Commercial Framework Summary

As noted in the contractual documentation section above, the RFP will often include a commercial framework summary that provides a plain English summary of the proposed risk allocation issues and key commercial principles of the project.  This document should be developed by the project team in advance of the contractual documents to ensure the key principles are agreed prior to commencement of legal drafting.

The commercial framework summary should address all key commercial principles including:

•  term - details the duration of the project, expected project commencement and termination dates and any extension or renewal periods if applicable;

•  payment mechanisms - sets out how the services delivered will be paid for. This is based on a principle that government starts making payments only when service delivery commences (i.e. post-commissioning) and that payments cease or reduce if key performance indicators are not met at the specified level. Payment mechanisms also support the risk allocation set out in the contract;

•  site issues - refers to the principles of risk allocation regarding site suitability and includes issues that may arise in site acquisition, environmental liabilities arising from site features (including contamination), heritage considerations, requirements related to planning and other approvals, and native title issues;

•  force majeure - sets out the regime for dealing with an event outside the control of either party, which prevents the private party from complying with its obligations under the contract;

•  change in law - refers to allocation of the risk that the agreed legal, policy and regulatory framework will change during the contract term which has a financial impact on the project;

•  modifications - sets out the regime through which government can make modifications to the project throughout the term, including the mechanism for appropriate reimbursement;

•  termination and step-in rights - sets out the circumstances and conditions under which government can terminate the agreement, or step in and assume service delivery obligations; and

•  end of term arrangements - covers the proposed arrangements at the end of the contract period in relation to assets owned by the private party. These arrangements could vary from a scenario where government and the private party are not subject to any predefined arrangements, to a defined transfer price for which government can purchase the assets.

Further information on the principles of risk allocation including the payment mechanism and further information on key commercial principles are contained in the guidance documents Roadmap for applying the commercial principles, Commercial Principles for Social Infrastructure and the Commercial Principles for Economic Infrastructure.