The operations to handback transition covers the period where the original PPP contract is coming to an end. This generally involves the asset or the operation of the asset being handed back to the Procuring Authority, or to a new Project Company or new operator. This transition is important as it will affect the ongoing provision of the public service, and the research indicates that it is sometimes not given the appropriate proactive, strategic consideration. The Project Company must comply with contractually stipulated handback requirements that should prescribe the asset condition to be demonstrated at the end of the contract term. The required asset condition may be described by technical standards, which should be measurable in order to be verified independently.  

A key challenge at the handback stage is the commercial pressure for the Project Company to drive economic efficiencies in its maintenance activities in the period leading up to handback, which may lead to a deterioration in the asset condition. While there were limited examples of handback being implemented in the study, the research indicated that it is not unusual for the Project Company to ‘sweat the asset’ (i.e. try to extract as much value from the asset as possible while doing the least amount of maintenance, such that the asset handed back to the Procuring Authority is in need of extensive repair). If the Procuring Authority does not manage this phase adequately, it can find itself with an asset in an undesirable condition.

Subsection structure

This subsection provides guidance on managing handback. The key elements of successfully managing the transition are summarised below and detailed in this subsection under the heading ‘Guidance’:

A.   Ensure the PPP contract contains protections around asset handback and that those protections are understood and utilised

B.   Plan for handback (or the transfer to a new Project Company or operator) well in advance of the end of the PPP contract


A. Ensure the PPP contract contains protections around asset handback and that those protections are understood and utilised

Key contractual protections to mitigate the risk of deterioration in the asset condition prior to handback in a PPP contract are set out below. These protections are not addressed in detail in this reference tool, as they should be considered carefully when agreeing the PPP contract (which is not the focus of this reference tool). The protection mechanisms relevant to the PPP contract and project in question should be well understood and utilised to protect the interests of the Procuring Authority.

  • PPP contracts should have a clear and well-defined asset handback standards to leave less room for the Project Company to hand back an asset in a substandard condition.

  • Requiring the establishment of a contingency fund for any maintenance requirements after handback. Here the Procuring Authority will retain money (or security, such as a letter of credit) that can be used to complete required maintenance after handback. If there is no additional maintenance required, the money will be repaid to the Project Company, thus incentivising the Project Company not to ‘sweat the asset’.

  • The Project Company can be required to hand back the project to the Procuring Authority in a condition that would meet the handback standards as defined in the PPP contract for a specified period (e.g. five years after handback).

It is worth noting that very few PPP projects have reached the expiry date for some of these handback provisions to become effective. In other words, unlike other provisions of PPP contracts, the application of certain handback mechanisms is still largely uncharted territory from a global practice perspective.

Example – Maintenance reserve account

For the Zaragoza Tramway project in Spain, the Project Company is required to pay 5% of its availability payments into a ‘Reserve Account’, which will be used to pay for any additional maintenance activities that are required leading up to handback.

For more information, see the Zaragoza Tramway Case Study.

B. Plan for handback (or the transfer to a new Project Company or operator) well in advance of the end of the PPP contract

The main approach that the Procuring Authority can take to manage handback is to plan the process proactively. Depending on the size and complexity of the relevant asset, the Procuring Authority may need to start planning for handback three years or more before the expiration of the PPP contract.

It is recommended that consultation with relevant stakeholders take place at this early stage. This can assist the Procuring Authority to identify options for procurement strategies and/or potential operations contracts for the continuation of the services after handback has occurred.

A handback plan focuses on two key areas:

  • Ensuring the asset meets the contractual requirement for handback

  • Ensuring continuity of the service provided by the asset.

On the first point, it is important that the Procuring Authority revisits the PPP contract and understands what the contractual obligations and entitlements are when the asset is handed back. The Procuring Authority must have a clear understanding of its goals for the end of the contract term, what the contract requires and what condition the asset is actually in leading up to handback. This will ensure the Procuring Authority does not receive the asset in a condition below the standards defined in the PPP contract.

Before commencement of the handback process, the Procuring Authority should also have a plan for how the testing and inspection of the asset condition will be performed, what audits will be carried out, and how the results will be used to measure compliance with the contract. During this process, the Procuring Authority should work with the Project Company to ensure both parties are aligned in terms of what condition the asset will be handed back in. If the asset is being transferred to a new Project Company or a new operator, that new Project Company should also be involved. This will benefit all parties, particularly where payments to the exiting Project Company are being withheld as contingency.

The Procuring Authority should also have a plan for how it will ensure service continuity. There should be a decision on whether the asset will be operated by the Procuring Authority, the current contract will be extended, a new operational contract will be tendered or a new PPP contract will be tendered. While the option of extending the existing contract may seem to be the most straightforward option, this is unlikely to provide the best value for money for the Procuring Authority, as the negotiation of the extension is typically carried out in the absence of competition.

In addition, as part of its transition to handback, the Procuring Authority should address issues such as the creation of an inventory of assets and goods, any indemnification required to a new Project Company or new operator (where the project is being retendered), and staff transfer, including budgeting issues related to new staff.