD Item in accordance with Schedule [Review Procedure], such Approved RDD Item shall for the purposes of this Agreement be deemed to have satisfied the requirements of the Authority in the manner and to the extent set out in Schedule [Review Procedure];

(c)  Concessionaire shall allow the Authority's Representative, at any time, a reasonable opportunity to view any items of Design Data, which shall be made available to the Authority's Representative as soon as practicable following receipt of any written request from the Authority's Representative; and

(d)  Concessionaire shall procure that the Contractor establishes and maintains a computerised design database which Concessionaire and the Authority's Representative may access remotely by computer to view drawings comprised within the Design Data (including Reviewable Design Data) and electronically store and/or print copies of such Design Data. In the event of the Authority's Representative being unable to access such design database, Concessionaire shall procure that it is made available for inspection by the Authority's Representative, or any other person authorised by the Authority's Representative.

Rectification of Concessionaire's Proposals

Without prejudice to clause [reference], if it should be found that Concessionaire's Proposals do not fulfil the Authority's Construction Requirements, Concessionaire shall at its own expense amend Concessionaire's Proposals and rectify the Works or any part affected. Such amendment and rectification shall have the effect that:

(a)  Concessionaire's Proposals shall satisfy the Authority's Construction Requirements; and

(b)  following the amendment or rectification, the structural, mechanical and electrical performance of the Facilities will be of an equivalent standard of performance to that set out in Concessionaire's Proposals prior to their amendment or rectification (for the purpose of this comparison disregarding the fault which required the amendment or rectification to be made).

See SOPC Section 3.4.

Alternative 1 adapted from Department of Health (UK), Standard Form Project Agreement Index reference A1 Folder 1.

Alternative 2

Preparation of Drawings 

The Concessionaire may, subject to the Design Requirements, adopt with or without modifications the Drawings made available by the Authority or adopt its own Drawings. Provided that, the Concessionaire shall in any event be solely responsible for the adequacy of the Drawings and can not hold the Authority/ its advisors responsible for adequacy/ accuracy of drawings made by the Authority. 

If the Concessionaire chooses to adopt with modifications the Drawings made available by the Authority or to adopt it own Drawings, the Drawings shall be subject to review by the Independent Engineer as provided in the succeeding clause. 

Review of Drawings

The Concessionaire shall promptly and in such sequence as is consistent with the Construction Requirements, submit a copy each of the Drawings to the Independent Engineer and the Authority. 

By forwarding the Drawings to the Independent Engineer and the Authority pursuant to the preceding sub-clause, the Concessionaire shall be deemed to have represented that it has verified and determined that the Drawings forwarded are in conformity with the Design Requirements. 

Within 15 days of receipt of the Drawings, Independent Engineer shall review the same taking into account, inter alia, comments of the Authority, if any, thereon, and convey its comments/observations to the Concessionaire on the conformity of Drawings with Design Requirements. If the comments/observations of the Independent Engineer indicate that the Drawings are not in conformity with the Design Requirements, such Drawings shall be revised by the Concessionaire to the extent necessary and resubmitted to Independent Engineer for further review. Independent Engineer shall give its observations and comments, if any, within 15 (fifteen) days of receipt of such revised Drawings. 

If, within the period stipulated in the preceding sub-clause, the Independent Engineer does not respond to the Drawings submitted to it by the Concessionaire the Concessionaire shall be entitled to proceed with the Project on the basis of such Drawings submitted by it to the Independent Engineer. 

Notwithstanding any review or failure to review by or the comments/observations of the Independent Engineer or the Authority, the Concessionaire shall be solely responsible for the adequacy of the Drawings and their conformity with the Design Requirements, and shall not be relieved or absolved in any manner whatsoever of any of its obligations hereunder. 

The Concessionaire shall be responsible for delays in meeting the Design Requirements caused by reason of any Drawings not being in conformity with the Design Requirements, and shall not be entitled to seek any relief in that regard from the Authority. 

The Concessionaire shall simultaneously with the submission of Drawings to the Independent Engineer prepare and submit to the Independent Engineer the construction plan providing, inter - alia, the Critical Path Method (CPM)/Project Evaluation & Review Technique (PERT) charts in respect of the Project. 

Within 90 (ninety) days of COD, the Concessionaire shall furnish to the Authority three copies of "as built" Drawings duly verified by the Independent Engineer, including without limitation an "as built" survey illustrating the layout of the Project and setback lines, if any, of the buildings and structures forming part of Project Facility reflecting the Project as actually designed, engineered and constructed.

Alternative 2 adapted from Concession Agreement for Colombo Kathunayake Expressway Project (note confidential), index reference A2, folder 1.