The aim of Force Majeure provisions in a PPP Contract is to allocate the financial and timing consequences of Force Majeure events between the Contracting Authority and its Private Partner13. The starting assumption for both Parties should be that the risk of a Force Majeure event occurring is shared because it is outside both Parties' control and neither is better placed than the other to manage the risk of such occurrence or its consequences.
While the provisions are typically drafted mutually, the affected party is most likely to be the Private Partner and this raises some important issues for the Contracting Authority which are the focus of this Section 1:
(1) what events qualify as Force Majeure events;
(2) whether and how the Private Partner should be compensated as a result of a Force Majeure event (e.g. for increased costs and/or loss of revenue);
(3) whether and for how long key milestones under the PPP Contract should be deferred as a result of a Force Majeure event;
(4) whether the Private Partner or the Contracting Authority should be relieved from its obligations to perform under the PPP Contract and from the related consequences (e.g. the risk of termination due to default); and
(5) whether the PPP Contract should be terminated if a Force Majeure event persists for a significant period of time and what termination compensation should be paid, if any.
| CIVIL AND COMMON LAW DIFFERENCES Many jurisdictions have a concept of Force Majeure under general law12. In some cases, this can limit the freedom of the Parties to agree alternatives in a PPP Contract as it may not be possible to derogate from the scope of the legal concept. This is particularly the case in civil law jurisdictions. However, most PPP contracts include specific Force Majeure provisions, whether they are civil law or common law governed, as this provides contractual certainty for the Parties and avoids delay in addressing the consequences if Force Majeure occurs. This is essential to make the PPP Project bankable for Lenders and Equity Investors alike and is the recommended approach for all Contracting Authorities. |
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13 See the Global Infrastructure Hub Report: Allocating Risks in Public-Private Partnership Contracts, 2016 edition, e.g. the Force Majeure risk entries in Risk Matrix 1: Toll Road (DBFO) and Risk Matrix 2: Airport (DBFO)). See link in Appendix, Additional PPP Resources.