17.1  Compensation Events

Compensation Events may occur in either the design and construction phase of the project or the operating phase of the project. Jurisdictions may choose to adopt different Compensation Events in the design and construction phase and the operating phase. Where a jurisdiction so chooses, separate procedures for claiming Compensation will be set out in the project agreement.

The specific Compensation Events will differ for jurisdictional or project specific reasons, but will generally fall within the following categories of events:

(a)  a breach by government of any Project Contracts (noting that in some jurisdictions this is limited to where the breach substantially frustrates or renders it impossible for the private party to perform its obligations or exercise its rights under the project agreement);

(b)  during the design and construction phase only, any act or omission of government or a relevant government related party58 (but only in their capacity as a contracting party),59 other than any such act or omission which is authorised, permitted or otherwise in accordance with a project document (noting that, in some jurisdictions, entitlement to Compensation will not be limited to where government is acting in its capacity as a contracting party);

(c)  during the operating phase, loss directly caused by the malicious, unlawful or reckless act of government employees or other government-related parties (but only in their capacity as a contracting party, and only to the extent that the private party is not required to guard against this through its design solution and Contracted Services);60

(d)  delay in any works to be carried out by government which are required to allow for the relocation or decanting of equipment, staff or users of the facility (e.g. students, patients etc);

(e)  in certain jurisdictions, the exercise by government of its Step-in Rights (other than as a result of breach by the private party) as set out in Chapter 27 (Step-in);

(f)  any disruption or delay caused by a third party (other than the private party) engaged by government to undertake additional capital works or services on the site61 (noting that in some jurisdictions this may be a Relief Event which is not a Compensation Event);

(g)  any legal proceedings challenging the validity of a government obtained development approval or the modification, withdrawal, revocation or replacement under environmental and planning legislation of a government obtained development approval, other than due to an application for a further development approval by, or any other action or inaction of, the private party or its sub-contractors, or as a result of a private party Modification proposal;

(h)  an Environmental Notice served on the private party or government other than an Environmental Notice served in respect of:

(i)  any Site Condition, area or other matter for which the private party is responsible for in accordance with the project agreement; or

(ii)  a breach by the private party of its obligations under the project agreement (which includes an obligation to undertake the works in accordance with Good Industry Practice);

(i)  compensable Changes in Law;62

(j)  a government, or court, direction to suspend or cease all or any part of the works because of a native title claim or application or as a result of the discovery of an artefact (provided the cessation order does not result from a private party breach of its obligations in dealing with discovered artefacts and subject to sections 5.1.1(d) and 5.2.3 of Chapter 5 (Native title and artefacts));

(k)  industrial action, noting that:

(i)  some jurisdictions limit entitlement to Compensation to the extent that it is industrial action of government employees at the site; and

(ii)  in other jurisdictions, Compensation is only given to the extent that it directly affects the project and the private party can demonstrate that the action results directly from an act or omission of the government contracting party, or any of its employees at the facility/site, excluding industrial action caused or motivated by opposition to PPPs;

(l)  government-initiated Modifications63; and

(m)  any loss, delay or damage arising from the discovery, removal, defusal or disposal of identified, or unidentified, unexploded objects from military operations or war.

Jurisdictions may adopt some or all of the Compensation Events listed above, or parts thereof, and may include additional Compensation Events. However, additional events should only be adopted where this is warranted by the unique features of the project.

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58  What constitutes a government related party will depend on the nature of the project, although it is intended to capture government employees, consultants and other parties at the site which are appointed by government or whom government effectively controls (for example, as a result of delivering core services).

59  Government's role as contracting party is separate from its role as being responsible for the general administration of government affairs. Accordingly, these Compensation Events only capture acts or omissions (including breaches) of government in its capacity as a contracting party, not acts and omissions carried out in its role as general administrator of government affairs. Please also refer to section 1.6.4 of Chapter 1 (Contractual issues).

60  Although government may in theory have a relatively greater level of control than the private party over actions of government-related parties, the private party is expected to be able to manage damage (by any party), other than deliberate damage, through appropriate facility design and security services.  Government expects the private party to deliver a solution which accommodates risks associated with the delivery of core services and the government-related parties delivering or using these core services.

61  Relief under this event may be conditional on the private party entering into reasonable and appropriate interface agreements with the relevant government contractors and will not be granted if the third party has acted in compliance with that agreement.

62  Compensation for compensable Changes in Law will be dealt with in accordance with the principles set out in Chapter 20 (Change in Law).

63  Compensation for government-initiated Modifications will be dealt with in accordance with the principles set out in Chapter 19 (Modifications).