Independent monitoring

It is common to employ independent certification/ verification, in particular during the construction period. This involves an independent certifier that is commonly appointed during construction under a tripartite agreement between the Project Company, the Procuring Authority and the independent certifier to monitor compliance with the output specifications, overall progress and quality control. In addition, a third party technical advisor is typically appointed by the lenders to monitor construction progress and approve Project Company loan drawdowns when payments are due to the construction contractor.

For complex projects, the independent certifier appointed by the Procuring Authority and the Project Company may continue its role during the operations phase in a more limited or ad hoc capacity.

An additional safeguard is the lenders' oversight of the Project Company's compliance with the PPP contract. The interests of the lenders and the Procuring Authority are aligned on this issue of compliance, as any material underperformance by the Project Company will ultimately affect the Project Company's cash flows (through payment deductions) and the Project Company's consequent ability to service its debt. However, it should be noted that this scrutiny may be limited. The lenders exercise this scrutiny through their independent technical advisor's reporting on the project's operational performance, which is typically not shared with the Procuring Authority.

Figure 2: Performance Monitoring roles and responsibilities