The first step in managing the risk of Project Company default is for the Procuring Authority to be sufficiently aware of - and to monitor the Project Company for - potential defaults. The Procuring Authority should also monitor its own potential defaults; that topic is detailed below under guidance H. 'Monitor and ensure compliance with the Procuring Authority's obligations under the PPP contract and under the applicable laws'.
Such monitoring can include reviewing performance and financial reports, site inspections, notice requirements for potential defaults and other early indicators. In all of these examples the Procuring Authority can receive early warning of potential defaults. A good understanding of the PPP contract and the underlying legal system will help the Procuring Authority to be well aware of the potential implications of any such early warnings. Guidance on performance monitoring is detailed in Section 3.2 (Performance monitoring) and guidance on monitoring financial performance is detailed in Chapter 6 (Insolvency).
The Procuring Authority should not be caught unaware by a Project Company default as long as it appropriately monitors the performance and financial indicators of the Project Company. The Procuring Authority should carry out continual assessments of the likelihood of termination throughout the project. Following the relevant procedures will generally ensure advance warning is received by the Procuring Authority before a default occurs.