PPP Law, 3-Airport High Speed Rail: Delays in Land Delivery Compensated in Time, Not Money

The duty of the government project-owner to deliver land along the 220-kilometer construction route to the concessionaire, when breached, will more likely be compensated by an extension of time of the construction completion period granted to the concessionaire rather than by a financial compensation for damage caused by any delays or non-performance.

This is the concessionaire’s project risk indicated as one of the bidding conditions in the Request for Proposal (RFP) to be incorporated in the concession contract, signifying the resolution to the last-standing issue for this 224-billion baht (USD 7.5 billion) high-speed railway Public and Private Partnership (PPP) project, connecting Thailand’s three major international airports: Don Mueang in Bangkok, Suvarnabhumi in Samut Prakarn (a Bangkok eastern suburb), and U-tapao in Rayong, a province in the heart of the much-acclaimed Eastern Economic Corridor.

Bidding Conditions Negotiable

Contrary to the belief of many, bidding conditions and a draft concession contract attached to the bidding announcement are not set in stone and can always be negotiable—it takes 10 months for the negotiation process in this PPP high-speed rail project to be completed and the contract ready for signing since the concessionaire won the competitive tender in December 2018.

Not to undermine their chances of winning the bid, bidders would first submit their bids, based on the form of the concession contract attached to the RFP, unchanged, in the hope that if they win the bid they can always raise issues and negotiate and revise some of the unfavorable terms, in spite of the RFP’s seemingly strict requirement that calls for contract signing within an appropriate time demanded by the project owner, such as an astonishingly short period of seven days in some projects after the bid winner is announced.

Project Owner’s Talk Methodology

Invariably, the common simple approach of the government project-owner in any PPP project would be to command the bid winner to respect the terms of the RFP. “You submitted your bid based on the RFP. You must then respect and abide by it.”

Given the humongous size of the investment, the truth is there hardly be any PPP concession contract that has been signed without any adjustments to the original draft concession contract and obviously the talk process does not take days but months or several months before both sides can be on the same page on what risk-sharing system, the main principle of PPP,  they can finally accept.

It should be made clear that nothing stands in the way of the talks, not even any laws or regulations or any citation of such laws or regulations by the project owner. In particular, not the PPP Act. It all depends on commercial leverage between both sides—the government naturally has a competitive edge over the private sector. Yet, the government project-owner realizes in the back of its mind that the PPP scheme helps save an increasingly scarce government budget and they must keep the project attractive and flexible enough to keep the interest of the private sector.

Sometimes, the talk could get nasty, prompting the project owner to verbally issue “a statement of last resort”: that they will not agree to certain sticky points and if the bid winner insists, they could scrap the bidding altogether and restart a new bidding procedure.

Typical Cure for Land Delivery Delays

There are similarities between a construction contract and its concession counterpart; the latter has borrowed the forms and template provisions from the former. Many provisions of a concession contract just mirror an international version of a construction contract, converted to favor the government project-owner even further.

A typical cure for a breach of a concession contract by a project owner would entail either a compensation for damages incurred by the concessionaire or an extension of the project completion time granted to the concessionaire, or both.

The most vulnerable point for Thai government project-owners in large construction projects is its timetable to hand over the construction site to the concessionaire, free of trespassers, and public utilities, underground or overhead. Land expropriation and eviction and even coordination between government utility service providers all take time, years in fact.

The government has come to a conclusion that this typical contract cure is not its answer to the question of delays in large infrastructure projects.

Financial Risk Mitigation by Government

The highly-experienced Thai government decided to close its financial exposure. It refuses to pay any damages monetarily to the concessionaire for any delay in land delivery up to a certain maximum period of time.

In a quid pro quo to calm down the private sector, it wisely agrees to share the risk of project delays by giving the concessionaire an extra time to complete the project.

The government is smart in putting this as a bidding condition and in speculating that bidders, who saw this in the RFP and yet submitted their bids, could accept the condition, albeit unwillingly.

No Cash Payment, Time Extension Okay

We will see this trend more and more in the nation’s PPP projects. The concept is adapted from tollway PPP projects when the government, after a breach of the concession contract to reject an agreed increase of tollway fees or allow a competition to the tollway in violation of the contract, preferred to extend the concession period rather than pay actual financial damages.

For this particular PPP three-airport rail link, the construction-site delivery of the 22-kilometer section through the vastly populated and congested urban areas of Bangkok from the Don Mueang international airport, through the Bang Sue high-speed rail hub, to the Phaya Thai station downtown, can take up to two years and three months, with plenty of extra room for the government project-owner to breathe and extend it to four years!

By the book of the law, after the four years, then the concessionaire’s termination right kicks in and their rights to claim damages resume.

Wirot Poonsuwan is Senior Counsel and Head of Special Projects at Bangkok law firm Blumenthal Richter & Sumet and can be contacted at wirot@brslawyers.com.

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