Glossary terms

Availability-based projects

Projects which entitle a Private Partner to receive regular payments from a public sector client to the extent that the project asset is available for use in accordance with contractually agreed service levels.

Agreed damages

A specified monetary amount paid for a specific contractual breach that aims to compensate the injured party for the loss it suffers for such breach. Such amounts are agreed up front and in many common law jurisdictions must be a genuine pre-estimate of loss to withstand challenges that such regimes are unenforceable. Depending on the underlying legal system and jurisdiction, such agreed damages may be referred to as liquidated damages or, frequently in civil law jurisdictions, penalties.

Cap and collar arrangement

An agreement not to go above (cap) or below (collar) certain amounts in relation to a particular requirement (e.g. subsidy levels in the case of a cap and collar subsidy arrangement). There are also variations of cap and collar arrangements, for example, if toll revenue for a road exceeds a given cap, the excess revenue will be shared between the parties.

Compensation events

Compensation events are typically events which (i) result in a delay to specified dates in the construction period (such as the operation commencement date) or adversely affect performance of the service in the operating period and/or result in cost increases beyond those in the financial model and (ii) which are at the Contracting Authority’s risk as it is better placed than the Private Partner to bear and/or manage the risk. The compensation event regime enables the Private Partner to be given contractual relief through a corresponding extension of time (to the construction period or to the operating period) and/or through cost compensation, without having to resort to termination rights or other remedies. Cost compensation may be in the form of (subject to the applicable payment mechanism): an increase in the availability payment; a permitted increase in the user payments (subject to law and social and political ramifications); a reduction in fees paid by the Private Partner; or a lump sum payment by the Contracting Authority).

The principle is to compensate the Private Partner so that it is put back into the position it would have been in had the compensation event not occurred. As this principle applies to a number of contractual risks for which the Contracting Authority is responsible (including certain changes in law and Contracting Authority failures), PPP contracts in mature markets often address the consequences of such events under the same compensation event provisions to ensure consistency. Other contracts may treat the consequences of some of these events separately, or as is the case in some emerging markets, under a provision addressing a broader range of material adverse government action (which, unlike the typical compensation event regime, may also lead to a Private Partner termination right). Contracts in some jurisdictions (e.g. civil law jurisdictions) may achieve a similar result by relying on underlying law. Categorisation will vary according to the particular project circumstances and jurisdiction and the experience and stability of the market.

Compulsory acquisition

The process whereby the Contracting Authority does not give the local land owners a choice to sell their land, but rather uses its legislative powers to compel them to sell for a predetermined price. Also known as eminent domain or more broadly as expropriation (though expropriation by definition may not involve compensation).

Construction phase

The period from when the Private Partner takes control of the project site (typically by reference to the date of signing or effective date (if conditional) of the contract or the commencement of construction by reference to certain works) until the operation commencement date.

Contracting Authority

The government or other public sector entity (either acting in its own capacity or acting on behalf of the state) which contracts with the Private Partner under the PPP contract.

Developed market (mature/more developed/politically stable)

A jurisdiction or sector that has experienced successful financial close and operation of PPP projects, typically with a stable economy and fair and predictable legislative system. A jurisdiction which is politically and legally stable may not be a developed market in PPP terms, and/or may only be a developed market in certain sectors or contexts, but an emerging market in others.

Emerging market (less mature/developed/politically stable)

A jurisdiction or sector in which few PPP projects have been commenced, sometimes with a legal structure that can lead to a degree of unpredictability. A jurisdiction which is less politically and legally stable may not be an emerging market in PPP terms, and a jurisdiction may only be an emerging market in certain sectors or contexts, but a developed market in others.

Equator Principles

A risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects. It is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. These can be found at:


Monies used to finance a deal that are sourced from sponsors/shareholders (for example, raised through the issuing of shares in the Private Partner or its holding company), rather than though external debt (for example, from lenders).

Equity return

The amount of a company’s net income return, typically as a percentage of the shareholders’ equity.


Where the government takes privately owned property and declares it for public use. (See also Compulsory acquisition).

Finance documents

The key finance documentation for a project, which typically includes a loan facility agreement between the Private Partner and one or more lenders, an intercreditor agreement between the lenders, equity investors and Private Partner, direct agreement(s) with key subcontractors and security documents to secure the financing (e.g. by taking security over the asset in question or the rights in relation to the project as a whole, subject to local law and practice).

Force majeure

An event (or combination of events) typically outside the control of the contracting parties which prevents one or both parties from performing all or a material part of their contractual obligations. In some - typically civil law – jurisdictions, the definition may require the event to be unforeseeable or not reasonably avoidable. In PPP contracts, market practice is usually to define what qualifies as a force majeure event and its consequences, and the approach will depend on the relevant jurisdiction. In common law jurisdictions, the parties are typically free to agree whatever definition they choose. This is also the case in some civil law jurisdictions, although it may not be possible to derogate from the underlying law in others.

Government support

Where the government in the jurisdiction in which the project is based actively uses its powers to support the project and enable it to be financially viable/acceptable to lenders (e.g. by providing guarantees of the Contracting Authority’s (payment) obligations or minimum revenue support if the Private Partner is bearing demand risk and/or implementing other fiscal measures designed to stabilise any jurisdictional uncertainties that make the project not bankable (e.g. foreign currency protections and tax breaks).

Grace period

The period after an obligation is due for performance during which such obligation may still be performed without declaring an event of default and/or termination.

