Public-Private
Partnerships
Contributing editors
Ivan E Mattei and Armando Rivera Jacobo2019© Law Business Research 2018

Public-Private
Partnerships 2019
Contributing editors
Ivan E Mattei and Armando Rivera Jacobo
Debevoise & Plimpton LLP

Reproduced with permission from Law Business Research Ltd
This article was first published in October 2018
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CONTENTS
Overview5Japan50

Ivan E Mattei and Armando Rivera Jacobo
Debevoise & Plimpton LLP

Miho Niunoya, Yuko Nihonmatsu, Shintaro Hamasu andMasayuki Matsuura
Atsumi & Sakai

Argentina6
M Lorena Schiariti
Marval, O’Farrell & MairalGeorge Etomi, Akasemi Ollor and Veronica Alaba Oyedeji
George Etomi & Partners

Bulgaria13
Asya Dyankova
Arsov Natchev Ganeva, Attorneys & Counsellors at Law

Jihong Wang
Zhong Lun Law Firm

Romania70
Marta Popa
Voicu & Filipescu SCA

Colombia25
Carlos Francisco Saavedra Roa and Ramiro Saavedra Becerra
Saavedra Becerra Abogados SAS
England & Wales

Spain75
Manuel López
Ashurst31

Adam Cooper, Richard Dyton, Simon Moore, Simon Kenolty,
Jack Rutherford, Louise McErlane, Shu Shu Wong, Sam Cundall,
Yeji Lee, EunJung Kim and Khalifa Aljabr
Simmons & Simmons LLP
Ghana39
David Ofosu-Dorte, Ferdinand Adadzi and Sena Agbekoh
AB & David
Greece45

2

Portugal65
Margarida Olazabal CabralMorais Leitão, Galvão Teles, Soares da Silva & Associados

China20

Vasilis Keramaris
Bahas, Gramatidis & Partners

Nigeria56

Turkey80
Senem Denktaş, Nihat Aral and Ahmet Zafer Yılmaz
Herguner Bilgen Ozeke Attorney Partnership
United Arab Emirates

87Mark Rocca
CMS Cameron McKenna Nabarro Olswang LLP
United States

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Ivan E Mattei and Armando Rivera Jacobo
Debevoise & Plimpton LLP

Getting the Deal Through – Public-Private Partnerships 2019
© Law Business Research 2018

PREFACE

PrefacePublic-Private Partnerships 2019
Fifth edition
Getting the Deal Through is delighted to publish the fifth edition of
Public-Private Partnerships, which is available in print, as an e-book andonline at www.gettingthedealthrough.com.
Getting the Deal Through provides international expert analysis in
key areas of law, practice and regulation for corporate counsel, crossborder legal practitioners, and company directors and officers.
Throughout this edition, and following the unique Getting the Deal
Through format, the same key questions are answered by leading
practitioners in each of the jurisdictions featured. Our coverage thisyear includes a new chapter on Greece.
Getting the Deal Through titles are published annually in print.
Please ensure you are referring to the latest edition or to the online
version at www.gettingthedealthrough.com.
Every effort has been made to cover all matters of concern toreaders. However, specific legal advice should always be sought fromexperienced local advisers.
Getting the Deal Through gratefully acknowledges the efforts of all
the contributors to this volume, who were chosen for their recognised
expertise. We also extend special thanks to the contributing editors,
Ivan E Mattei and Armando Rivera Jacobo of Debevoise & Plimpton
LLP, for their continued assistance with this volume.

LondonSeptember 2018www.gettingthedealthrough.com 3© Law Business Research 2018

JAPAN

Atsumi & Sakai

Japan
Miho Niunoya, Yuko Nihonmatsu, Shintaro Hamasu and Masayuki Matsuura
Atsumi & Sakai

General PPP framework
15

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?

