Government variations should be limited to changes in service requirements, specified input restrictions, and project insurance limits or scope. If the government wants to make a change to the project results, it must first submit a change proposal to the private partner. The proposed amendment describes the nature of the amendment and requires the private partner to provide an assessment of the technical, financial, contractual and temporal impact of the proposed amendment within a certain period of time. In cases where a proposed amendment does not entail additional costs for either party, no formal amendment procedure is required. The contracting authority and the private partner should meet to discuss how best to implement the proposed change. If the change results in a reduction in costs, both parties must agree on how to allocate these savings. In the event of a change proposed by the purchasing authority, the savings should accrue to the purchasing authority and/or end-users, while the savings resulting from a modification proposed by the private partner should be shared between the purchasing authority, the private party and the end-users. One would expect both parties to reach agreement on the implementation of this category of amendments without resorting to dispute settlement procedures. Any dispute between the parties relating to small changes to the work must be resolved in accordance with dispute settlement procedures. Both parties should independently collect data that will be used for comparative purposes as part of the value review. The private partner will use its data to determine a baseline cost for services, and the government will use its data to review, query and validate the results of the exercise. Comparative data must be valid and compiled transparently.
The private partner`s own costs for the provision of services do not constitute a valid comparative value. The data compiled need to be tailored to specific projects, taking into account specific aspects of service delivery and factors such as regional differences. After a meeting with the private partner to consider its response, the government must decide whether it or the private partner should fund the variation. Depending on who is providing the funding, payment for the change should be made through the necessary adjustments to user fees or the flat payment (if the private partner is funding the change) or other forms of payment. Disputes between the parties related to a change (which does not result in a reduction in the scope of services or affect the risk profile of the private partner) must be resolved in accordance with the dispute resolution procedure. For user-paid PPPs, where the private partner takes the full risk of demand and revenue (and in some jurisdictions there is no compensation for terminating a private partner`s default), there will be a strong argument that a share of refinancing profits is heavily tilted in favor of the private partner. However, the economic factors that can increase the financing profit are rarely under the control of the private partner (e.B low interest rates resulting from a national or regional central bank policy), and yet these factors are essential for the success of refinancing. The contract sets out the schedule for the benchmarking or market benchmarking process. As a rule, it is done every 5-8 years. Governments that have participated in such exercises suggest that benchmarking may take at least nine months between the initial talks and the final agreement. When it comes to market testing or if only market testing is done, the process can take up to two years.
The government must therefore establish project management disciplines from the outset and create a project plan that covers the following considerations. For all these categories, there are procedures to be followed when amending the PPP agreement with regard to work, services and means of delivery. Given the length and complexity of PPP agreements, it is likely that these procedures will be used from time to time to meet evolving project requirements. When the state receives part of the refinancing profit, this is usually done in the form of a one-off capital paid by the private partner or, in the case of a PPP paid by the government, possibly in the form of a reduced uniform payment of fees over time. In rare cases, the “in kind” benefit is considered a pre-funded variant, which is financed by the government`s share of profits. This is rare, as it is difficult to estimate the value of the spread at the time of the conclusion of the PPP contract. Some PPP contracts include a procedure for small construction changes designed to provide an effective mechanism to deal with additional minor investment work required by the government. For example, the PPP agreement may require the private partner to provide a schedule for a number of likely small jobs at the beginning of each year. Variation management is closely linked to the management of PPP agreements and refers to the creation of mechanisms to amend the PPP agreement.
Such changes may be necessary due to a change in circumstances that could not have been foreseen or quantified at the time of signing the PPP agreement. Deviations may include changes to plants, services or the form of delivery. Change procedures must be used effectively to ensure that other key functions, such as performance management and risk management, continue to operate in accordance with contractual requirements and evolving service delivery needs. The contract management team must familiarize themselves with all the intricacies of each change process and ensure that the right steps are followed when changes are needed. The four main categories of variations are: In situations where the government`s variation requirements can be reasonably anticipated prior to the signing of the PPP agreement, the government should consider requiring the private partner to commit to pricing the predefined variations under the PPP agreement. This would provide for an accelerated amendment procedure after the signing of the PPP agreement. If the private partner wishes to introduce an amendment, it shall submit to the contracting authority a proposal for the amendment for the private partners setting out the details of the amendment and its likely impact on the PPP agreement, in particular as regards the uniform payment of royalties. After a meeting with the private partner and the possibility of modifying the proposed amendment if necessary, the contracting authority must decide whether or not to accept it. While PPP contracts allow for flexibility for changes in physical infrastructure or services, this flexibility is only effective if the government adequately manages the change process.
Foster Infrastructure (2012)[11] sets out the following key principles that apply to fluctuation management. Refinancing gains are generally calculated by comparing the distributions payable on the refinancing with those that have not been refinanced. Distributions typically take the form of dividends to shareholders or loan repayments to shareholders. .