A retainer is usually the first agreement in time that needs to be entered into on the part of the government in relation to a PPP project. A retainer is the agreement between the government and the government consultants on the terms of the government consultants' services.
A retainer may take the form of a letter drafted by the government consultants. The government is then usually requested to sign a counterpart copy of the letter in acknowledgement and agreement of this retainer letter, and return it to the government consultant. The government should not sign acknowledgement and agreement as a matter of course but should ensure that the retainer protects the government's interests and objectives as discussed in section 5.1.1.
Key Issues
A retainer usually provides for the following issues:
• Fees. There may be the following types of fees:
o Fixed fee. A pure fixed fee, or lump sum, basis is relatively rare. This is because it is usually difficult to estimate prior to the transaction taking place the amount of time and the resources needed by the consultant to complete the project. Usually a fixed fee component is in addition to other variable costs, for example, cost-plus-fixed-fee basis.
o Time based. Most retainers are time-based plus out of pocket expenses. As the government will then be liable to pay fees on the basis of units of time, which may be hours, days or months. How the government can control the actual fee is an important issue for the government. A "cap", that is, a maximum fee, is usually not accepted by the consultant and may not be appropriate given that the scope and complexity of the project may change as the project progresses. A compromise that should be accepted by the consultant is an "estimate". That is, an "estimate" of the cost of the project given the scope of work and nature of the project. If the consultants expect the actual fees to exceed the estimated amount, they should be required to advise the government. The government and its advisers should then discuss the reason fees exceed the estimate. This gives the government an opportunity to understand the consultants' fees, perhaps negotiate a reduction of the actual fees, and the parties may be able to change their practices for greater efficiency in the future.
o Transaction value. Some fees are determined based on a percentage of the transaction value. This is most common with financial advisers on mergers and acquisitions, initial public offerings transactions and bonds issues because the financial advisers have to "sell" the company concerned and would have an incentive to maximise this value. It is unusual in a typical PPP project.
o Success fee. As an incentive for the consultants to work towards the successful completion of the project, "success fees" payable on the "completion" of the project may be incorporated into the contract. When "completion" occurs will depend on the type of work and the services to be provided. Usually in the case of legal and financial consultants "completion" would mean a financial close of a transaction (as opposed to completion of the infrastructure asset).
• Scope of work. The government needs to ensure that the scope of work described in the retainer is consistent with the government's understanding of the consultant's role in the project.
• Confidentiality. The government needs to ensure that all information provided by the government to the consultant is treated in confidence. Specifically, it should ensure that confidential information is appropriately defined, that the consultant does not use the confidential information for any purpose other than to advise the government, that the obligation extends to all sub-contractors, employees and agents of the consultants that the government be notified if there is any breach of confidence.
• Conflict. The proposition that government consultants should not have clients whose interests conflict with those of the government is not as simple as it ought to be, given that the market for consultants of PPP projects is highly specialised, and there may be few suitable experienced and qualified consultants, particularly in a developing economy. At a minimum though, the government needs to be informed of any conflict of interest.
• Professional liability. Consultants are usually liable to compensate the government if they had been negligent or fraudulent in their advice. The consultants may attempt to limit the extent of their potential liability. The government needs to review carefully the scope and the exceptions (or "carve outs") to the consultant's liability. Judgment is needed as to whether the exemptions from liabilities are reasonable. A broad and general disclaimer of liabilities for any advice or conduct of the consultant should not be acceptable, for example, a consultant should be liable for any fraudulent act of it, its employees or its agents. On the other hand, a specific exclusion of liability against, for example, losses in profits that failed to be realised, usually referred to as "expectation losses", is arguably acceptable.
• Termination. The retainer may or may not specify the period of the consultant's appointment. The government needs to ensure, at a minimum, that it is able to terminate the services of the consultant if it is dissatisfied with the consultant's services. Ideally, the government should be able to terminate the consultant's services at its discretion. This is usually the case, because most retainers enable either party to terminate the retainer with notice to the other party (though there may be a period of notice). There are, however, circumstances where either party may insist on stricter termination rights. For example, where a success fee is payable, the government should not be able to terminate the retainer immediately prior to the completion of the project to avoid paying the success fee.
• Procedures. Whether or not it is expressly set out in a retainer agreement, the government and the consultant needs to establish the process by which the government and its consultants would conduct the project and the procedures by which the government would review the progress of the consultant's work.