Japan has what is called the Act on Promotion of Private FinanceInitiative (the PFI Act). However, there is some ambiguity regarding
PPP, for which there is no statutory definition. PPP is sometimes used
to describe projects that are not in the form of PFI. In practice, designbuild-operate and design-build-maintain type projects are commonlyused in addition to PFI. There are also projects such as ones in whicha government party leases land to a private party and the private party
carries out business on the land, or projects in which the government
party enters into a comprehensive contract with a private party for theoperation of public infrastructure. These all come under the umbrellaof public-private partnerships.
2

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

Public infrastructure categories subject to PPP transactions include:• transportation (airports, roads and harbours);• renewable energy generation systems;• water supply;• waste water treatment systems;• telecoms;• social infrastructure (schools, hospitals, government buildings,
prisons, tourism facilities, research facilities, sports facilities,
libraries and meetings, incentive travel, conferences, exhibitions
and events (MICE));• parks;• parking; and• satellites, etc.
3

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

PFI projects (including concessions) are carried out in accordance with
the PFI Act. Other PPPs are carried out without any specific legislative
framework. However, as the PFI Act and related guidelines set out indetail the procurement and evaluation processes for determining awinning bidder, PPP projects other than PFI tend to adopt procurement
or evaluation processes similar to those for PFI projects.
4Is there a centralised PPP authority or may each agency carryout its own programme?

Each agency carries out its PPP projects separately. However, there is a
department called the PFI Promotion Office within the Cabinet Office.
This department does not tender individual projects but formulates
bills or guidelines, supports authorities, provides information and generally works to ensure that there is an environment that encourages
PPPs, in discussion with each of the relevant government agencies forthe promotion of PFI projects (including concessions).

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

In addition to the national government, prefecture-level governments (including waterworks bureaus and prefectural police) and citylevel governments (including municipal schools and waste disposalorganisations), incorporated administrative agencies, incorporated
educational institutions, quasi-government bodies, etc, enter into
PPPs.
6

How is the private party in a PPP remunerated in yourjurisdiction?

The most common form of PPP projects in Japan is the ‘availability payments’ form, in which payment of compensation to the private party
is conditional upon whether the private party has provided services,
and it is irrelevant whether the facilities are used by users (known as‘service purchase type’). Stand-alone type projects, in which the privatecompany only earns income from user fees, have not been popular inJapan until recently. However, the ‘concessions’ system was recently
introduced upon amendment of the PFI Act in 2011 and has beenquickly increasing. Other forms of stand-alone type PPPs have also
been on the rise recently.
7

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

As described in question 6, in conventional PPP projects, the government assumes the revenue risk or usage risk for projects where thegovernment party pays compensation for services to the private party(known as ‘service purchase type’). However, in recent years, there
have been more projects where the private party assumes these risks
instead of the government under a stand-alone type project. There arealso projects in which the private party earns project income together
with subsidies from the government party (known as a ‘joint venture
type’), in which case, these risks are shared by both the government
and the private parties.
8

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

The budget of national and local governments of Japan is determinedby resolution every fiscal year. However, in most PPP projects, the government needs to pay costs that span two or more fiscal years. In suchcase, the government usually determines the budget for future payments by resolution of the legislative body at the stage of bidding for
the PPP projects. However, even in such a case, the government cannot
automatically make payments from such budget in the future but needs
to pass a legislative body resolution approving the expenditure for theyear in which it is actually made.
9

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

There is no specific cap for PPP transactions in Japan. However, ingeneral, it is perceived negatively for private parties to earn too much

