PPP contracts in Saudi Arabia: Renewal and termination
With the economic development the Kingdom is experiencing, and the expansion of investment mechanisms to help achieve the country’s economic visions, there can be a lot of confusion about the terms and applications of privatization models.
Today we will briefly examine the details of partnership contracts between the public and private sectors, the provisions of such contracts, their duration and causes for termination.
The law defines a public-private partnership as a contractual arrangement linked to infrastructure or public service, resulting in a relationship between the government and the private-sector party that continues for five years or more. The purpose of this kind of partnership is to undertake projects that include the design, construction, management, operation, maintenance or financing of assets, whether such assets are owned by the government, a private party, or both.
It is important to achieve a qualitative and quantitative distribution of risks between the government and the private party, to ensure the rights of all parties and protect the common interest. There is also the financial consideration to which the private party is entitled or obligated under the contractual arrangement, which will be based mainly on the level of its performance in the implementation of the project and meeting its obligations.
It is important to note that if the term of the PPP contract expires and the project is reintroduced following a new bid from the same private party whose contract term had expired, this is not considered an extension or renewal of the term.
The most prominent questions here are about cases where a PPP contract is extended or renewed. These cases can include: delays to the completion of a project, or an interruption, due to circumstances beyond the control of all parties; the suspension of the project; allowing the private party to recover additional costs arising from additional provisions that it is not expected to be able to recover during the original term of the contract; modifications to certain contract specifications or a dependent contract — according to the requirements of the public interest after obtaining all necessary approvals for any modifications, of course.
As for termination, subject to relevant contractual provisions the executive authority can unilaterally terminate a PPP contract, and subsidiary contracts, before its term ends, after obtaining the necessary approval, in any of the following cases: The private-sector party breaches its essential contractual obligations; it fails to achieve the agreed level of quality and after being notified of this failure it does not correct the issue and fulfill its essential obligations within a specified timescale; the private party declares bankruptcy or liquidation; if the public interest so requires it; or any other cases specified by the contract.