Dissecting PPP contracts #6: Amendments

The “amendments” provision is one of the shortest, yet important and desirable, boilerplate provisions of public-private partnership (PPP) contracts.  The inclusion of this provision could address matters not contemplated or could not be contemplated as of the date of execution.

Sample texts. Some PPP contracts word this provision this way: “This agreement may be amended, modified, or altered only by mutual agreement and a duly executed written instrument signed by the parties’ authorized representatives.” Others, like this, “No amendments or modifications of this agreement shall be valid except by written agreement signed by the duly authorized representatives of the parties.”

Components. There are five parts of this provision: (1) the subject which is the agreement, (2) of the amendment, alteration or modification, (3) which requires mutual agreement, (4) embodied in a written document and (5) signed by authorized representatives of the parties to the public-private partnerships (PPP).

Optional inclusion. The insertion of this provision, like any other provision in the main PPP contract, while desirable, must be agreed upon between the Parties. All terms of the contract have a purpose and their inclusion and exclusion have an impact.

Consensual. Like the PPP contract, the subsequent agreement must be voluntarily and consensually arrived at by the Parties. No party—government and the private-sector proponent (PSP)—can be forced to amend the contract. Amendment is an option. While the option is contractually agreed upon, the amendments must be mutually adopted.

Rationale. PPP contracts, often long-term agreements that can last for 50 years, are characterized as “incomplete contracts”. No matter how robust a contract is, supervening or unforeseen events may occur. To accommodate these, and in order to preserve the substance of the arrangement in pursuit of the public good, amendments may be introduced.

Amendment, not revision. This provision does not contemplate an overhaul of the contract or the project. Revision is not covered. Thus, for example, a bulk water project cannot be changed to a reclamation project. A reclamation project is a distinct project, which must be vetted through a separate selection process.

Material and formal. Case law has taught us that material deviations cannot be made after a PPP contract has been consummated. Material or substantive deviations either result in greater burden to government or more benefits for the PSP not stated in the main contract. If this is allowed, the winning PSP is put in a favored position to the disadvantage or other bidders. There will be no level playing field.

However, some argue that material deviations may be allowed if the right to amend is expressly mentioned in the bid documents, draft PPP contract and terms of reference of the selection process. In this case, fairness is sustained because, regardless of who the winning PSP is, it will have the option to amend. Again, the government cannot be compelled to amend.

Supplementary contract. A contract that amends a contract must be distinguished from a contract that supplements a contract. The latter is effectively an addendum or ancillary contract, the substance of which are contemplated or envisioned, expressly or impliedly, by the parent contract. A supply, surety or insurance contract may be a supplementary contract.