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REGULATORY LEGAL AND CONTRACTUAL ASPECTS OF
PPP IN WATER
AJAY RAGHAVANCounsel
Training Workshop, Bhopal, February 2009Training Workshop, Bhopal, February 2009
THE NEED FOR A CONTRACT
WHY CONTRACT:
• The legal relationship between the government and the private party sets out the rights and obligations
• In the absence of a detailed document, breach and achievement of the targets cannot be quantified
DETAILED OR SIMPLE?• The more detailed the greater thought is given to
eventualities• Simple drafting is unlikely to be mutually contradictory
THE CONTRACTING PROCESS
HELPS CLARIFY:
• Objectives and Expectations• Risks and Liabilities• Dependencies and Consequences
ESTABLISHES:• The basis for the contractual relationship• The reward and remuneration regime• The principles and remedies for termination
TERMS OF ENGAGEMENT
APPOINTMENT:
• Necessary in order to formally hand over the public service to the private party
• Where the private party has bid in consortium this clause will establish the prime
• Sets out the date of coming into effect of the PPP
PRE-CONDITIONS:• The statutory basis for the PPP must be sound –
necessary amendments must be made if required
OBLIGATIONS
OF THE CONTRACTOR:
• Exhaustively details the service obligations of the contractor through multiple phases of the PPP
• Sets out the baseline service obligations and the performance targets for improvements
OF THE GOVERNMENT:• Actions required to provide inputs necessary for the
successful performance of the Services• In relation to all the dependencies
CONTRACTOR’S RIGHTS
SERVICE RIGHTS:
• Details the rights that the Contractor needs in order to perform the Services
• Sets out the exclusions to the absolute rights that may be handed over
DEPENDENCY RIGHTS:• Sets out the rights that the Contractor has to the
dependencies
OPERATIONAL DETAILS
SERVICE DETAILS:
• Details the operational obligations of the Contractor in relation to the Services
• Planning the year – implementation and budgeting
REVENUE DETAILS:• Details in relation to the collection and handling of
revenues
PROCUREMENT
PROCESS:
• Set out the process for procurement of assets• Ensure that the procurement process conforms to the
statutory restrictions on government procurement
TRANSFER OF TITLE:• Details in relation to the time and manner of the
transfer of title over procured assets• Establish right over procured assets during the term
of the PPP contract
EMPLOYEES
CONTROL:
• Details the supervision and control over government employees inherited as part of the PPP
• Establishes who has the power of hire and fire over employees
CONTRACTOR EMPLOYEES:• Details separate rights and obligations in respect of
Contractor employees
SUB-CONTRACTS
HIRING AND CONTROL:
• Details of the extent to which the Contractor can utilise sub-contractors
• Must conform to Government policies on the hiring of sub-contractors to perform the Services.
LIABILITY:• Details of the extent of Contractor liability for actions
of sub-contractors
INSURANCE
ASSETS:
• Details as to how the assets will be insured and who will bear responsibility for insurance
PEOPLE:• Extending the insurance to employees and third party
injury
COMPLIANCE• Affixing liability for failure to comply or maintain
insurance
TERMINATION
DETAILS:
• List the reasons for termination – different for the Government and the Contractor
• Dealing with disputes in relation to termination
CONSEQUENCES:• Setting out the monetary consequences of termination.
• Deal with the termination of ancillary agreements and sub-contractor arrangements
• Dealing with Hand-Back
LIABILITY AND INDEMNITY
LIABILITY:
• Setting out the extent of liability including limitation and caps on total liability
• Dealing with indirect, consequential liability
INDEMNITY:• For the consequences of damage resulting to the
government from Contractor actions.• Special indemnities – such as for intellectual property
FORCE MAJEURE
DEFINITION:
• Establish a narrow definition for force majeure – ensure that Contractor’s obligations are not diluted
• List the force majeure events rather than describing it
CONSEQUENCES:• Stipulate the obligation to mitigate force majeure.• Require immediate notification of the existence of the
force majeure• Extension of time to perform
DISPUTE RESOLUTION
DEALING WITH DISPUTES:
• Establish what constitutes a dispute• Escalate through a defined process to attempt
mediated settlement• Move to arbitration if all else fails
PERFORMANCE DURING DISPUTE:• Deal with performance during the existence of a
dispute.
DEPENDENCIES
DETAIL:
• List exhaustively the dependencies upon which the contractor’s performance depend
• Identify whose responsibility it is to procure the dependencies
FAILURE TO PROVIDE:• Detail the consequences of a failure to provide the
dependencies.
SERVICES TO THE POOR
PROGRAMS:
• Specifically define services to the poor and create programs that span the contract
• Establish processes to measure performance
COSTS:• Detail the costs of providing the services to the poor
and mechanisms to make this cost effective.
REPORTING REQUIREMENTS
PROCESS:
• Establish a process for regular reporting on key parameters
• Ensure regular financial reporting on all aspects of the project
PERFORMANCE TARGETS:• Establish mechanisms to regularly check on the
achievement of performance targets.
PERFORMANCE TARGETS
DETAILS:
• Establish detailed performance targets for all phases of the Contract
• Ensure that the targets remain reasonable and achievable
ADJUSTMENT:• Establish mechanisms to adjust the performance
targets if they are based on inaccurate assumptions.
REMUNERATION
PRICING MODEL:
• Establish a pricing model suitable to the structure of the PPP
• Stipulate details of the penalty – reward regime• Address advance payments, capital work programs,
etc.
PENALTIES AND EARN BACKS:• Establish mechanisms to allow for earn backs of
appropriate penalties.
PROJECT CONTROL COMMITTEE
DETAILS:
• Establish a coordination committee to supervise the project
• Empower the committee to take decisions with regard to the project
• Require the committee to liaise with other government agencies required in connection with dependencies
• Ensure that the Contractor has representation on the Committee
MODEL CONTRACTS
A BEGINNING:
• Model contracts have all the required clauses that go into typical PPP Contracts
• Model contracts must be modified to reflect the requirements of each PPP
UNIFORMITY
• Model contracts help bring uniformity in practice and convention – which help establish a jurisprudence
• Uniformity across projects helps true benchmarking
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