Compensation events and relief events in PFI/PF2
Compensation events and relief events in PFI/PF2

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • Compensation events and relief events in PFI/PF2
  • Context
  • Common features
  • Compensation events
  • Relief events
  • Link to insurance
  • Differences between PFI and PF2

This Practice Note examines the Compensation Event and Relief Event regimes under the Project Agreement in relation to a PFI or PF2 project. It looks at the features of each regime and the difference between them under PFI and PF2 (sometimes referred to as PFII).

In the 2018 Budget (delivered on 29 October 2018), it was announced that the government will no longer use PF2 on new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). However, existing PFI and PF2 projects will continue to run, and given the typical lifespan of such projects this is likely to be for many years.

Context

Compensation Events and Relief Events are two examples of 'supervening events'; events for which some relief is appropriate. The aim is to deal with the allocation of risks which may arise as a result of various unintended occurrences which adversely affect the Contractor's ability to deliver its obligations under the Project Agreement (or, by extension, the ability of its sub-contractors to deliver under their respective sub-contracts).

Such regimes have particular significance on PFI and PF2 transactions, where:

  1. the length of the contract term (even with the reduced terms under PF2) increases the risk of such supervening events occurring at some point during the term

  2. there tend to be relatively complex interfaces between the Contractor's obligations