Upon termination, the private partner would usually need to conform with the following divestment requirements:
1. Pass on all relevant information about the project to the public entity
2. Deliver actual or constructive possession of the project asset free and clear of all encumbrances to the public entity
3. Transfer and deliver all applicable permits under applicable laws
4. Transfer all relevant records, reports, intellectual property and other licenses pertaining to the project
The agreement must contain provisions to ensure that the assets are "handed back" to the public entity in good condition (where the legal ownership of the assets stays with the public sector throughout the life of the project, only the rights to use the assets are handed back).
For example, the agreement could include:
• indicators of the condition the assets must be in at agreement expiry (e.g. expected useful life left for each type of asset, ability to meet certain performance tests);
• a third party assessment of the condition of the assets and of the works to be completed to meet the required standards (such assessment should be carried out by an independent expert sufficiently in advance of the expiry date);
• retentions made from the service fee over a defined period prior to expiry (the proceeds being held as a guarantee in a reserve account); ands
• verification by an independent expert that the works required to meet the hand-back conditions have been completed satisfactorily (this could also trigger the release of the retention sums to the SPV/project Company).
It is always ensured that an inspection of the project facility/ site is conducted upon termination; the inspection could be carried out jointly by representatives of both parties to the agreement or by the independent engineer appointed for the project. The inspection report must specify the compliance of the project to the construction and maintenance requirements and recommend for cure of defects/ deficiencies as against the construction/ maintenance requirements.
| Defects Liability Period It is prudent to have the provisions pertaining to defect liability period after termination of the agreement. Usually, the private partner is assumed to be liable for the defects and deficiencies arising out of the project for a specified period of time after termination. The private partner would need to carry out the cure/ remedy of such defect/ deficiency by itself at its own cost. Sometimes, the public entity would carry out such cure/ remedy and the same would be appropriated from the escrow account or as against the performance security. |