The following guidance outlines the key issues that should be considered when managing claims made by a Project Company in relation to a PPP contract.

A. Understand the Project Company's rights to claim under the PPP contract and ensure the team is adequately resourced to assess claims in a timely manner

The Procuring Authority should be equipped to manage claims. It should also have a good understanding of the contract mechanisms applicable to the claim and the fundamental risk allocation agreed between the parties in the PPP contract. When a claim is received, the Procuring Authority should act quickly to first assess the merits of the claim and, if the claim has merit, the likely implications of approving the claim (including the financial implications).

How project risks are allocated between the parties is normally carefully developed, negotiated and agreed in the PPP contract, and this allocation should be maintained. Identifying the underlying cause of the claim will allow the Procuring Authority to assess its merit. To be able to properly assess claims, the Procuring Authority should be aware of the circumstances in which the Project Company is entitled to make a claim under the PPP contract (or under the applicable law) so that claims can quickly be assessed on their merit. Some examples of when the Project Company may be entitled to make a claim are detailed in Subsection 3.5.1 (Background).

It is also worth considering the role of the Project Company’s key contractors, from whom many of the Project Company’s claims will likely originate.

The merits of a claim may be encompassed within complex legal documentation. Claims may also be subject to relevant threshold requirements (such as that only material claims can be made) or there may be caps in terms of a maximum amount payable with respect to a claim. These legal boundaries, thresholds and caps also need to be considered. It is important that legal advice is sought at an early stage with respect to claims where the risk allocation is not clear to the contract management team. For example, challenges can arise when the Project Company makes a claim regarding a shared risk or in circumstances where the relevant risk allocation is understood differently by the parties.

The likely consequences of approving the relevant claim should be assessed. This will include an assessment of the financial and timing consequences of approving the claim, including any mitigation measures that can be taken to minimise the cost or time implications. Steps proposed to be undertaken by the Project Company to mitigate delays and costs to the project should be well understood and documented prior to approving a claim. Relevant technical and financial specialists will need to be involved in this process.

The assessment of a claim will be substantially dependent upon the level of information available. It is common for contracts to specify a minimum level of information to be provided by the Project Company when making claims. However, more information may be required. In addition to using its own records, the Procuring Authority should be aware of the rights it typically has under a PPP contract to request more information from the Project Company, or indirectly from the Project Company's contractors. Even if no such obligation exists, it is difficult for the Project Company to argue that the Procuring Authority should not be given access to additional information.

In practice, even where the merit and quantum of a claim is relatively clear, that does not mean that the resolution of the matter will always be straightforward, as many other factors may come into play such as the balance of power between the parties and the existence of other claims and objectives.

The assessment of the claim and its consequences should consider the availability of any relevant insurance either held by the Procuring Authority, by the Project Company or by a third party. If a claim involves a risk that is covered by an insurance policy, the insurers should be involved in the process as early as possible.

Claims should only progress if the risk was allocated to the Procuring Authority under the PPP contract to ensure the allocation of risk agreed between the parties is not altered.

B. Monitor the risk of potential claims to mitigate their occurrence and prepare early for their receipt

C. When assessing scope changes, aim to retain the risk allocation agreed at financial close and ensure value for money

D. Understand the claim and scope change procedures set out in the PPP contract and ensure the Procuring Authority complies with the procedures

E. Process claims and scope changes quickly to avoid them turning into disputes or having other adverse impacts on the project

F. Work with other government agencies to mitigate the risk of claims arising and to assist in the timely processing of claims

G. Introduce polices to limit early and frequent scope changes

H. Be aware of the interests and requirements of the Project Company’s lenders in the processing of claims

Questions & Answers

View our list of previous questions and answers or submit a question to our PPP Contract Management team.