When is a public-private partnership commonly used in Singapore?
A public-private partnership, commonly involving a private sector party taking on responsibility for designing, building, financing and, in many structures, operating and maintaining a public facility or piece of infrastructure over an extended period, is used where the public sector wishes to leverage private sector efficiency, financing and expertise for significant infrastructure or facility projects.
This structure is commonly used for projects such as large scale infrastructure or public facilities where the extended operational responsibility placed on the private party is intended to incentivise quality construction and ongoing maintenance, since the private party typically bears responsibility, and financial exposure, for the facility’s performance over the life of the arrangement rather than just during the initial construction phase.
Public-private partnerships are generally reserved for larger, more complex projects where the benefits of private sector involvement, including access to private capital and specialised expertise, justify the additional complexity of structuring and negotiating this type of long term arrangement compared with a more straightforward construction procurement.
Because a public-private partnership involves a long term relationship between public and private parties with significant financial and risk allocation considerations, both government agencies considering this structure and private sector parties considering participation should engage experienced legal and financial advisers early in the process to properly assess whether this structure is suitable for the specific project being considered.
Which parties should sign the agreement and who should have authority to bind them?
The relevant government agency or statutory board, acting on behalf of the public sector, and the private sector party, often a special purpose project company established specifically to deliver the project, are the parties who sign a public-private partnership agreement, with each needing proper authority to enter into what is typically a long term and financially significant commitment.
Where the private sector party is a project company owned by a consortium of investors and contractors, the underlying shareholders’ or consortium agreement governing that project company should be reviewed to confirm the company has proper authority from its owners to enter into the public-private partnership agreement on the terms proposed.
Where lenders are providing financing for the project, they are not typically direct signatories to the public-private partnership agreement itself, but the agreement usually needs to accommodate the lenders’ requirements through mechanisms such as step-in rights, allowing lenders to intervene in specific circumstances to protect their financing.
Because a public-private partnership typically involves a complex web of relationships beyond just the immediate public and private signatories, including lenders, consortium members and, in some cases, subcontractors delivering specific aspects of the project, all parties should ensure the overall contractual structure properly reflects and accommodates these various relationships from the outset.
What essential commercial terms should be included?
A public-private partnership agreement should clearly specify the scope of the private party’s responsibilities, whether limited to design and construction or extending to financing and long term operation and maintenance, along with the performance standards the facility must meet throughout the arrangement, both during construction and, where applicable, the operational period.
The payment mechanism is a central commercial term, commonly structured around availability payments made by the public sector over the life of the arrangement in exchange for the facility being available and meeting agreed performance standards, though other structures involving usage-based revenue may apply depending on the nature of the specific project.
Risk allocation between the public and private parties should be clearly addressed, covering matters such as construction risk, demand or usage risk where relevant, and risk of changes in law or regulation affecting the project, since public-private partnerships typically involve a deliberate and carefully negotiated allocation of these various risks between the parties based on which party is best placed to manage each specific risk.
Because these commercial terms directly determine the financial and risk exposure of both parties over what is typically a long term arrangement, both public and private parties should ensure they are clearly and comprehensively negotiated, with the assistance of experienced legal and financial advisers given the complexity typically involved.
How should payment, performance standards and timelines be addressed?
Payment under a public-private partnership is typically structured around detailed performance standards, with availability payments or other payment mechanisms adjusted, often through deductions, where the private party fails to meet agreed performance standards, creating a direct financial incentive for the private party to maintain the facility properly throughout the arrangement.
Performance standards need to be clearly and objectively defined, covering matters such as facility availability, service quality, and compliance with applicable regulatory and safety standards, since vague or subjective performance standards make it difficult to properly assess compliance and can become a significant source of dispute between the parties over the life of the arrangement.
Timelines for a public-private partnership typically address both the construction phase, including a target completion date with associated consequences for delay, and the operational phase, which can extend for many years or even decades, requiring the agreement to address how performance will be monitored and assessed consistently over this extended period.
Because public-private partnerships typically involve payment and performance obligations extending over a much longer period than a standard construction contract, both parties should ensure these mechanisms are clearly defined and genuinely workable over the full intended life of the arrangement, not just during the initial construction phase.
How can liability, indemnities and limitations of liability be drafted?
Public-private partnership agreements typically include detailed indemnity provisions addressing risks arising throughout both the construction and operational phases of the project, including third party claims, environmental liabilities, and, given the public nature of the facilities typically involved, risks connected with public safety and service continuity over the life of the arrangement.
Limitation of liability provisions are typically heavily negotiated, reflecting the substantial sums and extended timeframes involved, and the appropriate level of any liability cap needs to properly reflect the actual risks the private party is taking on, particularly for risks that could materialise well into a long operational period rather than just during initial construction.
Insurance requirements are typically extensive and need to address both the construction and, where applicable, operational phases of the arrangement, with the specific coverage required evolving as the project moves from construction into ongoing operation and maintenance.
Because a public-private partnership involves risk allocation over a potentially very long period, with circumstances that can change significantly between when the agreement is signed and when specific risks might materialise many years later, both parties should ensure liability and indemnity provisions are carefully structured to remain workable and appropriately balanced throughout the full life of the arrangement, with legal advice essential given the complexity involved.
What termination rights and consequences should be included?
A public-private partnership agreement should clearly specify the circumstances in which either party can terminate before the natural expiry of the arrangement, such as persistent failure by the private party to meet performance standards, insolvency of the private party, or, in some structures, a right for the public sector party to terminate for convenience subject to compensation reflecting the public interest considerations that can arise.
The consequences of termination need to be carefully addressed, including how the facility is handed back to the public sector or transferred to a replacement private party, how outstanding financing is dealt with, and what compensation, if any, is payable to the private party or its lenders depending on the reason for termination.
Where lenders have financed the project, termination provisions typically need to accommodate lender protections, such as an opportunity for lenders to step in and remedy a default before the public sector party can terminate, reflecting the lenders’ significant financial interest in the arrangement continuing wherever possible.
Because termination of a public-private partnership can have significant consequences for public service continuity as well as the financial position of both parties and their lenders, these provisions require particularly careful drafting, and both public and private parties should ensure they fully understand the practical consequences of each termination scenario before entering into the arrangement.
How should confidentiality, personal data and intellectual property be handled?
Public-private partnership agreements often need to balance confidentiality of commercially sensitive information, such as the private party’s detailed financial modelling or proprietary technical solutions, against the public sector’s transparency obligations, which can require certain information about public contracts to be made available, and the agreement should clearly address this balance.
Personal data considerations arise where the facility involves collecting data from members of the public using the service, such as transport ridership data, and the agreement should clearly address compliance with the Personal Data Protection Act, including which party is responsible for data handling and how data is managed if the arrangement ends.
Intellectual property provisions should address ownership of any bespoke design, technical solutions or software developed specifically for the project, and clearly set out what rights the public sector party has to continue using this intellectual property if the arrangement ends and operation transfers to a different party or back to the public sector directly.
Because these issues can have significant practical consequences, both during the arrangement and particularly at handover or termination, both parties should ensure the agreement clearly addresses confidentiality, data protection and intellectual property from the outset, rather than leaving these matters to be resolved only when a specific issue arises.
