O&M agreement, also sometimes referred to more generically as a Services Agreement, is an agreement between the project company and the operator of the infrastructure facility once the infrastructure facility is completed. The operator of the infrastructure facility may also be one of the sponsors of the project company.
The O&M agreement will define parameters for operating efficiency and maintenance. It usually includes penalties for failure to meet base case efficiency levels and bonuses for exceeding them. The terms of the O&M agreement should reflect the project company's obligations under the concession agreement. In addition, they should be consistent with the EPC agreement and any supply agreement to be entered into by the project company.
The main concerns for the operation or a facility are:31
• the supply of inputs for example of fuels, utilities and other materials;
• the demand for the infrastructure services; and
• the delivery of the infrastructure services.
Key Terms
An O&M agreement should address the following issues:
• Scope of the operator's services. This usually mirrors the operation and maintenance provisions in the concession agreement.
• Term. This should be for no longer than the concession agreement.
• Warranties. This usually mirrors the operation and maintenance provisions in the concession agreement.
• Guarantees. This usually mirrors the operation and maintenance provisions in the concession agreement.
• Payment. The calculation, timing, method and currency of payment to the operator needs to be specified.
• Access to books and records. The project company should have access to certain books and records of operator, particularly if the calculation of revenues or fees, and amounts to be remitted to the project company depends on cash flow within the control of the operator.
• Indemnification. This relates to the allocation of risks between the project company and the operator.
• Defaults and remedies. What are the consequences of default?
• Force majeure. This deals with circumstances in which the contractor would be excused from performing its obligations under the O&M agreement. They should reflect the concession agreement.
• Termination. The events that lead to termination, and the consequences of termination needs to be dealt with.
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