2.2  Construction of Project Facilities

The typical contractual provisions included in project agreement relating to construction of the project facilities are as follows:

• Land acquisition and use : The provisions relating to land acquisition and use includes, Acquisition of the project site and necessary right-of-way and the party assigned the responsibility for the land acquisition; How the cost of land acquisition will be allocated between the parties; Project company's right to use or own the land; Conditions of the site at the time of handing over; and Clearance of site. Normally, government is in better position to acquire the site in the public interest at a fair price.
  
  
• Design: Provisions on design for the facilities includes: Design and specification criteria to be followed by the project company when preparing the project design; Parties' right to review and approve the design; Procedures to review, change and approval of designs; and Responsibility for deficiencies in the project design. While the government will reserve the rights to review and approve the design drawings, the project company will remain solely responsible for their quality and contents.
  
  
• Construction: Provisions for construction of the facilities includes Assignment of full responsibility for completing the construction within budget and schedule to the Project Company; and Define time for commencement of construction, construction milestones and quality of construction work. In addition to this, the responsibilities for obtainment of approvals & licenses; selection & approval of construction contractors & subcontractors; supply of equipment and materials; definition of quality system for quality assurance; content and timing of construction progress reports; and Clearance of the site on completion of the construction work are also delegated to project company.
  
  
• Testing and Acceptance of Construction: Procedures and programs to confirm that it meets its design and other standards are stipulated in the project agreement.
  
  
• Delay in construction: In case of delay in construction, the project company is solely responsible for it. Penalties should be spelt out in the project agreement and deducted from performance bond. There should also be provision for extending the concession period to compensate the delay in case the delay is on account of events beyond the control of the project company.
  

2.3 Operation and Maintenance

Performance of the project and the revenue generated by it may fall below projected levels if operation and maintenance is inefficient. To ensure that operation and maintenance is efficient, project agreements include provisions on operation and maintenance. This provision defines the responsibilities of the project company relating to operation and maintenance by specifying the operation parameters to be achieved; maintenance and repair standards or targets; schedule and substance of periodical overhauls of the project facility; toll/tariff formulas and adjustment of the formulas in case of inefficient performance; toll/tariff collection system; and operation and maintenance bond.

In case of failure by project company to maintain and repair, government's right to carry out maintenance and repair is also included. In addition to this, project company also has the right to select a qualified O&M contractor and government's right to approve the contactor and the O&M contract.