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JAPANfrom PPP projects. Therefore, the agreement between the private party
and the government often includes a provision that requires the private party to share a portion of revenue from the PPP project over acertain amount.
10 Is the transfer of direct or indirect ownership interests in the
project company or other participants restricted?
There are no legislative restrictions. However, in practice, agreements
between the government and private parties for most PPP projects
require consent of the government for transfer of ownership interests.
Many projects also are conditional on the representative company of
the consortium continuing to maintain at least 50 per cent ownership
until the end of the project.
Procurement process
11 What procedures normally apply to a PPP procurement?
What evaluation criteria are used to award a PPP transaction?
Many projects use the type of bidding process that evaluates both priceand other elements of a proposal or an open-type proposal process. In
these schemes, a predetermined point system is used to evaluate bidders based on the price they present for bidding (price points) and the
proposals they submit for bidding (evaluation points), with the highestscoring bidder selected as the winning bidder. Proposals are commonly
evaluated by a review committee that includes external experts.
12 May the government consider proposals to deviate from thescope or technical characteristics of the work included in
the procurement documentation during the procurement
process, without altering such terms with respect to otherproponents? How are such deviations assessed?
Projects with a large technical component often require a technicalproposal. Where required, the procurement documentation will statethat a technical proposal is required and how such proposals will be
evaluated. Without such provisions, proposals cannot deviate from thescope specified in the procurement documentation. It is possible to use
the public question and answer process to ask the government about
proposals that deviate from the scope specified in the procurement
documentation (that is, to what extent deviation from the procurement documentation is allowable). Further, in some projects, theprocurement process affords bidders the opportunity for discussion in
a competitive dialogue.
13 May government parties consider unsolicited proposals for
PPP transactions? How are these evaluated?
As a result of the amendments to the PFI Act in 2011, unsolicited proposals from private companies are now accepted for PFI projects. If a
private party submits an unsolicited proposal in accordance with theprocedures set out in the PFI Act, the government party is obliged toconsider the proposal and to notify the private party of the outcome.
The method of evaluation is left to the discretion of each government
party but guidelines prepared by the Cabinet Office stipulate that
evaluation should take into consideration the necessity and feasibilityof the proposed transaction, whether it is appropriate to implement it
using PFI and the financial impact of the proposed transaction.
14 Does the government party provide a stipend for unsuccessful
short-listed proponents or otherwise bear a portion of theircosts?
There are no statutory provisions regarding such stipends, and they are
not generally paid in practice. However, there have been PFI projects
in which a stipend was paid to unsuccessful shortlisted proponents(including, for example, a PFI project for improvement of municipal
primary and secondary school facilities in the city of Yokkaichi, in
which bidders shortlisted for the first screening that were unsuccessful
in the second screening were awarded a ¥2 million proposal stipend).

15 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 toensure that the applicable PPP transaction, once awarded, isfinanceable?
Generally, the government party requires bidders to explain the sourceof funds and bidder financial stability for the project as part of their
proposals in the procurement process. Bidders will commonly submit
a project finance term sheet or a ‘commitment letter’ from their bankas an attachment to the proposal submitted to the government party.
16 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?
Normally, the government does not ask its counsel to provide a legal
opinion on the general enforceability of the PPP agreement, but it does
ask for a legal opinion on individual points at issue when implementing projects. There are cases where the government is asked to provide
representations on the enforceability of the PPP agreement, but that
depends on each case. The government often makes representations
on the enforceability of the PPP agreement in complicated, large-scale
projects such as hospitals, etc.
17 Are there restrictions on participation in PPP projects byforeign entities? May foreign entities exercise control over the
project company?
The WTO Agreement on Government Procurement applies to projects
ordered by the national government or ordinance-designated cities;
foreign entities cannot be restricted from participating in PPP projects.
In any other projects, while there are usually no such explicit controls on foreign entity participation, participation is often restricted tobidders with experience of handling similar projects of a similar sizein Japan or (especially in the case of local government) in the relevant
region, which effectively prevents foreign entities from participating insuch projects.
Design and construction in greenfield PPP projects
18 Does local law mandate that any particular form of contract
govern design and construction activities? Does it mandate
the choice of governing law?
Neither national nor local law mandates any particular form of contract for design and construction activities, although the PFI Promotion
Office provides standard terms.
Parties to contracts in Japan are free to choose the governing law of
their agreement.
However, the national government and local governments in Japan
designate Japanese law as the governing law in all projects, and projectcompanies accept this as a matter of course.
19 Does local law impose liability for design defects and, if so, on
what terms?
The legal nature of a design contract is disputed, with some arguing it isa contract for work and some saying it is a quasi-mandate (or otherwise)
under Japanese law. The two are different in that if a design contract isconsidered to be a contract for work, instead of a liability for non-performance of obligations, defect liability will apply with terms covering
liability without negligence and an exclusion period, while if it is considered to be a quasi-mandate, then instead of defect liability, if there
are defects in the design, liability for non-performance of obligations
will apply (without the terms of liability for negligence and period of
exclusion). Whether a design contract is a contract for work or a quasimandate will depend on the specific agreements among the parties, butthere appear to be more cases of design contracts being interpreted as
quasi-mandates.
20 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 theduration of warranties?
Where necessary, PPP agreements will contain defect liability provisions with regard to the facilities being provided in the project. The PPP

