PPP Procurement
Textbox 5.8: Common Pitfalls in Developing a Payment Mechanism Common Pitfalls in Developing a Payment Mechanism • • •
Ignoring the inflation effect, leading to disproportionately high or low payments down the line. Too much enthusiasm in defining strict penalties and deductions, leading to significant cost increases for the private partner. Lack of escalation in penalties, leading to the contracting authority hesitating to apply the penalties in the PPP contract due to concern over harming its relationship with the PPP partner.
7.3
Supervening events
During the term of the PPP contract there may be events or circumstances that will negatively affect the PPP partner’s ability to perform its obligations, as originally projected. While the PPP partner may manage some of these risks, others may be beyond its control. Those risks, sometimes called “supervening events”, come in three categories: • • •
Force Majeure; Material Adverse Government Action; and Changes in the Law.
a.
Force Majeure
The definition of "force majeure" will vary from project to project and in relation to the country in which the project is to be located. It generally includes "risks beyond the reasonable control of a party, incurred not as a product or result of the negligence of the afflicted party, which have a materially adverse effect on the ability of such party to perform its obligations".94
It is important to limit force majeure to events that are not reasonably foreseeable / avoidable, and are unlikely to occur. For example, where supply of electricity is necessary for the operation of the facilities but is generally intermittent, then the parties should ensure that there is standby generation or some other solution; hence disruption in supply would not be a force majeure event. Under other circumstances, however, a disruption in supply could be caused by unusual or unforeseeable events, such as a hurricane, and would therefore be classified as a force majeure event.
Public-Private Partnership in Infrastructure Resource Center. Force Majeure Clauses - Checklist and Sample Wording. 25.03.2015. Accessed June 2016 at: http://ppp.worldbank.org/public-private-partnership/ppp-overview/practical-tools/checklists-and-risk-matrices/force-majeure-checklist
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