Development of Policy, Legal, and Insitutional Framework for - ppiaf

Development of Policy, Legal, & Institutional Framework for the PPP Program in Malawi
Final Report
not be entitled to liquidated damages. To protect against late Service Commencement,
senior lenders will usually require Sub-Contractors to cover the debt service when the
Contractor is required to pay liquidated damages. The Sub-Contractor will price this
requirement into its contract with the Contractor. This will result in increased cost to the
Authority, so the Authority should not require payment of liquidated damages unless
absolutely necessary. Such a situation may exist in cases where the Authority has
provided substantial assets to the Contractor, for its use in service delivery, and in doing
so the Authority has lost the opportunity to put those assets to use in other important
service delivery activities.
Supervening Events
A supervening event is an event that prevents the Contractor from being able to comply
with Service Commencement obligations. One type of supervening event, as mentioned
in the preceding section, is a Force Majeure event. There are also Relief Events, in which
the Contractor bears some responsibility but not to the extent at which the Authority’s
rights of early termination would arise. There are also Compensation Events, in which
the Authority has the obligation to compensate the Contractor. Normally a
Compensation Event is one that takes place when the risk of late completion is very
high, or completion was delayed by factors largely under the control of the Authority.
Change in Law is often treated as a Compensation Event because the Authority is a
Government institution and law is under the control of Government.
Information Warranties & Disclaimers
The contract should clearly indicate which party bears the risk of accuracy for each
category of information provided within the contract. This provides the other party
with recourse in the event that such information is inaccurate. It also covers latent
defects in assets put under the control of a party by the other party. A common feature
of PPP contracts for infrastructure service provision is that Government places assets it
owns under the control of the concessionaire. Government warrants that the assets are
in a particular condition, and the concessionaire warrants that at the end of the contract
it will return those assets to Government in the same condition, less normal wear and
tear.
Verification of the condition of such assets, along with confirmation of representations
made by Government in the RFP, are generally included in Contractor’s due diligence.
In practice, however, Government is legally bound to exercise reasonable care in making
its representations and warranties regarding statements it makes in the RFP and
contract. Despite the usual disclaimers of liability governments commonly put into
tender and bid documents and their related contracts, there is a responsibility to exercise
reasonable care.
Authorities should seek to minimize the extent of any warranties it makes unless it is the
sole source of information or such information cannot reasonably be verified by the
private partner at reasonable cost, the Authority is confident in the accuracy of such
THE INSTITUTE FOR PUBLIC-PRIVATE PARTNERSHIPS 207