Arab News

PPP contracts in Saudi Arabia: Renewal and terminatio­n

- DIMAH TALAL AL-SHARIF Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the Internatio­nal Associatio­n of Lawyers. Twitter: @dimah_alsharif

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.

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