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We are often asked to advise a party to a PFI arrangement (whether Authority, Project Company or Service Sub-Contractor) in relation to Relief Events. The main queries that we advise on are whether one has arisen, what the effect is and whether it is possible to challenge it.
What is a Relief Event?
HM Treasury's guidance [i] defines Relief Events as:
"events which prevent performance by [Project Co] of its obligations at any time, in respect of which the [Project Co] bears the financial risk in terms of increased costs and reduced revenue but for which it is given relief from termination for failure to provide the full Service."
The circumstances that constitute a Relief Event may vary from project to project. However, Relief Events are generally events with an external cause which have a negative impact upon the Project Company's or a Service Sub-Contractor's capacity to perform their obligations under the Project Agreement and which are beyond the control of the Project Company or relevant Service Sub-Contractor. Examples of potential Relief Events are fire, flooding, external shortages of fuel or transport or strike action.
The commercial purpose of the Relief Event regime is to strike a risk balance between the parties to the PFI arrangement and ensure that, while the relevant Service Sub-Contractor (and potentially the Project Company) is spared the consequences arising from an event; it remains incentivised to ensure that the required Service is performed as soon as possible.
Consequences of a Relief Event
Ordinarily, where there is a failure to provide the required Services under a Project Agreement the Project Company and relevant Services Sub-Contractor would expect the following consequences:
However, on the occurrence of a Relief Event the party which has been prevented from carrying out its obligations under the Project Agreement can claim relief from the award of any Deductions and Service Failure Points which would ordinarily flow as a result of the event.
Claiming a Relief Event
The Project Agreement will stipulate the process with which the Project Company and/or the Service Sub-Contractor must comply in order to claim a Relief Event. While this process is often project specific, and hence will need to be considered on a project by project basis, there are number of common provisions which parties should be aware of.
Any dispute between the parties as to whether or not a Relief Event has occurred and/or which party was at fault will need to be resolved in accordance with the provisions of the dispute resolution procedure set out in the Project Agreement.
Firstly, as noted above, the Project Company and/or the Service Sub-Contractor is generally under an obligation under the Project Agreement to take all reasonable steps to mitigate the consequences of the Relief Event upon the performance of the Services and to use all reasonable endeavours to remedy its failure to perform the Services as soon as practicable.
In the event that the Project Company and/or the Service Sub-Contractor fails to comply with its duty to mitigate the consequences of a Relief Event then the Project Company and/or the Service Sub-Contractor is not entitled to rely on the Relief Event to the extent that it has failed to mitigate the consequences flowing from the Relief Event.
Secondly, where an Authority disputes a Project Company's and/or the Service Sub-Contractor's entitlement to claim relief as a result of a Relief Event on the basis that either:
then the burden of demonstrating that the Relief Event occurred due to the Project Company's and/or the Service Sub-Contractor's default will normally rest with the Authority.
Finally, while the Relief Event provisions within a Project Agreement do not usually stipulate any timescale within which the occurrence of a Relief Event should be challenged, we would note that the performance monitoring regime under a Project Agreement will often:
Accordingly, if an Authority wishes to dispute the occurrence of a Relief Event or that the Project Company and/or the Service Sub-Contract has taken reasonable steps to mitigate the consequences of the Relief Event, to the extent that the performance monitoring reports do not reflect the Deductions and Service Failure Points attributable to the disputed Relief Event then, dependant on the terms of the Project Agreement, the Authority may need to challenge the contents of the relevant performance monitoring reports within the specified timescale or otherwise risk losing its entitlement to award Deductions and Service Failure Points in respect of the event.
If you wish to discuss this topic in more detail please contact Thomas Weld.
[i] Standardisation of PFI Contracts Version 4 (March 2007)