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Expiry, Termination and Renewal of Concessions

The main aim of any PPP project is to achieve value for money during its lifetime. The value for money during its entire lifetime includes various aspects and is not just limited to financial terms. It consists of solving major social concerns and providing infrastructure solutions for the public to achieve the main aims and results of any PPP project contracts that must be managed in a timely and robust manner. Government and private companies in the UAE hire firms that specialize in project finance and infrastructure advisory to assist in developing PPP projects.

By appointing such firms, it becomes easier for both companies to manage the different terms and concerns related to PPP contracts. To get positive results at both ends, contract management teams on both the public and private sides must be aware of the contract handback conditions observed upon the concession’s expiry or termination.

Both sides must also ensure that preparation, maintenance, and post-contract conditions will be duly met. If the conditions are not complied with, there can be consequences for the early termination of a PPP contract. There may be cases where the contract expires but the conditions are not met, and there may be cases where contracts are met as per the conditions within the given period and time limit, in which case concessions expire or, sometimes, are renewed.

In either of the above-discussed scenarios, it is much easier for both private and government organizations to hire project finance and infrastructure advisory firms in Dubai, such as Green Urbane, for advisory assistance. In this article by Green Urbane, ranked among the top infrastructure advisory firms in the UAE, we will discuss in detail different terms such as expiry, termination, and renewal of concessions related to PPP projects.

Expiry of a PPP Project Contract

The expiration of a PPP contract is unavoidable; however, many governments’ lack of preparation in dealing with this expiration results in difficult and costly transition periods following the PPP. The government should begin considering its options at least three years before the PPP contract expires. To start considering the best options, hiring a reputed PPP and project finance firm in the UAE, such as Green Urbane, proves very beneficial.

Should the PPP contract be re-tendered? If yes, under what conditions should it be re-tendered? What services will be required, and how much capital would be necessary to enable such services? These concerns must be answered rationally, just as the original feasibility study was done before the tender phase. A PPP and project finance firm thoroughly guides government bodies and organizations in this regard.

Following the above-discussed questions, a bid strategy and documentation for the selected option are developed. Simultaneously, the contract management team should begin assessing the asset’s condition, comparing it to the residual life specified in the PPP contract for assets that remain in the PPP. If the asset’s condition falls below the required level, a corrective action plan must be implemented, including asset condition security.

Termination of a PPP Project Contract

Many events could lead to an early termination of the concession before its expiry. In such situations, the government must be in a position to take stock of the situation, reassess the risks, and move on. Termination of the contract before expiry attracts termination payment to be paid from either party to each other depending on the timing, reasons, and causes of such early termination.

Usually, the termination of the PPP contract is observed at the end of the term of the PPP contract, which is upon expiry. The most significant aspect of termination is the handback of the project assets and services to the contracting authority. Transferring assets to a public agency necessitates a detailed assessment of the assets’ quality at the handback time. The PPP contract will often detail the quality standards the assets and facilities must achieve at the end of the contract period.

An audit is generally conducted to determine and evaluate the assets’ condition a couple of years before the termination date. The audit identifies which assets require improvement before handover. This method is essential because the project will be an asset for the contracting body once the PPP contract expires. Infrastructure consulting firms in Dubai assist with every step of an audit and other formalities during the contract’s expiry and termination.

The contract administrator should have a financial motivation to restore the asset to the best possible shape. The concessionaire may be obliged to provide a particular bond or assurance to cover the final few years of the contract duration. An infrastructure advisory consultant in Dubai can help determine whether the assurance provided is enough. The bond must have a minimum value that assures the concessionaire has an appropriate cash incentive to complete the contract by the agreed-upon end date and deliver the assets in the specified condition.

Renewal of concessions in a PPP Project Contract

Concessions of works and services and public-private partnerships allow the public and private sectors to work together to achieve public-interest goals or provide public-interest services. Concession falls under the broad category of public-private partnerships, according to legal scholars’ definitions and European Commission recommendations.

By utilizing these mechanisms, the public partner hopes to overcome the financial constraints that impede the public sector by temporarily transferring the burden of completing the necessary expenditures for public interest projects to the private sector.

At the same time, the private partner can invest in profitable projects, as both the PPP law and the law on the concession of works and services require that projects provide for both the recovery of investment and a reasonable profit margin. The availability of payments made by the public partner, granted on the condition that the investors’ services and works meet specific quality requirements, ensures profitability. Working with project finance advisory firms in Dubai makes it very easy to negotiate and renew concessions and other terms of any PPP project.