7.6  The Contract

Regardless of the option selected, the essential elements to be included in a contract are:

•  The parties to the agreement;

•  Interpretation: Sets forth the definitions of important terms and providing guidance on the interpretation of the contract's provisions;

•  The scope, territorial jurisdiction, and duration of the agreement;

•  The objective of the contract;

•  Circumstances of commencement, completion, modification, and termination of contract;

•  The rights and obligations of the contractor;

•  The rights and obligations of the government;

•  The requirement for performance bonds to provide security for government if the construction and/or the service delivery falls below standards;

•  Insurance requirements to provide security for the insurable matters;

•  Government warranties;

•  Private sector warranties;

•  Consequences to a change in law;

•  Service quality, and performance and maintenance targets and schedules;

•  The identification of regulatory authorities, if any, and the extent of their roles and authority;

•  The responsibilities of the contractor and the government with regard to capital expenditures;

•  The form of remuneration of the contractor and how it will be covered, whether from fixed fee, fixed fee plus incentives, or another arrangement;

•  How key risks will be allocated and managed;

•  The contractor's rights and responsibilities with regard to passing through or entering public or private property;

•  Reporting requirements;

•  Procedures for measuring, monitoring, and enforcing performance;

•  Procedures for coordinating investment planning;

•  Responsibility for environmental liabilities;

•  Procedures for resolving disputes;

•  Delay provisions describing what is and is not an excuse for a delay in construction or operations;

•  Force majeure conditions and reactions;

•  Procedures to be followed when either party to the PPP contract wishes to change any material portion (variation) of the contract;

•  Indemnification circumstances;

•  The rights of each party to any intellectual property brought to the project or created during the project, including the steps to be taken to protect the intellectual property of third parties, such as information technology software manufacturers;

•  Conflict of interests and dispute resolution;

•  Description of the conditions under which either party may terminate the contract, the processes to be undertaken in that regard, and the consequences to each party of a termination;

•  The circumstances that may permit either the government or any financial institution to "step in" to the contract to protect its rights under the PPP contract;

•  Consequences of a change in the ownership or key personnel of the private partner;

•  Mechanisms whereby the parties to the PPP contract will interact with each other going forward;

•  Requirement that each party comply with all laws pertaining to the project, including obtaining environmental, zoning, planning, and other permits;

•  Conditions by which public sector employees are employed by the private sector contractor, including any restrictions on terminations or redundancies for operational reasons; and

•  Conditions precedent: Describes any conditions precedent to be fulfilled by either party before the contract takes effect.

This list is illustrative and does not capture every clause required in a contract. The final content of the contract will depend on the project scope, local legal requirements and precedent, and advice of legal advisors.