The Procuring Authority will typically have the right to step in and take action in order to undertake certain activities of the Project Company when the Project Company is failing to meet its obligations under the PPP contract. The reasons for step-in may be defined and are typically based on protecting the public interest. Procuring Authority step-in is not a common event. In the study only one clear example of Procuring Authority step-in was encountered, where an environmental incident occurred and the Procuring Authority stepped in to address the situation.
The Procuring Authority may have the right to step in to address a breach of contract before it becomes a Project Company default. This may affect any right to terminate the PPP contract that the Procuring Authority would otherwise have had.
The Procuring Authority should step in when it believes it needs to take action that requires an urgent response, such as where there is a serious risk to the health and safety of persons, property, or to the environment. It may also be required to step in to discharge a statutory duty. A Procuring Authority may decide to step in in situations where the Project Company has failed to meet its obligations. However, step-in can also occur where the Project Company is not in breach, but there is some other justifiable reason.
While step-in is clearly justified for certain events (e.g. where there is an overriding public service or national interest issue) there is an argument that for less serious issues the Procuring Authority should not have the right to step-in; it should apply the payment deductions and ultimately terminate for default if it is not satisfied with performance.
Where the Procuring Authority does decide to step in, it should ensure it provides sufficient notice of its step-in, as well as its step-out, should it decide that its actions are no longer required. As the Procuring Authority will be taking over responsibility of certain functions, it must be aware of the capacity and expertise that will be required by these activities.
In some jurisdictions the approach is that even where a step-in is motivated by a Project Company default, the Project Company should be adequately compensated in terms of its payment, save only for the costs incurred in stepping in and rectifying the issue in question. The logic in this is that, if the Procuring Authority can both step in and apply payment deductions for non-performance, the Project Company is no longer in control of its own destiny and is at the mercy of the Procuring Authority acting swiftly and reasonably.