In a traditional commercial contract, for example between two private sector entities, shared Force Majeure risk would typically include "acts of God" such as natural disasters and epidemics (often referred to as "natural Force Majeure"), as well as "political" events such as general strikes, nationalisation and a public sector refusal to grant licenses (often referred to as "political Force Majeure").
In a long-term PPP Contract, where one of the parties is a public sector entity, there is close scrutiny of the type of political force majeure events which may arise during the life of the PPP Contract and how each risk should be allocated. Deciding whether the risk should be borne by the Contracting Authority alone, shared by the Parties, or borne by the Private Partner as a commercial risk may in practice be difficult. It will inevitably depend on the situation in the relevant jurisdiction, the type of event being considered and the level of contingency that the Private Partner would price into its bid to cover the risk if allocated to it. For example, while it is usually accepted that the type of political risk which should lie wholly with the Contracting Authority includes deliberate acts of state such as outright nationalisation of the PPP Project, the position as regards war events will depend on the jurisdiction concerned. If any kind of civil or external war event is highly unlikely, the Private Partner may be comfortable with the risk being treated as a shared Force Majeure risk and any contingency it prices into its bid will be relatively low. In more volatile jurisdictions where the war risk is high, however, the Private Partner may not be prepared to bear any risk at all (or alternatively would price such a high contingency into its bid that the PPP Contract may prove very expensive or even unaffordable). In this instance, such events may be more appropriately treated as Contracting Authority risk, or looked at more individually so that, for example, civil war may be classed as Contracting Authority risk, but external war events classed as shared Force Majeure risk.
If there are political risk events to be allocated solely to the Contracting Authority, it is likely that these events will require separate treatment in bespoke provisions. In this Guidance, events in this category are treated as "Material Adverse Government Action" ("MAGA") events. They are given separate treatment in their own contractual provision and are in discussed in more detail in Section 2, Material Adverse Government Action. The same type of approach is seen, for example, in recent PPP Contracts in the Philippines and also in certain African power projects (such as the International Finance Corporation's Zambia Scaling Solar Programme). See Section 2, Material Adverse Government Action.
In some jurisdictions (such as Australia and the UK), there is no need for a specific MAGA provision as Private Partners accept that the type of political risks likely to arise are limited and can be dealt with through the Force Majeure shared risk provisions, together with separate provisions dealing with specific events for which risk is allocated either to the Contracting Authority (such as Contracting Authority breach of contract and Change in Law) or to the Private Partner.15 See also Section 2.1.3, Material Adverse Government Action and Section 3.1.3, Change in Law.
There is no right or wrong approach and the fundamental principle remains the same - risks should be allocated to the party best able to control and/or manage them and the PPP Contract should address them in the clearest way possible.
| CIVIL AND COMMON LAW DIFFERENCES Contracting Authorities should, however, distinguish Force Majeure provisions from so-called "hardship clauses" which deal with unexpected circumstances where performance becomes more onerous for a Party without being impossible. These stem from underlying statutory legal concepts in certain jurisdictions (e.g. France14) and are not usually found in common law contracts. Notably, PPP Contracts in civil law countries often derogate from underlying statutory legal hardship provisions in favour of an agreed contractual risk allocation where this is legally effective. This is to provide certainty for the Parties and is the recommended approach for Contracting Authorities where possible under the applicable governing law. See Section J, PPP Contracts in Context. |
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14 In France, for example, the affected party is relieved from its obligations if Force Majeure prevents performance. French jurisprudence has defined the characteristics of a Force Majeure event as (i) beyond the control of the parties, (ii) unforeseeable and (iii) impossible to overcome.
15 This is part of an approach which typically distinguishes between (a) events which entitle the Private Partner to the same type of full relief (namely both cost reimbursement and extensions of time) and sometimes termed "Compensation Events"; (b) events which only entitle the Private Partner to extensions of time (known as "Relief Events"); and (c) "Force Majeure Events" (which are a shared risk but usually have a narrow scope as some political and natural force majeure risks are instead treated as Relief or Compensation Events). See the Infra Australia PPP Guidelines and the UK PF2 Guidance.