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agreement will usually also contain detailed provisions on the termsof the defect liability and the liability period. For national projects,
it is required by law to expressly include defect liability provisions in
the contract under the Cabinet Order on Budgets, the Settlement of
Accounts and Accounting.
If a PPP agreement itself does not contain any provision regarding
defect liability, then the rules of the Civil Code and the Housing Quality
Assurance Act apply.
Under the Civil Code, the duration of a contractor’s defect liability
is one year from the delivery of the subject matter, and if the subject
matter is a structure on land, the contractor is liable for defects in structure or ground for five years in the case of an ordinary structure or 10
years for any structures made of stone, earth, bricks, concrete and steel
and other similar structures. However, it is also provided that the duration of the contractor’s defect liability may be extended by contract to10 years under the Civil Code.
In the case of contracts to construct new homes, a special exception to article 638 exists that extends the duration of defect liability forimportant parts of the house in terms of structural integrity to 10 years
across the board under the Housing Quality Assurance Act.
It is provided in such provision that in general, if the subject matterdelivered by the project company contains any defects, the manager,etc, may demand that the project company repair such defects in thesubject matter within a certain period of time or claim damages fromthe project company instead of or in addition to repairs.
In Japan, there are cases where the PPP agreement will contain aprovision obliging the project company to procure from the construction company a guarantee stating that it will perform the defect liability
and submit this guarantee to the government party.

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

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

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

The parties may freely agree on liquidated damages for delays in theconstruction period. However, these may be unenforceable if theamount is found to be against the public order and morals.
It is common for the agreed liquidated damages (penalty) amountto be set to equal to the construction costs (or construction costs of theunfinished portion) multiplied by the rate set forth in article 8 of the Act
on Prevention of Delay in Payment under Government Contracts, etc(2.8 per cent per annum as of July 2016) prorated by the number of daysof the delay: that is from the scheduled delivery date (or the scheduled
commencement date of operation) to the date of actual delivery (or thecommencement date of operation).

The PFI Act requires that PFI agreements executed by local governments that meet certain criteria require a resolution by local government
council in advance. Furthermore, the Act on Prevention of Delay inPayment under Government Contracts, Etc, requires that government
contracts (including PFI agreements) contain provisions for the confirmation of completion or timing of inspection of the performance that isthe purpose of such contract, the timing of payment of compensation,
default interest, penalties and any other charges in the case of delayed
performance or non-performance of obligations by either party and themethod of resolving any disputes relating to such contract.
In addition to the above, the important laws and regulations that
apply to PFI agreements that are quoted in the ‘Guideline for Contract’issued by the Cabinet Office include:• the Local Autonomy Act (Act No. 67 of 1947);• the Act concerning State Liability for Compensation (Act No. 125
of 1947);• the Act on Access to Information Held by Administrative Organs(Act No. 256 of 1949);• the Public Accounts Act (Act No. 35 of 1947);• the Act for Promoting Proper Tendering and Contracting for Public
Works (Act No. 127 of 2000);• the Act on Guaranty Service Related to Advance Payment of Public
Works (Act No. 184 of 1952);• the National Property Act (Act No. 73 of 1948);• the Act on Management, etc of Claims Held by State (Act N0. 114 of
1956);• the Building Standards Act (Act No. 201 of 1950);• the Housing Quality Assurance Act (Act No. 81 of 1999);• the Civil Code (Act No. 89 of 1896);• the Companies Act (Act No. 86 of 2005);• the Construction Industry Act (Act No. 100 of 1949); and• the Licensed Architect Act (Act No. 202 of 1950).

