| EMERGING AND DEVELOPED MARKET DIFFERENCES As mentioned in Section 2.1.3, Material Adverse Government Action, some PPP Contracts include change in law as a MAGA event (as is the case in recent PPP Contracts in the Philippines). This may be appropriate if the treatment agreed for this form of political risk is the same as for other MAGA events, as may be more common in less established markets where legislative change may be a real risk factor. However, it is generally recommended that change in law is addressed in a separate provision, particularly in jurisdictions where the consequences are unlikely to lead to termination or where the provisions involve a detailed approach to risk allocation (e.g. in established markets). In any event, there should be no duplication of treatment under different clauses for the same type of event. |
Another approach is to have a separate change in law clause, but to have the associated compensation/relief provisions in another clause which provides a single mechanic applicable to various risks for which the Contracting Authority is responsible. This approach is seen, for example, in Australia, the Netherlands and in certain United States markets where change in law and certain other defined events (sometimes called "Compensation Events") typically entitle the Private Partner to the same type of relief (namely both cost reimbursement and extensions of time)30. See also Section 1.1.3, Force Majeure and Section 2.1.3, Material Adverse Government Action.
As change in law may also affect the scope of the service provided, it is advisable for the PPP Contract to contain a mechanism by which the Parties can discuss and negotiate such matters and implement such variations as are necessary. To avoid duplication, this is typically achieved by using the variation procedure usually included to cater for changes in scope which may be proposed by the Parties during the ordinary course of the PPP Contract.
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30 This is part of the approach described in the footnote to Section 1.1.3, Force Majeure.