Hardship doctrines

Hardship doctrines are typically civil law principles which provide the Private Partner with relief where unexpected circumstances make performance more onerous without being impossible. For example, administrative courts in France will enforce the doctrine of imprévision which allows a party to claim compensation through an increase in contract price where the contract circumstances have changed due to events which were unforeseeable, beyond the parties’ control and have a fundamental impact on the economic balance of the contract. The circumstances are expected to be temporary and the contract may provide that imprévision can be invoked in accordance with case law or set out the financial threshold deemed to trigger the right to claim compensation (the Contracting Authority may also terminate the contract if the price increase is too significant or the situation is likely to last indefinitely).


Hedging instruments are used to limit exposure to a price or unit of value that fluctuates. These typically cover interest rate, foreign currency exchange rates or commodity prices and/or inflation.

Hedge break costs

The costs associated with terminating any hedging arrangements prior to their natural expiry payable by one party to the other party (these may be either positive or negative for the Private Partner).

Key performance indicators (KPIs)

These measure performance of the project and are typically referenced to the output and performance specifications which the Private Partner is incentivised to perform. If the Private Partner falls short of the key performance indicators then, typically, payment mechanisms will apply, such as deductions made from the Private Partner’s contractual payment entitlement or a penalty payable by the Private Partner. In the case of persistent or material circumstances a right of termination for the Contracting Authority may also arise.

Lenders/finance parties

These measure performance of the project and are typically referenced to the output and performance specifications which the Private Partner is incentivised to perform. If the Private Partner falls short of the key performance indicators then, typically, payment mechanisms will apply, such as deductions made from the Private Partner’s contractual payment entitlement or a penalty payable by the Private Partner. In the case of persistent or material circumstances a right of termination for the Contracting Authority may also arise.

Longstop date

A date which is tied to a prescribed time period after a scheduled date by which certain obligations must have been fulfilled. If the obligation is not performed by the longstop date, a right of termination will typically arise.

Operation commencement date

The date on which the operation of the project commences. This is, typically, once the construction phase of the project is successfully completed (usually determined by some form of independent certification and/or testing regime) and relevant commissioning has taken place successfully; the scheduled operation commencement date represents a target date, with failures to achieve that date having commercial consequences depending on the cause (see Works completions delays under Construction risk in the risk matrices).

Output specification

The Contracting Authority typically sets out a broad output driven technical specification in the tender documents and the contract, which requires the Private Partner to design and build the project in a way which satisfies the key performance indicators and ensures compliance with applicable legal requirements, good industry practice standards and, where applicable, minimum quality standards.

Performance specification

This sets out the levels (including quality) of performance at which the project must be operated throughout the life of the contract in fulfilling the output specification and typically includes key performance indicators.

PPP contract

The agreement between the Contracting Authority and the Private Partner outlining the scope and terms on which the project will be undertaken.

Private Partner

The entity from the private or commercial sector that contracts with the Contracting Authority to undertake the project.  In a project finance context, the Private Partner will typically be established as a special purpose vehicle that is incorporated specifically and only for the purposes of undertaking the project and owned by the sponsors.

Public-private partnership

A long-term contract between a Contracting Authority, and a Private Partner for the development and/or management of a public asset or service, where the Private Partner bears significant risk and management responsibility throughout the life of the contract, and where remuneration is significantly linked to performance and/or the demand or use of the asset or service. It covers both greenfield and brownfield projects. This definition includes projects where demand risk is passed entirely on to the Private Partner (also known as ‘user-pay’ projects or concessions), and projects that are based on availability payments by government irrespective of demand (availability-based projects). It also includes, for example, power purchase agreements where a government entity is the purchaser of the power.

Relief Events

Relief events are typically events which adversely affect performance by the Private Partner of its obligations at any time (by causing delays or increased costs beyond those anticipated in the financial model), in respect of which it bears the financial risk in terms of increased costs and reduced revenue but for which it is given relief from termination for the relevant failure. This can include events outside the Private Partner’s control, if it is in a better position than the Contracting Authority to mitigate and manage their consequences (e.g. through insurance and/or risk management). Relief events in mature markets typically include failures by utility providers, industrial action, power or fuel shortages, accidental loss or damage to the project and events such as fire, storms and floods, to the extent these are not categorised as other types of event such as force majeure or compensation events. Contracts in some (e.g. civil) jurisdictions may achieve a similar result by relying on, or reflecting, underlying law. Categorisation will vary according to the particular project circumstances and jurisdiction and the experience and stability of the market (and, for example, risks which are relief events in mature markets may be treated as force majeure risk in less developed markets).

Senior debt

This is borrowing (typically from lenders) by the Private Partner to finance the project, repayment of which generally takes priority over any ‘junior’ debt or equity (and particularly in certain circumstances, such as the insolvency of the Private Partner).


If one of the contracting parties owes monies to another contracting party, a right of set-off allows it to take account of amounts owed to it by the other party in calculating the amount it must pay.

This is an entity which is typically an initial developer of the project and an ultimate shareholder in the Private Partner. Sponsors typically include a member of each of the major project parties’ corporate groups, such as the construction sub-contractor and operating sub-contractor and may also include pure financial investors or funds. Sponsors will limit their liability through the Private Partner but may need to give limited support or guarantees in respect of the Private Partner or the relevant sub-contractor.


Contractual clauses that entrench certain legal provisions (such as the current tax regime) against any future changes in law, enabling foreign investors to protect themselves from such changes and a certain degree of political risk.


The price set for the project output as between the Contracting Authority and the Private Partner, or as payable by third party users (for example, electricity in the context of a project in the energy sector), often fixed by reference to either a predetermined rate or agreed formula.



Public-Private Partnership


Key performance indicators

GI Hub

Global Infrastructure Hub


Material Adverse Government Action


Public-Private Partnerships Fiscal Risk Assessment Model


European PPP Expertise Centre


United Nations Economic Commission for Europe


United Nations Economic and Social Commission for Asia and the Pacific