22 What restrictions are imposed by local law on thecontractor’s ability to limit or disclaim liability for indirect orconsequential damages?
The law in Japan does not restrict a contractor’s ability to limit or disclaim liability for indirect or consequential damages.
23 May a contractor suspend performance for non-payment?
Usually, a contractor may not suspend performance for non-payment.
The Civil Code stipulates that delivery of the subject matter and thepayment of remuneration shall be performed simultaneously.
In many cases, a PPP agreement will contain a provision stipulatingthat facilities improvement costs shall be paid after the delivery of thesubject matter, and that completion and delivery of the facilities shallbe performed first.
24 Does local law restrict ‘pay if paid’ or ‘paid when paid’ clauses?
The prime contractor must in some cases pay its contractors, whether
or not it has received payment from the ordering party, and must do so
within 60 days of the provision of services in the case of design service
under the Act against Delay in Payment of Subcontract Proceeds, Etc
to Subcontractors or within 50 days of the proposed delivery of the subject matter in the case of building construction under the Construction
Industry Act.
25 Are ‘equivalent project relief ’ clauses enforceable under local
law?
Generally, such clauses are not enforceable under Japanese law.

52

Generally, the PPP agreement will contain a provision stipulating that if
the government party needs to change the scope of work, it shall notify
the private party giving its reason for the change and discuss the changeof scope, but if an agreement is not reached after such discussions, thenthe government party may change the scope of work by notifying theprivate party thereof. In this case, the private party’s increased costs or
damages are usually also borne by the government party, and contract
terms such as project schedule are also revisited.
27 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 theparties?
The law in Japan does not entitle either party to have a PPP agreement‘rebalanced’ or set aside.
Normally, in the case of an unforeseen event not attributable toeither party occurs, it is resolved upon discussion between the parties
or by applying a force majeure or change of law clause.
28 Are statutory lien laws applicable to construction work
performed in connection with a PPP agreement?
The method of creating a mortgage over concession rights is provided
in the PFI Act.
Other than the above, general laws such as the Civil Code apply tothe creation of security interests over facilities or special purpose company shares, etc.

Operation and maintenance
30 Are private parties’ obligations during the operating periodrequired to be defined in detail or may the PPP agreement set
forth performance criteria?
Private parties’ obligations during the operating period are rarely set
forth in the PPP agreement in detail. However, these obligations areusually detailed in service level specifications announced as part ofthe procurement documentation. The PPP agreement will usually
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incorporate service level specifications as a part of the PPP agreement,so effectively the private parties are required to comply with the obligations detailed in the service level specifications.
31 Are liquidated damages payable, or are deductions fromavailability payments possible, for the private party’s failure tooperate and maintain the facility as agreed?
In most cases, the government party is given the right to reduce thecompensation payable to the private party or to make a damages claim if
the private party fails to perform its performance obligations. However,the particular terms and amounts are usually determined separately foreach project. There is often also a provision stipulating that the private
party is obliged to pay default interest at the same rate as the defaultinterest rate applicable to the government party, as determined by legislation, in cases where the private party delays performance of a payment obligation.
32 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?
There are no such legal or customary requirements. However, it isoften set forth in the PPP agreement that the private party must deliver
the facilities in a state in which they can be operated for several years
and that the private party must cooperate with the government party
in order to ensure a smooth transition to operation by the government
party after handover.
Risk allocation
33 How is the risk of delays in commercial or financial closing
customarily allocated between the parties?
Risks associated with delays in contract closing are customarily allocated between the public and private parties depending on the causeof the delay except where risk allocation is expressly stated in the
procurement documentation. In other words, the government party
would normally assume risks associated with delays to contract closing
caused by the government party, and vice versa for delays caused by theprivate party.
The risk of failure to secure the funds necessary for the project iscustomarily borne by the private party, but if the private party is obliged
to make efforts to obtain financing (subsidies etc) for selected projects,
then the PPP agreement may also obligate the government party tomake efforts to cooperate with the private party in doing so.
34 How is the risk of delay in obtaining the necessary permits
customarily allocated between the parties?
The risk of delay in obtaining necessary permits for the private party tocarry out the project is customarily allocated to the private party, but
the PPP agreement generally also stipulates that if requested by theprivate party, the government party must cooperate with the private
party in obtaining permits as necessary, including provision of necessary documents.
35 How are force majeure and geotechnical, environmental andweather risks customarily allocated between the parties? Isforce majeure treated as a general concept relating to acts
outside the parties’ control or is it defined with reference tospecific enumerated events?
Force majeure and geotechnical, environmental and weather risks areallocated to the government party as a rule, but they are commonly allocated to the private party up to a certain percentage (often 1 per centof the amount of compensation for the private party). The definition offorce majeure is left to agreement among the parties.
36 How is risk for acts of third parties customarily allocatedbetween parties to a PPP agreement?
Risk for acts of third parties is normally allocated to either the public
or private party depending on whether such third party is under thecontrol of the public or the private party. For risk allocation in the casewhere a third-party act is considered to be a force majeure event, seequestion 35.

