Construction contract: Projectco will enter into the construction contract with the contractor under which Projectco`s construction obligations from the project contract will be transferred to the contractor. Agreements on government guarantees have emerged as an extension of the approach that underlies the direct agreement of lenders. Guarantee agreements are concluded between the Authority and the contractors who enter into a contract with Projectco. The objective is that if projectco does not meet its contractual obligations during the construction phase, the support of Projectco`s corresponding mission can guarantee the completion of the project. In addition, the Authority may take over Projectco`s operating contract at the end of the project. Direct agreements are also commonly referred to as “tripartite agreements,” reflecting the fact that it is an agreement between three parties, i.e. host governments and contracting powers: the government of the country where the project is based will likely be involved in granting authorisations and authorizations both at the beginning and throughout the duration of a project. The awarding entity is the contracting authority that enters into the project agreement with Projectco. Financing agreements: The facility agreement is the main document between lenders and Projectco and contains the terms of project financing.
Lenders will also need a security package and guarantees to protect borrowed funds. The loan agreement is discussed in more detail in our separate out-law guide on key issues for lenders in project financing contracts. A direct agreement is an agreement that gives the project`s funders direct rights to some of the project`s important documents. These rights are explained in direct agreements in project financing operations – turnkey provisions. Direct agreement often involves changes to the underlying project documents. This is particularly the case for concession contracts in which the project company obtains the concession before the lenders make a strong commitment. Funding often follows the award of the concession and lenders may require changes to the risk allocation in the concession contract in order to make the project bankable. Partial contracts: Projectco has contracted several subcontractors to cushion the risks it takes under the project agreement. It is customary for Projectco not to perform any of the most important activities, but rather to be a vehicle for the design of project contracts – hence the term “assignment vehicle.” In addition to this guarantee, project lenders generally expect direct contractual relationships with counterparties with key project documents. This goal is achieved through direct agreements. The direct agreement of the lenders: this is a three-way agreement between the Authority, Projectco and the lenders, under which the Authority agrees to grant lenders a deadline for the early termination of the project agreement. This agreement will also provide lenders with the opportunity to intervene directly or through a candidate or representative to resolve the termination event or to find another party that is acceptable to the Authority to assume Projectco`s rights and obligations under the project agreement.
By Katie Liszka If direct agreements are used in project financing operations to protect lenders, the project should be in trouble. These are contractual mechanisms that allow lenders to follow in the footsteps of the project company (the borrower) and take over the project and/or find a replacement unit to continue the project. The parties to the direct agreement include the project company itself and the consideration for the project document for which the direct agreement is a security. ]]] > service contracts: Projectco enters into service contracts with service providers and passes on to those contractors the service obligations imposed on them under the project agreement.