24.1 Events of Default
(a) An Event of Default gives rise to various government remedies. However, it does not of itself give rise to an automatic right of termination.
(b) An Event of Default may occur if:101
(i) there is a serious Service Failure;102
(ii) during the contract term a representation or warranty given by the private party to government proves to be untrue (although in some jurisdictions this may be subject to a material adverse effect regime);
(iii) during the contract term there is fraud,103 collusive, misleading or deceptive conduct on the part of the private party or its sub-contractors in the performance of the project or any part of it (including in respect of reporting in the form of financial and payment statements and invoices or other books and records or in respect of the master works program and sub-programs). Some jurisdictions also include fraud or breaching the Law in regard to awarding the contract;
(iv) there is any other breach by the private party of its obligations (that is not dealt with as a Default Termination Event or a breach of a KPI) in the project agreement or other specified contracts with government (although, in some jurisdictions, this will only be an Event of Default if the breach has not been remedied within a reasonable period, which is traditionally, 20 business days); or
(v) there is any breach of any other Project Contract (although, in some jurisdictions, this will only be an Event of Default if it has a material adverse effect on government or users of the facility or the private party's ability to perform its obligations).
(c) In addition to the above, some jurisdictions may also specifically list other events as Events of Default, for example:
(i) failure to achieve either Completion (or, where a two-phased Completion process is used, Technical Completion or Commercial Acceptance) by the due dates;
(ii) the independent expert determines (following a reasonable period after Financial Close) that there is no reasonable prospect the private party will achieve Completion (or Technical Completion or Commercial Acceptance) by the due dates;
(iii) the works not being commenced within such period after Financial Close where this is likely to have a material adverse effect on the ability of the private party to achieve Completion104, Technical Completion or Commercial Acceptance by the due dates. (Some jurisdictions may categorise similar events as Default Termination Events.);
(iv) a breach of the sub-contractor provisions, (see section 28.5 of Chapter 28 (Sub-contractors)), noting that some jurisdictions may define this as a Default Termination Event;
(v) a failure by the private party to obtain consent to a Change in Control of a relevant company other than the private party or, in some jurisdictions, a failure of the private party to cure an unauthorised Change in Control of a material sub-contractor within a reasonable time;
(vi) a breach by the private party of its assignment obligations;
(vii) failure of the private party to comply with its obligations in respect of a Probity Event105;
(viii) the private party failing to take out and maintain required insurances (subject to the uninsurability provisions set out in section 23.4 of Chapter 23 (Insurance));
(ix) failure by the private party to comply with its obligations to reinstate damage or destruction; or
(x) the private party's right to obtain finance or draw down funds under the finance agreements being terminated, withdrawn or otherwise materially restricted.
(d) Jurisdictions have the flexibility of adopting or not adopting some or all of the Events of Default listed above or adopting additional Events of Default not listed above. However, additional events should only be adopted where this is warranted by the unique features of the specific project.106
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101 These Events of Default are not intended to be exhaustive and will vary depending on the nature of the project. Breaches caused by a Relief Event or Force Majeure Event do not constitute an Event of Default to the extent that Relief is given from the relevant obligations.
102 A serious Service Failure is evidenced by the service fee being abated by a specified percentage, or performance points accruing beyond a specified level, within a specified period.
103 In some jurisdictions, the State will seek to retain all its common law rights in relation to any fraudulent activity.
104 If commencement is subject to the provision of access, the time period may commence from the provision of access by government.
105 Although, depending on the severity, in some circumstances this may be a Default Termination Event.
106 The severity of the default on the particular project will need to be taken into account when determining whether such additional defaults should be categorised as Events of Default (and therefore be subject to a cure regime) or whether they should be categorised as Default Termination Events.