REGULATORY LEGAL AND CONTRACTUAL ASPECTS OF

PPP IN WATER

AJAY RAGHAVANCounsel

Training Workshop, Bhopal, February 2009Training Workshop, Bhopal, February 2009

THE IMPORTANCE OF CONTRACTS

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

KEY CLAUSES OF A PPP CONTRACT

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.

SETTING PERFORMANCE BENCHMARKS IN CONTRACTS

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.

REGULATORS AND MONITORING

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 AND THEIR IMPORTANCE

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