37 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?
Allocation of risk of changes to legislation
For any increase in costs because of changes to legislation, the parties
customarily identify legislation that is directly related to the selected
projects and generally allocate to the government party any increase incosts caused by changes to such legislation with the private party bearing cost increases because of changes to the other legislation that affectprivate companies generally.
Allocation of risk of changes to taxation
In the case of cost increases because of changes in the consumption tax
rate, which is payable separately from the compensation amount, thisis customarily borne by the government party. There may also be cases
where the government party bears cost increases because of taxation
changes applicable to ownership of properties or because of the introduction of new taxes. Cost increases because of changes in taxation
applicable to the private party’s profits, such as changes in the corporation tax rate are customarily borne by the private party.
Allocation of inflation and interest rate risk
The PPP agreement will often provide a benchmark price level or interest rate level for the parties, and stipulate that the parties may instigate
a review if the change exceeds a certain level.
It is customary for the private party to raise funds at a fixed interest
rate under an interest rate swap agreement and at present, the interest
rate swap market mostly consists of transactions with terms of 15 years
or less. For this reason, in the case of projects with longer loan terms,
it is customary to incorporate a mechanism for adjusting the compensation amount to reflect future changes in interest rates (such as byrevising compensation after the passage of 10 years based on the fixedinterest rate for the remaining term, or revising compensation every
five years for the following five years).
38 What events entitle the private party to extensions of time toperform its obligations?
As a rule, the private party is not entitled to propose extensions to theproject period.
However, if it is necessary to extend the construction period
because of force majeure or changes to legislation, the private party
may make a request to the government party, and after discussion
with the government party, a decision may be reached to extend theconstruction period. If no agreement is reached after such discussion,
the government party can usually determine a reasonable construction period unilaterally and the private party must comply. In this way,even in the case of changes to design or delays in the commencementof construction because of force majeure, changes to legislation or acause attributable to the government party, extension of the construction period is not necessarily guaranteed.
39 What events entitle the private party to additional
compensation?
As a rule, the private party is entitled to receive compensation forincreased costs in the case that the increase is caused by the government party. In the case of an increase in costs because of force majeureor changes to legislation, subject to the risk allocation described inquestions 35 and 37, the private party is generally entitled to receive
compensation for its increased costs.
40 How is compensation calculated and paid?
Compensation is calculated based on the total cost of the project proposed by the private party in the procurement process (construction
costs, maintenance, management and operation costs, fundraising costs and profits of the private party). The timing and number ofcompensation payments vary but are generally handled by dividing
the costs into construction costs and maintenance, management andoperation costs.

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Update and trends
The Act for a Partial Amendment to the Act on Promotion of Private
Finance Initiative was enacted in June 2018, which takes measures
for the promotion of provision of public facilities through theutilisation of private finance, management abilities and technicalcapabilities such as the following:•
enhancing supporting functions of the national government
to an administrator of a public facility and private
business operators;•
special provisions of the Local Autonomy Act for cases
where an operator of a public facility is also a designatedadministrator; and•exemption of compensation for early redemption of local
government bonds lent to local governments in relation to thewater works business.

