In the construction industry, in addition to parent company guarantees, performance bonds are generally provided by D&C Contractors as security for the D&C Contractor's performance, with the amount secured usually reflecting a percentage of the construction price. In the context of Availability PPP Projects, performance bonds provided by the D&C Contractor can be called by Project Co in a range of circumstances related to performance defaults including when, for example, the Date for Commercial Acceptance is missed.
The PV Standard Project Deeds provide that the State may require Project Co to call on any Performance Bond provided by the D&C Contractor in favour of Project Co for up to the relevant amount specified in the Contract Particulars where:
• there is a debt due and payable by Project Co to the State that has not been paid within 10 Business Days after receipt of a demand for payment; and
• Project Co has the right to call on the D&C Contractor Construction Bond under the D&C Contract.
Procuring agencies must review the terms of the D&C Contract to ensure that the State is comfortable that Project Co's rights to call in respect of the D&C Contract Construction Bond are sufficient for Project Co to make a call in circumstances where the State requires Project Co to do so. Where the State does not make a significant capital contribution to the Project prior to Commercial Acceptance, the circumstances should be very limited given that the State has not paid for the asset at that point in time. They will typically be linked to default termination of the Project by the State where the default has been caused by the D&C Contractor.