Direct Agreement PPP: Understanding this Important Contractual Arrangement
Public-Private Partnerships (PPPs) have become a popular model for financing infrastructure projects around the world. PPPs involve a partnership between the public sector and the private sector, with the latter taking on some of the risks and responsibilities of delivering a project. One important contractual arrangement in PPPs is Direct Agreement, which provides a framework for managing the various stakeholders involved in a project.
What is Direct Agreement?
Direct Agreement is a legal agreement between the project company (the private sector partner), the public authority, and the lenders of the project. It is a tripartite agreement that sets out the rights and obligations of each party in relation to the project. The purpose of Direct Agreement is to ensure that the lenders` security interests are protected and that the project remains financially viable throughout its lifecycle.
Key Features of Direct Agreement
Direct Agreement typically includes the following key features:
1. Project Company Obligations: The project company is obliged to perform its obligations under the PPP agreement. This includes delivering the project on time and within budget, maintaining the project, and complying with all relevant laws and regulations.
2. Public Authority Obligations: The public authority is obliged to perform its obligations under the PPP agreement. This includes providing the necessary approvals and permits, ensuring compliance with environmental and social standards, and making payments to the project company.
3. Lender Obligations: The lenders are obliged to provide funding for the project and ensure that their security interests are protected. This includes the right to take possession of the project in the event of default by the project company.
4. Termination Rights: Direct Agreement sets out the circumstances in which the project can be terminated. This includes default by the project company, non-payment by the public authority, and force majeure events.
Benefits of Direct Agreement
Direct Agreement provides a number of benefits to all parties involved in a PPP. For the project company, it provides certainty that the project will be financed, as lenders are more likely to provide funding when their security interests are protected. For the public authority, it provides assurance that the project will be delivered on time and within budget, as the lenders will ensure that the project remains financially viable. For lenders, it provides protection for their investment and ensures that they have recourse in the event of default.
Direct Agreement is an important contractual arrangement in PPPs. It provides a framework for managing the various stakeholders involved in a project and ensures that the project remains financially viable throughout its lifecycle. By setting out the rights and obligations of each party, Direct Agreement provides certainty and assurance to all parties involved in a PPP. If you are considering a PPP, it is important to understand the role of Direct Agreement and work with your legal and financial advisors to ensure that the agreement is structured in a way that meets your needs.