41 Are there any legal or customary requirements for projectagreements to specify a programme of insurance? Whichparty mandatorily or customarily bears the risk of insurance
becoming unavailable on commercially reasonable terms?
Insurance is not legally mandated. However, in practice, the private
party is commonly required under the procurement documentation to
obtain, at its responsibility and calculation, three types of insurance.
These are, namely:• construction insurance (covering damage to the facilities arisingduring construction);• third-party liability insurance (covering bodily injury or property
damage incurred by third parties as a result of performance of construction or defects in the use or management of the facilities); and• performance guarantee insurance (covering penalties payable by
the private party to the government party as a result of cancellationof the PPP agreement because of the private party’s non-performance of its obligations).
In addition, in the case of build-operate-transfer projects where thefacilities are transferred to the government party after completion of
the project, it is customary to require the private party to obtain insurance relating to preservation of the facilities, such as fire insurance, etc,
and other insurance may be obtained at the discretion of the private
party as necessary.
Default and termination
42 What remedies are available to the government party forbreach by the private party?
The PPP agreement will often stipulate that if as a result of monitoring
the private party’s performance of its obligations, it does not meet therequired service level specifications and it is found to not be in compliance with the PPP agreement, then the government party may request
improvement from the private party in accordance with processes
prescribed in the PPP agreement. If the private party fails to make therequisite improvements, then the government party can usually escalate the matter by suspending payments or reducing the amount ofcompensation, claiming damages, then instigating a change of service
provider, and ultimately terminating the PPP agreement.
43 On what grounds may the PPP agreement be terminated?
A PPP agreement is generally a long-term agreement that does not terminate until the end of a specified contract term. However, even during
the contract term, the PPP agreement may be terminated in cases where
the relationship of trust between the parties is lost and it becomes difficult to continue the contractual relationship, or where it becomes
impossible to carry out the project. Various termination events can be
included, but the following events are some common terms:• agreed events enabling the government party to terminate becauseof the private party:• lengthy delay in the commencement of design or construction;• lengthy delay in the completion and delivery of facilities;• non-performance of obligations relating to maintenance, management and operation services; and• the official commencement of insolvency proceedings withrespect to the private party;

54•

agreed events enabling the private party to terminate because of
the government party:• non-payment of compensation; and• a material breach of contract by the government party remaining unremedied and causing difficulty for the private party tocarry out the project; andall or part of the obligations of the private party under the PPP
agreement becoming impossible to be performed because of force
majeure or changes to legislation.

44 Is there a possibility of termination for convenience?
It is customary to provide a provision allowing the government party
the discretion to terminate the PPP agreement upon prior notice to theprivate party at least a certain period of time in advance if it becomesno longer necessary to carry out the project or it becomes necessary to
repurpose the facilities because of changes in policy of the government
party or changes in demand from citizens. However, allowing the government party to retain the right to terminate at its convenience is anunforeseeable risk for the private party, so it is necessary to carefully
consider the scope and amount of damages that the private party canclaim if the government party decides to exercise this right.
On the other hand, the private party is not customarily given theright to terminate at its convenience.
45 If the PPP agreement is terminated, is compensation
available?
The situation regarding compensation varies, but in general, if a PPP
agreement is terminated, the party that incurred damage because of
the termination may claim damages depending on whether it was theparty that caused the termination. In particular, in the case of termination because of the private party, the Public Accounts Act and the
Cabinet Order on Budgets, the Settlement of Accounts and Accounting(in the case of the national government) and the Local Autonomy
Act (in the case of local government) require that the PPP agreement
contains provisions regarding damages for the private party’s nonperformance of obligations. As a result, it is customary to provide in
the PPP agreement that the private party must pay a certain amount inpenalties to the government party.
Financing
46 Does the government provide debt financing or guarantees
for PPP projects? On what terms? Which agencies are
responsible?
National and local governments are basically prohibited from providing guarantees to private entities; nor do they provide debt finance.
However, in PPP projects, government parties sometimes effectively
provide financial support to private parties, by leasing public land to
the private parties at a low price, for example. This depends on the specifics of the project. The government party will announce the amountof support (if any) in the PPP procurement documentation in advance.
47 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?
There are cases where the lender directly executes an agreement withthe government party. Generally, the following rights of the lender or
the government party are agreed upon:• the government party allows the lender to create a security interest
over the private party’s assets or shares;• the lender notifies the government party of the occurrence of anacceleration event under the loan agreement, in which case, thelender and the government party discuss handling;• where the government party has the right of termination under the
PPP agreement, the government party notifies the lender before
exercising the same, and if it does, the lender and the government
party discuss handling; and• where the lender steps in using its security interest, the government party may discuss the matter with the private party.

