Contracting Authorities are likely to be asked to consider whether the Private Partner should be entitled to any relief if a Force Majeure event occurs preventing it from performing. Apart from being unable to meet its contractual obligations, the Private Partner may incur additional costs and suffer loss of revenue to the extent it is unable to commence or continue to provide the service. In the construction phase, a delay to completion may also cause the Private Partner to incur additional financing costs (e.g. additional interest during construction) or if it has to reschedule its repayment obligations). In the operating period it is likely to still be incurring fixed costs (in particular debt service costs), which it may be unable to meet and its financial position may be materially affected. This applies whether the "user pays" or "government pays" payment model is being used (see Section G, PPP Contracts in Context).
While the underlying principle of Force Majeure is that losses lie where they fall and Parties should bear their own costs and damages, different approaches can be taken. The Contracting Authority should assess the extent to which it is prepared to pay compensation to the Private Partner to prevent a payment default under its project or financing agreements while a Force Majeure event subsists (e.g. by continuing to pay an availability payment or other compensation) and/or to enable it to make up lost revenues and costs incurred if the PPP Contract is to resume (e.g. via an extension of the operating period or increased tariff).
Although it is typical for a PPP Contract to expressly include some additional relief (particularly in respect of Force Majeure events occurring during the construction phase), it is impossible to know in advance what will be appropriate following every Force Majeure occurrence as the effects may vary greatly (some may have a greater or longer term impact than others). In practice, if a Force Majeure event occurs, the Parties will be discussing how to facilitate continued performance of the PPP Contract (including agreeing at the time on any additional relief) and a contractual provision reflecting this is often included. See Section 1.5, Sample Drafting 1A, Clause (4).
The availability of insurance will be relevant to the determination of relief (see Section 1.2.1.4 and Section 1.3), as will the period of time that a Force Majeure event must subsist before either Party may be entitled to terminate the PPP Contract. Not surprisingly, the period of time that must elapse before termination rights arise tends to be shorter in PPP Contracts where no financial compensation is expressed to be payable to the Private Partner during the subsistence of a Force Majeure event.
It is worth noting in this context that if termination ultimately occurs, the Contracting Authority will most likely pay compensation to the Private Partner (e.g. at a minimum in an amount equal to of outstanding senior debt). See Section 4, Termination Payments.
Typically, the Party claiming relief for a Force Majeure event will be obliged to take reasonable action to mitigate its effects and provide a mitigation strategy to the other Party. Failure to do so may affect its rights to relief. In some cases, the Parties may agree to exclude certain measures from the mitigation requirement.
Types of relief are discussed in Sections 1.2.2.1 - 1.2.2.8.