Where the cause of the financial distress is due to a risk that was either retained by the Procuring Authority, or shared between the Project Company and Procuring Authority, it may be the actions or inactions of the Procuring Authority or a party related to it that is contributing to the financial distress.
For example, in the construction phase, the Procuring Authority should be aware that the Project Company may encounter additional liquidity issues where there is a 'cash flow mismatch' - for instance, when it has made a claim against the Procuring Authority for significant cost overruns but is still required to pay its contractors. In these circumstances, the Procuring Authority should work with the Project Company to process any claims and payments that are legitimately due to the Project Company as soon as possible, and may assist with a temporary short-term solution where full assessment of the underlying issue will take a long time.
It may also be in the Procuring Authority's interests to assist the Project Company with a short-term solution where the Project Company's cash flow difficulties are caused by a third party or other external event. Recent examples include the events of 9/11, which had a major impact on global air traffic, as did the eruption of the Eyjafjallajökull volcano in Iceland. Escalating tensions in certain areas of the world or airspace embargos could also create difficulties.
In some jurisdictions, applicable laws governing the provision of state aid may limit the assistance that government can give to private entities. Where the Procuring Authority decides to provide some sort of financing, subsidy or other benefit to the project, it must be aware of the applicable laws and procurement rules. Appropriate legal advice should be sought on the issue.
EXAMPLE Insurance proceeds delay The Project Company may have short term cash flow issues due to delay in receiving insurance proceeds, which are available as a result of a natural disaster that has affected the project. Project Companies will typically have reserve accounts and/ or liquidity facilities. However, they may still be inadequate. In these circumstances, the Procuring Authority can provide support by lending the Project Company money to get through short-term cash flow issues. |