1.3.1 The following assumptions apply to SoPCNI 3, unless otherwise indicated:
• the party contracting with the public sector is a special purpose company with Sub-Contractors providing the actual performance on its behalf; 2
• the project involves some development or a construction phase, followed by an operational phase during which the full Service is provided; and
• the project is wholly or partly financed by limited recourse debt.
1.3.2 These assumptions are relevant because: (a) that is how the majority of PFI transactions continue to be structured; and (b) such a contractual structure is inherently complicated and thus large parts of the guidance will be particularly helpful to users.
1.3.3 Use of these assumptions does not mean however that one financial structure is inherently preferable to another. The suitability of various structures, including trade-offs between cost, complexity and risk, should naturally form part of the public sector's overall appraisal of bidders' proposals. Accordingly, no conclusion may be drawn in advance of such appraisal as to which form of financial structure is most appropriate, including whether a special purpose company will be required.
1.3.4 Where a project does not fall within the standard assumptions in Section 1.3.1, adjustments will be needed to required drafting provisions and Authorities should seek guidance at an early stage.
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2 If the Contractor is a limited partnership this will necessitate a number of project-specific changes to standard drafting. The drafting affected will include:
• definition of "Contractor Default", to recognise partnership insolvency provisions (Section 21.2.2.1);
• definition of "Distribution", to recognise partnership equity (Clause 34);
• "Change of Ownership" provisions and definition, to recognise the structure of the partnership (see comments below and see Section 18); and
• tax provisions (to ensure that the Contractor maintains its UK tax residence).
If any of the holders of equity in the Contractor are limited partnerships or other funds, particular attention will need to be given to the Change of Ownership provisions during any lock-in period. To ensure that the intention of any lock-in is achieved, provisions should be considered requiring that the fund/limited partnership is at all times during the lock-in managed and advised by a member of the relevant bank's or Sub-Contractor's group (if they are a part of a bank or Sub-Contractor group and if the identity of this group is important to the Authority). See further Section 18.1.5