3.5.5  Achieving Contract Effectiveness and Financial Close

Once the government and the preferred bidder have signed the PPP contract, they are contractually committed to implementing the PPP. However, there are typically several additional steps before project implementation can begin. The preferred bidder may need to finalize the financing agreements for the PPP. The preferred bidder typically also needs to sign contracts with other parties in the PPP structure-for example, sub-contractors and insurers. The implementing agency typically also has tasks to fulfill, such as finalizing permits. Detailed contract management protocols and manuals are often also developed during this period (see Section 3.7: Managing PPP Contracts for more details).

The PPP contract typically includes completion of (some of) these elements as Conditions Precedent, which must be met for the contract to become effective. PPP contracts often specify a final date by which the contract terminates, and/or a bid bond is forfeited, if the Conditions Precedent are not met. As noted in the PPIAF Toolkit for PPPs in Roads and Highways [#282] section on Contract Award, failing to specify requirements and stipulate a period for financial close can hold up project implementation for years.