5.1.4  Managing changes not provided in the PPP contract

Unforeseen contract changes in services involving both construction and operational changes are not unusual especially considering the length of PPP contracts. The contract management team needs to address these issues and correctly strike the balance between:

□  encouraging the contractor to manage its risk; and

□  preventing the contractor's poor performance, whatever the reason, from endangering the viability of the PPP contract.

While contract renegotiations may be a common feature of PPPs in some countries<1>, there is a need to acknowledge and limit the risks involved. Contracts can be designed in ways that aim to minimise major renegotiations at a later stage. Contract renegotiations involve careful analysis and dialogue between the parties before contract changes are agreed and implemented. The use of an experienced, trusted and neutral facilitator can be beneficial.

While some renegotiations are efficient, many are opportunistic and should be deterred.

During the first few years of the TEN-T PPP project, it is not uncommon that several minor adjustments are made to the PPP contract. These minor changes, as long as they are in compliance with EU law, are typically beneficial, since they are a way to correct mistakes or gaps, or to clarify issues.

Major contract renegotiations, which typically have considerable implications, are in principle forbidden under EU law and are generally regarded as undesirable for reasons which include:

□  Competitive bidding is distorted: the most likely winner is not the most efficient operator but the one most skilled in renegotiation;

□  Renegotiation takes place away from competitive pressures when carried out in a bilateral government-operator environment; or

□  Renegotiations often decrease the overall economic benefits of the PPP and might have a negative fiscal impact<2>

It should be noted that lenders may also have rights to prevent changes to the contract which would, in their opinion, alter the credit status of the PPP company, which is their borrower<1><3>