PPP Procurement
A MAGA clause in a PPP contract will: • • • • •
Define what events or circumstances the parties agree should be determined as MAGA; Provide relief from obligations to the PPP partner; Provide for the obligations of the parties in relation to the MAGA (typically, information and mitigation); Provide for termination rights in case of a MAGA lasting more than a certain period of time; and Specify grounds for compensation of additional costs or reduced revenues as a result of the MAGA and determine termination payments.
Negotiating MAGA and Change in Law clauses during a PPP procurement is often contentious, with the government not wanting to be held liable for its own future actions, and the concessionaire insisting that these risks properly belong to the party that originated the change. In global practice, it is generally held that the concessionaire should be able to claim relief from its obligations under the PPP Contract, from MAGA events. The procedure to be followed to establish the level of relief is similar to Force Majeure procedures. Moreover, both parties would typically have the right to terminate the PPP Contract in the event of a MAGA lasting longer than a defined period of time (generally between 6 to 12 months). c.
Changes in Law The PPP partner is required to comply with applicable law at all times, in the country of legal jurisdiction. However, the original bid was based on the applicable law as of the date of the bid. Changes in the law are a political risk that cannot be controlled by the PPP partner. Protection is justified in this case because the PPP partner should be able to rely on a legal framework and the contracting authority will generally be in a better position to influence changes in the law. Additionally, lenders will generally require some form of protection against changes in law. PPP contracts include provisions regulating the consequences of certain legal changes after the bid submission date and / or the date of commercial close. Key options in drafting the Change in Law clause include: • • • • •
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Definition of applicable law; Distinction between general Change in Law, which is similar to normal business risk, and specific or discriminatory Change in Law, which should be compensated; Materiality threshold; and Exclusion of foreseeable change in Law; and The consequences, typically 1) compensation of the net financial impact of the change in law, 2) relief from obligations under the PPP contract and 3) extension of the scheduled service commencement date (if it happens before the service commencement date);