Relief from breach - The Private Partner should be protected from breach of contract to the extent (a) its performance is prevented or delayed by a change in law it does not bear the risk of and (b) a variation in PPP Project scope is required in order to comply with a change in law (in which case the PPP Contract should include a mechanism for implementing such variation, for example by means of a Contracting Authority requested variation)34. See Section 3.3, Sample Drafting 3, Clauses (1), (2) and (3).
Cost compensation - The PPP Contract will need to set out how any compensation to which the Private Partner is entitled is implemented. This will depend on the payment model, but could include:
(a) an increase in the availability payment paid by the Contracting Authority;
(b) a permitted increase in the toll or tariff paid by the end users;
(c) reducing any fees payable by the Private Partner (as applicable);
(d) a lump sum payment by the Contracting Authority to the Private Partner; or
(e) an extension to the term of the PPP Contract.
Extension of time for performance - If the event occurs in the construction phase, the Private Partner will usually be contractually entitled to an extension of time for meeting key dates such as the scheduled date for commencing operations, to the extent any delay is attributable to the change in law.
For background to the above see Section 1.2.2, Force Majeure and Section 3.3, Sample Drafting 3, Clause (3) and Section 3.3, Sample Drafting 3A, Clause (3). As mentioned above, change in law relief and compensation may also be addressed under separate Compensation Event clauses (with their own applicable thresholds and caps).
Mitigation - The Private Partner should be required to mitigate any costs or delays it incurs associated with the change in law. See Section 3.3, Sample Drafting 3, Clauses (2) and (3).
| CIVIL AND COMMON LAW DIFFERENCES In civil law jurisdictions it is common to have a specific termination event where performance of the PPP Contract would entail a breach of law that cannot be remedied by a Contracting Authority variation. This is not usually seen in common law jurisdictions with established legal frameworks as the Private Partner and its lenders are able to take a view that it is highly unlikely that a change in law would result in such drastic consequences without means of holding the government accountable. |
If termination provisions are considered necessary, similar reasoning applies as for Contracting Authority default and MAGA, resulting in the same compensation scheme. See Section 3.3, Sample Drafting 3, Clause (5) and Section 3.4, Sample Drafting 3A, Clause (5) and Section 4, Termination Payments and Section 4.7, Sample Drafting 4, Schedule, Clause (1).
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34 In some jurisdictions, due to the type of service involved, the Private Partner may be subject to "public service obligations" under general law which require continuity of service (e.g. in France). Where applicable, the Parties should bear this in mind when drafting/negotiating relief provisions.