General PPP framework

Overview

How has the concept of public-private partnership (PPP) developed in your jurisdiction? What types of transactions are permitted and commonly used in your jurisdiction?

PPPs have developed in response to the infrastructure gap. They are seen as an alternative means of developing public infrastructure and related services to the traditional procurement system, where infrastructure and related services are delivered by the state or government. The current PPP framework is the National Policy on PPPs (the Policy), which defines a PPP as ‘a contractual arrangement between a public entity and a private party, with clear agreement on shared objectives for the provision of public infrastructure and services traditionally provided by the public sector’. The Policy further provides that, under a PPP arrangement, the private party must perform part or all of a government service delivery function and assume the associated risks for a significant period of time.

Various types of PPPs have been used in Ghana, including:

  • build-transfer;
  • build-lease-transfer;
  • build-operate-transfer;
  • build-own-operate;
  • build-own-operate-transfer;
  • build-transfer-operate;
  • contract-add-operate;
  • develop-operate-transfer;
  • rehabilitate-own-operate;
  • build-own-operate-maintain; and
  • operate-transfer.

PPPs have been used for transactions in various sectors, including roads, rail, water, health, commercial facilities, ports, markets and others.

Covered categories

What categories of public infrastructure are subject to PPP transactions in your jurisdiction?

Currently, PPP initiatives apply to all sectors and are to be pursued where they represent priority projects that are affordable to the government or end users, offer value for money and allow for appropriate risk transfer. Initial areas currently being pursued include transport (railways, roads, ports), sports infrastructure, IT infrastructure, hospital, office buildings, social infrastructure for the education sector and other social infrastructure, including markets.

Legislative framework

Is there a legislative framework for PPPs in your jurisdiction, or are PPPs undertaken pursuant to general government powers as one-off transactions?

Even though there are a number of laws that empower specific statutory entities (eg, the Ghana Highway Authority), to enter into PPP arrangements, there is currently no central legislation governing PPPs. On 3 June 2011, the government adopted the Policy as the framework for the implementation of PPPs. PPPs are, therefore, currently undertaken in accordance with the Policy, sector-specific laws and laws of general application. There are, however, efforts to enact a PPP law to govern PPPs, even though there is currently no time frame for the passage of the proposed PPP Bill.

Relevant authority

Is there a centralised PPP authority or may each agency carry out its own programme?

Under the Policy, the Ministry of Finance (MoF), through its Public Investment and Assets Division (PIAD), is responsible for developing the legal, institutional and regulatory framework for the PPP programme. The PIAD also serves as the secretariat of all PPP-related activities. An inter-ministerial approval authority, the PPP Approval Committee, has been established to approve the implementation of PPPs. The Committee is chaired by the Minister of Finance, who may issue guidelines for the effective management of PPP projects according to the context.

The PIAD includes the PPP Advisory Unit, which provides technical expertise to support the relevant ministries, departments and agencies in the development and management of prospective transactions. It also includes the Project Financial Analysis Unit, which, with the support of the other units, performs gatekeeping functions.

Procurement

Are PPPs procured only at the national level or may state, municipal or other subdivision government bodies enter into PPPs?

PPPs may be undertaken at the national level by the government acting through the relevant ministries, departments or agencies, as well as at the local government level by the metropolitan, municipal and district assemblies.

Remuneration

How is the private party in a PPP remunerated in your jurisdiction?

The private party may be remunerated or recoup its investment from any of the following:

  • service tariffs or user charges collected by the private party from end users or customers for a service provided by the private party;
  • payments from the government budget, which may be fixed or partially fixed, lump sum or periodic payments; or
  • a combination of the above.
Sharing revenue and usage risk

May revenue risk or usage risk be shared between the private party and the government? How is risk shared?

One of the guiding principles under the Policy is the allocation of risk. Risk is allocated to the party best able to control and manage it in such a manner that value for money is maximised. The allocation of revenue or usage risk is, therefore, considered on a case-by-case basis based on the preceding principle.

Government payment obligations

In situations where the private party is compensated in whole or in part through availability or other periodic payments from the government, are the payment obligations of the government subject to the relevant legislative body approving budgetary funding in the future?

Yes. Government payment is subject to various legislative and constitutional provisions regulating government expenditure, either as part of the government budgetary process or through specific funds established for specific purposes (eg, the infrastructure fund). All of the above is subject to parliamentary approval.

Rate of return caps

Is there any cap on the rate of return that may be earned by the private party in the PPP transaction?

There are no legal requirements or restrictions on the rate of return to be earned by the private party. As part of the PPP approval process, the financial proposal of the private party, including its financial model, is analysed and approved by the public party (or based on negotiation between the parties). This is also subject to various approvals, including approval by the MoF and the PPP Approval Committee.

Restriction of ownership transfer

Is the transfer of direct or indirect ownership interests in the project company or other participants restricted?

This is usually regulated by the PPP agreement. The usual restriction is that such transfer is subject to the prior consent of the public party or must be done after a locked-in period set out in the agreement.

Procurement process

Relevant procedure

What procedures normally apply to a PPP procurement? What evaluation criteria are used to award a PPP transaction?

Under the Policy, two procurement processes are prescribed:

  • a competitive procurement process; and
  • an unsolicited proposal.

The Policy does not prescribe detailed rules or guidelines on the competitive procurement process. However, the Policy provides that the procurement procedures adopted must:

  • be in accordance with a system that is fair, transparent, competitive and cost-effective;
  • encourage the maximum use of local content and transfer of technology; and
  • ensure that PPP activities that are within the scope of public procurement shall be undertaken according to the Public Procurement Act.

Unsolicited proposals are considered based on the criteria stated in the Policy. The criteria for evaluation must:

  • demonstrate affordability, value for money and substantial technical, operational and financial capacity; and
  • demonstrate efficient risk allocation.

The proposed PPP Bill, however, provides for detailed rules on procurement processes that must be followed.

Consideration of deviating proposals

May the government consider proposals to deviate from the scope or technical characteristics of the work included in the procurement documentation during the procurement process, without altering such terms with respect to other proponents? How are such deviations assessed?

As indicated, the Policy does not prescribe a detailed procurement process for PPPs. In prescribing the procurement process, the best practices in public procurement are adopted, which will require the bidder to submit a conforming bid or proposal before an alternative proposal or bid is considered. Therefore, a proposal that deviates from the scope or technical requirements of the procurement documentation may be rejected.

Unsolicited proposals

May government parties consider unsolicited proposals for PPP transactions? How are these evaluated?

Yes. Unsolicited proposals may be considered by the government. Under the Policy, unsolicited bids are considered on a case-by-case basis and are limited to projects that are not in the project list of the public party, and have not already been considered by the public party. The unsolicited proposals are required to be consistent with the national development agenda and serve the public interest and the needs and priorities of the public party. All unsolicited proposals are also subject to a value for money, technical, financial and economic assessment.

Under the proposed PPP Bill, unsolicited proposals will be subject to a competitive procurement process. The intention of the Bill is to discourage unsolicited proposals.

Government stipend

Does the government party provide a stipend for unsuccessful short-listed proponents or otherwise bear a portion of their costs?

The government does not provide stipends to unsuccessful short-listed proponents or bear a portion of their costs. The general principle is that all costs related to the preparation and submission of proposals are borne by the bidders or proponents.

Financing commitments

Does the government party require that proposals include financing commitments for the PPP transaction? If it does not, are there any mechanisms during the procurement process to ensure that the applicable PPP transaction, once awarded, is financeable?

There is no legal requirement for proposals to provide for financing commitments. However, the procurement documentation may require such financing commitments in the proposal, in which case it is evaluated as part of the proposed terms by the private party. In most cases, the project agreement provides that the achievement of financial close by the private party is a condition precedent and failure to achieve financial close is subject to some liabilities imposed on the private party.

Legal opinion

May the government ask its counsel to provide a legal opinion on the enforceability of the PPP agreement? May it provide representations as to the enforceability of the PPP agreement?

Except with representations in the PPP agreements, the government does not request its legal counsel (usually the transaction adviser or the Attorney General) to provide such legal opinion to the private party. However, the private party (where it engages local counsel) would usually request an opinion on the enforceability of the PPP agreement under Ghanaian law and related regulatory advice.

Restrictions on foreign entities

Are there restrictions on participation in PPP projects by foreign entities? May foreign entities exercise control over the project company?

There are no restrictions in respect of the participation by foreign entities in PPP projects. However, the draft PPP Bill empowers the Minister of Finance to enact the necessary regulations prescribing the preference that may be given to Ghanaian businesses as part of a general local content policy of Ghana. The public party may also make provision for a margin of preference that may be applied to a domestic or local business.

A foreign entity is free to exercise control over the project company. The current draft PPP Bill provides that the public party should not hold more than 15 per cent interest in the special-purpose company unless prior approval of the Minister of Finance is obtained, or in the case of projects designated as strategic national projects.

Design and construction in greenfield PPP projects

Form of contract

Does local law mandate that any particular form of contract govern design and construction activities? Does it mandate the choice of governing law?

Neither the Policy nor the draft PPP Bill provide for the specific usage of a particular form of contract. The draft PPP Bill, however, provides that the form of agreement for each PPP project shall be developed by the public party in collaboration with the MoF’s PIAD and the office of the attorney general, subject to guidelines that may be issued by the Minister of Finance for drafting the terms and conditions in PPP agreements. This is in addition to specific terms that the PPP Bill requires must be provided in PPP agreements.

The draft PPP Bill provides that the governing law of a PPP agreement shall be agreed between the parties, subject to the following:

  • where the agreement covers or involves the award of a right, licence or concession that is meant to enable a private party to build all or part of any infrastructure or works or perform services in Ghana or on behalf of a public entity, the agreement shall be governed by the laws of Ghana;
  • where a public entity or a state-owned enterprise or any contracting entity is expected to receive outputs from the private sector under the PPP arrangement, the agreement shall be governed by the laws of Ghana; and
  • in respect of agreements relating to lending or finance for the PPP project or an arrangement for finance of a PPP project, the parties have autonomy in the choice of law, dispute resolution mechanism and forum for the resolution of disputes. However, where the parties fail to exercise autonomy under the law, the laws of Ghana shall apply.
Design defect liability

Does local law impose liability for design defects and, if so, on what terms?

There is no provision for the imposition of liability for defects in design. However, project agreements usually provide for the liability of the designer or project company for defects in the design and construction. The project company is required to pass on the risk to the designer or contractor, or both.

Warranties

Does local law require the inclusion of specific warranties? Are there implied warranties in cases where the relevant contract is silent? Does local law mandate or regulate the duration of warranties?

There are no laws on specific warranties or duration of warranties to be stated in PPP agreements. Usually, however, the normal boilerplate warranties are included.

Damages for delay

Are liquidated damages for delay in construction enforceable? Are certain penalty clauses unenforceable?

Liquidated damages for delays in construction are enforceable. The standard construction contracts or the terms of such contracts are included in PPP agreements and are enforceable.

Indirect or consequential damages

What restrictions are imposed by local law on the contractor’s ability to limit or disclaim liability for indirect or consequential damages?

No restrictions are imposed. These are contractual issues negotiated and agreed on by the parties.

Non-payment

May a contractor suspend performance for non-payment?

Yes. In accordance with the terms of the construction or project contract. Where the construction contract does not so provide, the non-payment may be treated as a breach of condition, which entitles the contractor to terminate the contract.

Applicable clauses

Does local law restrict ‘pay if paid’ or ‘paid when paid’ clauses?

No. Generally, these clauses would be dealt with by the courts in a similar manner to other terms of the contract and such clauses will be enforced unless other vitiating factors are present in the contract.

Are ‘equivalent project relief’ clauses enforceable under local law?

‘Equivalent project relief’ clauses are in the same category as the ‘pay if paid’ clauses discussed in question 24.

Expansion of scope of work

May the government party decide unilaterally to expand the scope of work under the PPP agreement?

Variation or amendment of the project scope is subject to agreement of the parties and the terms of the executed contract. Unless the terms of the contract permit such unilateral variation, the government party may not be able to exercise such a right. In addition, variation or amendment of a PPP agreement may be subject to the approval of relevant authorities under the Policy.

Rebalancing agreements

Does local law entitle either party to have a PPP agreement ‘rebalanced’ or set aside if it becomes unduly burdensome owing to unforeseen events? Can this be agreed to by the parties?

The Policy does not provide for this and neither does the proposed PPP Bill. However, the parties may contractually agree to the circumstances under which the agreement may be set aside or renegotiated.

Liens laws

Are statutory lien laws applicable to construction work performed in connection with a PPP agreement?

No.

Other relevant provisions

Are there any other material provisions related to design and construction work that PPP agreements must address?

The draft PPP Bill and the Policy do not prescribe specific provisions related to design and construction work that must be included in PPP agreements. However, either the usual terms of construction contracts are included in the PPP agreement or the form of design and construction contract is annexed to the PPP agreement.

Operation and maintenance

Performance obligations

Are private parties’ obligations during the operating period required to be defined in detail or may the PPP agreement set forth performance criteria?

The Policy requires the public entity to clearly set out the objective and output requirements of the project. In view of this, the PPP agreement must clearly set out the private party’s obligations. In addition, common practice is to clearly set out key performance indicators by which the performance of the private party can be measured.

Failure to maintain

Are liquidated damages payable, or are deductions from availability payments possible, for the private party’s failure to operate and maintain the facility as agreed?

The Policy and the draft PPP Bill do not prescribe liquidated damages or deductions for failure or underperformance of the private party. These are terms that must be included in the PPP agreement and agreed on by the parties.

Refurbishment of vacated facilities

Are there any legal or customary requirements that facilities be refurbished before they are handed back to the government party at the end of the term? (To what degree must facilities be refurbished?)

No. These are contractual issues and it is customary to require that facilities be returned or handed back to the public party at the end of the term in a good state to enable the public party to continue with the provision of the services. Therefore, in instances where the life cycle of the facilities will end with the PPP term, the requirement for replacement is provided in the PPP agreement.

Risk allocation

Delay

How is the risk of delays in commercial or financial closing customarily allocated between the parties?

Upon concluding negotiation, it is for the public party to achieve commercial close by obtaining the necessary government approval of the PPP agreement. Unless there is a preliminary, binding memorandum of understanding or related documents, there is no risk to the public party of a delay in achieving commercial close. However, where there is undue delay, there may be a renegotiation of the terms.

In respect of financial close, the risk is borne by the private party. The private party may be granted an extension in accordance with the terms of the agreement where there is a delay in achieving financial close, failing which the public party is usually entitled to terminate the agreement. In some instances, this is subject to the recovery of stated amounts or expenses incurred by the public party.

How is the risk of delay in obtaining the necessary permits customarily allocated between the parties?

In practice, this is usually borne by the private party. Usually, the public party is under obligation to use its ‘best effort’ to provide assistance to the private party. Failure to obtain a permit may be treated as political force majeure in cases where the private party satisfies all the requirements for the permit or licence but the government regulatory authority refuses to grant the permit.

Force majeure

How are force majeure and geotechnical, environmental and weather risks customarily allocated between the parties? Is force majeure treated as a general concept relating to acts outside the parties’ control or is it defined with reference to specific enumerated events?

The principle of force majeure is recognised under Ghanaian law and is generally related to acts outside the parties’ control. However, with specific PPP agreements, force majeure is generally categorised into natural force majeure (natural events beyond the control of the parties) and political force majeure (acts that may be directly or indirectly attributable to the government or government entities). The consequences of each are treated differently as contractual issues negotiated and agreed on by the parties.

Third party risk

How is risk for acts of third parties customarily allocated between parties to a PPP agreement?

The risk of third-party interference (excluding employees) is usually passed on to the public party (or, in some instances, treated as political force majeure), as this is not within the control of the private party. As noted above in relation to risk allocation, since the government is more able to manage this risk, the risk is allocated to the government party. In respect of employees, the risk is allocated to the private party (however, general strikes may be placed under force majeure).

Political, legal and macroeconomic risks

How are political, legal and macroeconomic risks customarily allocated between the parties? What protection is afforded to the private party against discriminatory change of law or regulation?

The Constitution of Ghana prohibits nationalisation or expropriation unless there is payment of prompt and adequate compensation. Further protections are provided under the Ghana Investment Promotion Centre Act, which restates the constitutional requirement for prompt and adequate compensation as a condition for nationalisation or expropriation. In addition, the private party may also take out political insurance against such risks. It is also customary for PPP agreements to have change-in-law, change-in-market and economic conditions clauses that permit the private party to pass on the risk to the public party or for the parties to renegotiate specific terms upon the occurrence of such stated market and economic events that affect the private party’s returns.

Mitigating events

What events entitle the private party to extensions of time to perform its obligations?

The scope of events that trigger an extension of PPP agreements is not limited and depends on the nature of the project and cause of delay. The agreement customarily provides for events that constitute default or omission on the part of the public party, including failure to grant access to property, delay in obtaining permits and change in the scope of the project.

What events entitle the private party to additional compensation?

These are generally similar to events that trigger extensions of time and include:

  • change in law;
  • material adverse government action;
  • change in market or economic conditions; and
  • default or omissions on the part of the public party.
Compensation

How is compensation calculated and paid?

The payment of compensation is usually contractual. The parties agree on a formula to be used in calculating the sum that the private party is entitled to, and common practice is to restore the private party to the position that it was in before the occurrence of the event. The calculation of such compensation is determined by the parties in the agreement, before the occurrence of the event.

Insurance

Are there any legal or customary requirements for project agreements to specify a programme of insurance? Which party mandatorily or customarily bears the risk of insurance becoming unavailable on commercially reasonable terms?

PPP agreements usually provide that the private party procures and maintains, during the term of the PPP agreement and at its own expense, an all-risk insurance policy with a reputable insurance company acceptable to the public entity that covers all liabilities and activities under the PPP agreement, including professional liability and all-risk third-party liability insurance. Insurance to cover construction, public buildings, vehicles and other specific items is mandatory, but the agreement usually prescribes insurance beyond the mandatory insurance.

Default and termination

Remedies

What remedies are available to the government party for breach by the private party?

The remedies available to the public party for breach by the private party range from termination of the PPP agreement and enforcing liquidated damages clauses or deductions, to taking over the project or appointing a replacement private party. The scope of the remedies depends on the terms of the PPP agreement.

Termination

On what grounds may the PPP agreement be terminated?

The PPP agreement may usually be terminated (subject to the payment of a termination fee) under the following circumstances:

  • failure by a party to remedy an event of default;
  • a prolonged force majeure event;
  • a change in law;
  • public policy reasons;
  • material adverse government action not cured or remedied; and
  • convenience.

Is there a possibility of termination for convenience?

Yes, if prescribed by the PPP agreement. If not provided in the agreement, termination for convenience by either party would be treated as a breach by the party terminating.

If the PPP agreement is terminated, is compensation available?

As with other agreements, PPP agreements customarily provide for compensation in the event of termination. Generally, payment for termination is made by the public party to the private party, notwithstanding the cause of termination, especially after the construction phase. The amount of compensation, however, varies depending on the cause of the termination. The usual practice is that the amount is higher for termination for convenience and termination owing to default of the public entity (to deter termination). The compensation usually covers the total project cost plus the margins of the private party. For termination owing to default of the private party, the amount of compensation is lower (usually to cover repayment of debts but not equity funds expended on the project or profits) or no payment is made. The termination amounts will, however, be clearly stated in the contract.

Financing

Government financing

Does the government provide debt financing or guarantees for PPP projects? On what terms? Which agencies are responsible?

The government does not usually provide debt financing for PPP projects. However, depending on the requirements of the project, the government may provide payment guarantees to the private party or guarantee loan repayments to the lenders. Parliament is the final approval authority for PPP agreements that require payment guarantees or guarantees for any loans. The MoF is the government agency responsible for issuing such guarantees.

Privity of contract

Are lenders afforded privity of contract with the government party through direct agreements or similar mechanisms? What rights will lenders typically have under these agreements?

Lenders may enter into direct agreements with the government. The direct agreement may provide for the lender’s step-in rights or set out conditions under which the lender may be paid directly by the public party. Also, the direct agreement may provide for notification requirements where the lender must be notified of underperformance or default of the private party before the public party exercises its rights under the PPP agreement.

Step-in rights

Is there a mechanism under which lenders may exercise step-in rights or take over the PPP project? Are lenders able to obtain a security interest in the PPP agreement itself?

Lenders have the right to exercise step-in rights and are able to obtain security interests in the PPP agreement. Clear mechanisms are set out in the direct agreement that is entered into between the lenders and the government that provides for the exercise of step-in rights by the lenders.

Cure rights

Are lenders expressly afforded cure rights beyond those available to the project company or are they permitted to cure only during the same period and under the same conditions as the project company?

Direct agreements entered into by the lenders and government party customarily afford notice and cure rights beyond the cure period given to the project company.

Refinancing

If the private party refinances the PPP project at a lower cost of funds, is there any requirement that the gains from such refinancing be shared with the government? Are there any restrictions on refinancing?

There is no specific requirement for the sharing of the gains made by a private party with the public entity when refinancing the project at a lower cost. However, this can be negotiated between the parties. In some agreements, such refinancing can only be done with the consent of the public party and the agreement may provide for the sharing of the benefits. Alternatively, the public party may have the right to require refinancing where financing on better terms is available, in which case the benefit is shared. This depends on the terms of the PPP agreement.

Governing law and dispute resolution

Local law governance

What key project agreements must be governed by local law?

Under the proposed PPP Bill, agreements are required to be governed by the laws of Ghana in the following cases:

  • an agreement covering the award of rights, licences or concessions that are meant to enable a private party to build part or all of any infrastructure or works of any form, and to perform services in Ghana or on behalf of a public entity; and
  • where a public entity or a state-owned enterprise or any contracting entity is expected to receive the outputs from the private party under the PPP arrangement, whether such outputs are set out in an off-take agreement or otherwise.
Government immunity

Under local law, what immunities does the government party enjoy in PPP transactions? Which of these immunities can be waived by the government?

Other than diplomatic immunities or immunity from execution on diplomatic properties and missions, security and defence installations and petroleum facilities, government or public parties entering into PPP agreements are treated on similar terms as private parties entering into private commercial activities. In addition, PPP agreements usually provide that the public party or government irrevocably and unconditionally waives its sovereign immunities and agree that its execution and delivery of the agreement constitutes a private commercial act of the government.

Availability of arbitration

Is arbitration available to settle disputes under the project agreement between the government and the private party? If not, what regime applies?

Arbitration is available for the settlement of disputes between the private party and government party. The proposed PPP Bill provides that any dispute between a contracting entity and the private party after they have entered into a PPP agreement shall be settled through the dispute settlement mechanisms agreed by the parties in the PPP agreement or, failing such agreement, in accordance with the Alternative Dispute Resolution Act 2010 No. 798 or the applicable law on alternative dispute resolution mechanisms in force in Ghana at the time.

The usual practice is for the parties to have recourse to international arbitration rules and forums for the settlement of disputes, including the London Court of International Arbitration, the International Court of Arbitration and the United Nations Commission on International Trade Law.

Alternative dispute resolution

Is there a requirement to enter into mediation or other preliminary dispute resolution procedures as a condition to seeking arbitration or other binding resolution?

No. However, this provision is usually contractual. In many agreements, the parties set up a reconciliation committee to resolve disputes amicably, failing which parties have recourse to arbitration.

Special mechanisms

Is there a special mechanism to deal with technical disputes?

This is treated as part of the arbitration process or, in some cases, the parties to the agreement provide for determination by an expert appointed when a dispute of a technical nature arises or by means of an adjudication board.

Updates and trends

Key developments of the past year

What are the current issues of note and trends relating to public-private partnerships in your jurisdiction? Are there any identifiable trends in the financing of PPP projects in the jurisdiction?

Key developments of the past year56 What are the current issues of note and trends relating to PPPs in your jurisdiction? Are there any identifiable trends in the financing of PPP projects in the jurisdiction?

The option of undertaking or delivering specific projects under a PPP framework still remains one of the key options in Ghana, although it has been observed that the government’s position is to prefer other alternatives to PPPs, on the basis of accelerated or faster delivery of projects, since PPP arrangements are generally time-consuming. The financing mechanisms associated with PPP projects have not changed.