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Atsumi & Sakai

JAPAN

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

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

When a project is financed using project finance, a mechanism usuallyexists for the lender to step in to the PPP project. The lender executes
an agreement giving it an option to assume the private party’s contractual position, or to cause a third party designated by it to succeed tothe private party’s contractual position under the PPP agreement forthe purpose of securing its loan receivables. In this way, lenders cansometimes step in to take over a PPP project using the right under theabove-mentioned agreement when the loan is accelerated.

Under local law, the government party has no right to enjoy civil
immunities in PPP transactions. In the case of wilful misconduct ornegligence on the part of any individual public official in the performance of his or her duties, the individual would not be liable to theprivate party but the government party would.

49 Are lenders expressly afforded cure rights beyond thoseavailable to the project company or are they permitted to cureonly during the same period and under the same conditions
as the project company?

The draft agreements that are disclosed in the procurement documentation as those that the government and the private party are required
to execute (including the project agreement, operating service agreement and construction agreement) will generally stipulate that any
dispute between the national or local government and the private party
shall be submitted to the exclusive jurisdiction of the relevant district
court. Arbitration is not generally used. It is often provided in construction agreements that disputes are to be submitted to arbitration by theCentral Construction Work Disputes Committee, but this committee
is a special agency established solely for construction work disputes
under the laws of Japan and is different in nature from general arbitration as understood in international agreements.

Lenders are not afforded special cure rights. However, when the government party can exercise the right of termination under the PPP
agreement as described above, the lender may hold discussions withthe government party for a certain period of time under a direct agreement. If handling is agreed during this period, the lender may avoid
termination and step in or have a new operator assume the projectcompany’s position.
50 If the private party refinances the PPP project at a lower costof funds, is there any requirement that the gains from suchrefinancing be shared with the government? Are there any
restrictions on refinancing?
Gains from refinancing do not need to be shared with government
parties. There are no restrictions on refinancing. However, theproject company is required to cause the new lender to assume the previous lender’s contractual position under a direct agreement with thegovernment agency, or to enter into a new direct agreement with thegovernment agency.
Governing law and dispute resolution
51 What key project agreements must be governed by local law?
Generally, all agreements that the private party is required to executewith the government party in the procurement documentation (including project agreement, operating service agreement and construction
agreement) must be governed by local law. It is generally stipulated in
the procurement documentation that these agreements are to be governed by the laws of Japan. On the other hand, agreements between
private parties not required to be disclosed in the procurement process
may be governed by the laws of other jurisdictions unless otherwise
required in the procurement documentation.

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

54 Is there a requirement to enter into mediation or otherpreliminary dispute resolution procedures as a condition toseeking arbitration or other binding resolution?
In short, there are no such legal requirements. However, the abovementioned draft agreements disclosed in the procurement processoften stipulate that disputes among the parties are to be resolved upon
discussion in good faith. This good-faith discussion clause is not a legal
requirement before seeking lawsuit or arbitration but doing so is thesocially accepted process. Further, construction agreements often stipulate that mediation should be conducted through a mediator selectedby the parties or Central Construction Work Disputes Committee prior
to arbitration by the above-mentioned Committee.
55 Is there a special mechanism to deal with technical disputes?
Disputes in relation to construction agreements are often subject
to arbitration awards rendered by the Central Construction Work
Disputes Committee. There is no other special mechanism to resolve
technical disputes. However, appeals relating to patent rights, utility model rights, layout-design exploitation rights for semiconductor
integrated circuits and the right of the author of computer programs
are subject to the exclusive jurisdiction of the intellectual property
high court.

Miho Niunoya
Yuko Nihonmatsu
Shintaro Hamasu
Masayuki Matsuura

miho.niunoya@aplaw.jp
yuko.nihonmatsu@aplaw.jp
shintaro.hamasu@aplaw.jp
masayuki.matsuura@aplaw.jp

Fukoku Seimei Building (Reception: 16F)
2-2-2 Uchisaiwaicho, Chiyoda-ku
Tokyo 100-0011
Japan

Tel: +81 3 5501 2111
Fax: +81 3 5501 2211
www.aplaw.jp/en/

55

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