Sector:

Transport

Name of Agreement:

The Design, Build and Finance of a new motorway and improvements to an urban highway and the Operation and Maintenance of both, under a Public Private Partnership Agreement

Type of Agreement:

Road DBFO Contract

Region (if known):

Europe

Year of Agreement/ Draft:

2003

Principal Author(s) (firm and contact person):

Private Consulting Firm

Annotated by:

Robert Phillips

Purpose and Context:

Project agreement to develop improvements to a series of roads, in return for periodic payments during operation. 

Circumstances where this contract may be appropriate:

Development under a public private partnership of highway project in both urban and rural areas where certain works (motorway works) are being procured by a local authority (the Council) on behalf of a regional government (as agent) some road improvement works are being procured by the Council acting as the road authority for another adjacent local authority and the balance are being procured by the Council in its capacity as road authority for its own area. The effect of this is to allow one public entity to procure, under one PPP contract, a series of inter-related road improvements.   

Drafted for common law/ civil law jurisdiction:

Common Law

Main Features:

Term:  Thirty years after the Full Planned Services Date.

Concessionaire Covenants

Private Sector party (the Company) is a consortium incorporated with the sole object of undertaking the project.

The Company has certain exclusive obligations under the project agreement in return for the right to receive periodic payments so long as it meets its obligations.

Some commercial schedules are missing from the suite of documents.  These are important, as they comprise documents for the commercial relationship including details for periodic payments and deductions, which can be made, and how those deductions can be calculated. Another schedule addresses the payment of compensation on termination. However it would appear that the main periodic payment is an availability payment, which is adjusted, based on actual usage to take into account increased or decreased wear caused by traffic.

When a traffic lane is not available then an occupancy charge is made so as to incentivise the Company to re-open the traffic lane as expeditiously as possible. Other deductions from the periodic payments are based on service levels.

The Council has entered into an agreement with railway infrastructure provider to allow for construction of a new bridge over a railway line and the Company is to adhere to that agreement. (Clause 17.2 and Schedule 15)  

A performance bond or surety may be issued pursuant to Clause 26.5, which then relieves the Company of the obligation in relation to monthly deductions to provide for security in relation to the Handback provisions.

Other than as expressly provided, the giving of approvals or consents by or on behalf of the Council does not relieve the Company from its obligations. (Clause 16.2).

Submittals are subject to review in accordance with Schedule 2.

No development rights are granted to the Company in relation to business rights other than the road project.

Payment Structure:  Set out in Schedule 6. However under Clause 5 the payments are borne 40% by the Council and 60% by the regional government as is compensation payable on termination.

Certain key contracts such as the design and construction contract cannot be amended or terminated without consent of the Council. Other Project Agreements are subject to a requirement to send certified copies of any changes or substitutions.

In addition to the requirement to adhere to a quality assurance procedure there are requirements to have the design carried out by a designer designated under the project agreement and to have certain key elements checked by an independent checker. Similar arrangements exist for the checking of the construction works.

Antiquity risk is borne by the Council as a Compensation Event. A particular risk was in relation to appeals against land use consents (planning permission) where again the risk is borne by the Council.

 Changes can be agreed. In the case of a Council Change the Company has to use reasonable endeavours to raise any additional finance, which may be required. Savings in operational costs arising from a change accrues to the Council. (Clause 32). Where the Company proposes a change then if there is a saving either of a capital or revenue nature then that accrues to the Council. Any increases are borne by the Company. (Clause 33). Under Clause 39 the Company must carry out periodically a Best Practice Review and any recommended changes are dealt with under either Clause 32 or Clause 33.

Unless necessitated by default or potential event of default, the Council shares in any refinancing gain. (Clause 38)

Under Clause 53 certain intellectual property rights are to be sub-licensed to the Council for the purposes of the project. Provision is also included to cater for electronically held data.

An obligation on the Council to make available access to the Site for new construction works (Clause 27) and for O&M works (Clause 28) but obligation is constrained by Clause 29. Under Clause 30A Company assumes responsibility for Protestor Action but delays addressed as a Relief Event.

No review etc by or on behalf of the Department will relieve the Developer of liability under or in connection with the project agreement. (Clause 3.3.7.1).

Utilities-Company is to deal with utilities. Schedule 4 sets out some of the issues to be addressed in such dealings.

Handback at the end of the agreement also includes provisions for a handback reserve or a Bond to give security for performance by the Company.  (Clause 26). More detail as to requirements is set out in Schedule 4.

Insurance is to be maintained by Company and the extent and types of insurance are listed. If insurance not available at commercial rates then Council can take the risks attributable to the events no longer covered or Council can terminate the project agreement and pay no fault compensation (Clause 42). There also appears to be a mechanism for the sharing of risk as to certain changes in the cost of insurance other than where it results from the act or omission of the Company.

Force Majeure is strictly defined and limited to war and similar events but extends to damage from supersonic pressure waves. Other than that matters which might ordinarily be considered to be force majeure in other jurisdictions are dealt with as Relief Events (Clause 43)-

 Termination: Where the Company is in breach then subject to lenders’ rights the Council can intervene to correct breach by the Company. (Clause 44)

In addition to termination through default the Council may terminate voluntarily. (Clause 45)

Upon termination, calculations for payment by either party are set out in the agreement but Schedule 11 is missing.

Dispute Resolution: Disputes are to be referred to Adjudication. There is a Fast Track and an ordinary system contained in Schedule 7 and the dispute is then referred to the Courts although the wording is not precise as to whether Adjudication is a condition precedent to litigation. Decisions of Adjudication are binding until overturned by the decision of the Courts. Where a dispute is below a stated figure (indexed) or is not referred to the Courts within a time certain from an Adjudication decision, then it will be binding.

Possible additional provisions that it might be appropriate to include:

Without the detailed schedules it is difficult to know what else is missing.

 The sensitivities arising from the carrying out of certain works procured by the public sector where the methodology is unique to the contractor of the private sector entity might be better addre4ssed if the intellectual property was held by a custodian.

Similarly consideration might be given to the preparation and use of an asset condition register.

Provisions that may not be advisable to replicate/ may need further thought:

Certain legal expressions are distinct to the jurisdiction in question. ..

Provisions of wider general use:

The advantages of combining a number of inter-related projects even where there are a number of public sector entities involved are worth considering.

Experience Since Coming Into Force (including any amendments)/ if draft form, whether it has been applied:

The extension to the Motorway was completed in Spring 2005 and appears to be a success in reducing the number of road deaths from the high numbers of the road it replaced.

Tracking Number: