Dissecting (and understanding) PPP Contracts No. 1: The Step-in Rights
When a government agency and a private-sector proponent (PSP) enter into a formal, often, long-term arrangement, the ultimate aim is to provide a public service. So it would be to the best interest of everyone, parties and nonparties alike, project lenders included, if the contract will be operative up to the time the stated period expires.
However, as history will teach us, glitches, to put it mildly, occur midstream. Public-private parnertship (PPP) contracts have been terminated, guarantees called upon, traffic projections become useless, tariff adjustments not realized, and the PSP performs below par.
In the latter instance, the “step-in” rights provision may be invoked. The insertion of step-in rights provisions, or protective or intervention schemes is a security mechanism, which provides comfort to stakeholders.
(1) Who steps out? The PSP is the one who steps out. In which case, the PSP, depending on the type of nonperformance, can no longer continue being the operator, builder or service provider.