A PPP contract typically gives the Project Company the right to claim compensation and/or time relief for certain defined events. Typically, these involve situations where the Project Company has incurred unanticipated costs and/or delays, due to acts or omissions of the Procuring Authority or a third party, or due to force majeure events.
A PPP contract typically also contains provisions where the Procuring Authority has a right to make a claim against the Project Company. Section 3.2 (Performance monitoring) details the arrangements governing the Project Company’s performance and the application of payment deductions for non-performance, and Chapter 7 (Default and termination) details Project Company default. In contrast, this section 3.5 deals with claims made by the Project Company.
Claims can involve significant amounts of money. If they are not managed well they can lead to higher costs for the Procuring Authority and could impact on the value for money forecast at financial close. Additionally, whether the claims made by the Project Company are justified or have merit is not always clear at the outset of a claim, so they can be contentious and have the potential to lead to disputes. Management of disputes is detailed in Chapter 5 (Disputes).
It is important for Procuring Authorities to set up robust internal procedures for managing claims and scope changes as the right of Project Companies to make claims is fundamental to the risk allocation of PPP contracts and how they operate.
This section considers claims irrespective of the specific mechanism used to process the claim. For example, specific claim mechanisms and procedures are typically defined in common law PPP contracts. However, civil law PPP contracts may rely more heavily on general law principles, particularly with respect to force majeure claims or material adverse action by government authorities. Some civil law PPP contracts also rely on economic rebalancing procedures, detailed in Chapter 4 (Renegotiation). The specific mechanisms for making claims are not detailed in this section as they vary substantially across jurisdictions.
Although this section deals with various types of claims made by Project Companies, it particularly focuses on claims arising from scope changes, which are quite common. Scope changes can be slightly different to other types of claims and can also be initiated by either party. Scope changes may also be more complex as they have the potential to affect the risk allocation agreed in the PPP contract
A more serious claim made by a Project Company could result from a Procuring Authority breach of the PPP contract giving rise to a Procuring Authority default and termination rights. There are also circumstances where the persistence of certain claims over a prolonged period (e.g. a prolonged force majeure event) will ultimately lead to termination rights. Both of these topics are detailed in Chapter 7 (Default and termination).
Section structure
This section provides a background to managing claims in Subsection 3.5.1 (Background) and provides guidance on managing claims. The key elements to successfully managing claims are summarised below and detailed in Subsection 3.5.2 (Guidance).
G. Introduce polices to limit early and frequent scope changes
Read the short introductory background on managing claims, scope changes and variation requests in an infrastructure public-private partnership.
Explore the detailed guidance on managing claims, scope changes and variation requests in an infrastructure public-private partnership.