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

Development of Policy, Legal, & Institutional Framework for the PPP Program in Malawi
Final Report
information, or if the Authority will obtain better value for money if it accepts liability
for statements made in the tender and bid documents and their related contract.
Service Requirements & Availability
The focus of PPP is service delivery, so unavailability of the service should result in a
reduction or elimination of payment by the Authority to the Contactor. The issue in PPP
contracts is what constitutes service availability. This is a key issue because contracts for
PPP projects usually require the Contracting Authority to pay the Contractor for service
made available, rather than service actually used.
For example in a water concession, in which the Contractor is to build and operate a new
water treatment plant, the Contracting Authority (in this case a water utility) is obligated
to pay the Contractor for the quantity of treated water made available, not the quantity of
water actually consumed by the Authority. Another example would be a light rail
transit system. In such a system, the Authority would be obligated to pay the Contractor
for the availability of service, provided that the Contractor meets specified quantity
(number of trains per route per time period) and quality standards provided in the
contract, regardless of the actual number of passengers using the service. Another
example would be hospital services. Generally, the Authority is obligated to pay the
Contractor for making services available, regardless of the number of patients.
Unfortunately, the availability (or capacity) principle of PPP contracting has the effect of
putting most of the commercial risk onto Government. To mitigate this an international
trend has emerged in which commercial risk is transferred to the private operator by
giving the Contractor access to the revenues derived from the service provision. For
water projects, the trend is to have private operators provide not only the water
treatment facility but also the distribution network, thereby giving them access to
consumers and the responsibility of collecting on receivables. In a light rail transit
system, the private operator is given the right to collect tolls. In a hospital, the provider
of the hospital and its service delivery systems is given the right to access consumers
through the provision of health care services to patients who can afford to pay. The
definition of unavailability is more straightforward in some sectors than in others.
Payment for availability will vary according to the type of service made available. In the
case of accommodation availability is normally expressed in terms of the number of
units available, e.g. office places, student places, prisoner places. Where service is
divided into areas, the contract must specify which areas are most important, i.e. define
which are “core” services. In hospitals, accommodation “units” are normally divided
into three categories: (1) emergency, operating, and intensive care facilities; (2) waiting
areas and clinical support areas; and (3) office and education facilities.
The conditions under which service will be deemed to have commenced must be clearly
defined in the contract. Also, if service is made available before the required date, there
must be a provision that specifies the reward owed to the Contractor for early delivery.
In the same manner, conditions in which service will be deemed to not have commenced
must be clearly defined in the contract. When “unavailability” occurs must also be very
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