Given the complexities of PPP contracts and termination regimes, and the potential implications related to a termination, the Procuring Authority should seek legal advice confirming that it does have the right to terminate the PPP contract. Any termination compensation payable to the Project Company may also depend on whether the Procuring Authority has properly terminated the PPP contract.
Although examples of some of the procedures the Procuring Authority may need to follow from an operational point of view are set out in this section, the detailed requirements will be specific to a given PPP contract and the underlying legal framework and will need to be followed diligently.
Once a termination notice is issued by the Procuring Authority, it may not be capable of being recalled. In such circumstances - if it is found that the Procuring Authority did not have a valid right of termination - the PPP contract cannot be resurrected. Rather, there would be a potential claim against the Procuring Authority for unjust termination of the contract, and a starting point for termination compensation would be at a much higher level.
In several jurisdictions a termination notice must be preceded by a court proceeding, thus assuring the right of the Project Company to defend the termination. Given the complexities around PPP contracts and termination regimes and the potential implications of getting it wrong, it may still be advisable for the Procuring Authority to first seek a formal declaration that it has the right to terminate even in jurisdictions where a court proceeding is not strictly required.
There are additional restrictions in some jurisdictions which mean that a PPP contract cannot be terminated until the Procuring Authority takes over the project or a new Project Company is awarded a contract to take over the project. This stems from principles of continuity and adaptability of public services, under which public services must be guaranteed by the Procuring Authority and must not be threatened by action or inaction of the relevant private partner.
EXAMPLE Inability to meet specifications A specific case of default can occur where the Project Company has not been able to meet the specifications agreed in the PPP contract. This is important for projects where there is the use of a new technology which is vital to service provision but the performance of which is not yet fully known (e.g. a waste sorting facility on a waste project). Certain waste projects are encountering this challenge and there is a possibility that the Project Company will simply not be able to provide the service it is required to. For example, if the winning bidder has 'oversold' its solution and created a specification that no one could obtain with current technology, then from a legal perspective, an impossibility to meet project specifications creates a difficult legal position. Existing standard form PPP contracts are not designed to address such a situation. |