27.2.4  Collateral warranty

(a)  No material sub-contractor is to be engaged in connection with the works or services without having delivered to government a collateral warranty in substantially the form set out in the project agreement.

(b)  The collateral warranty constitutes a direct covenant from the sub-contractor in favour of government with respect to its performance of relevant obligations including, without limitation, maintenance and non-vitiation of insurances, provision of information regarding defaults and claims, and the continuing performance by the sub-contractor of its obligations in certain circumstances for the benefit of government.

(c)  This is a necessary element of government's 'security' package, given that it is dealing with a special purpose vehicle which itself does not have the necessary resources and competencies to perform the project.

(d)  In addition, since government consent to all sub-contracts is not required, government needs direct rights against the sub-contractors (such as making claims in respect of defects) which are not dependent on the sub-contract or upon government exercising its Step-in Rights.