Compensation Event (Banking & Finance) meaning

A compensation event in PPP/PFI project finance is a contractually defined event in the project agreement that, if it occurs, entitles the project company (Project Co/SPV) to extra time, relief from timetable-related obligations and deductions, and payment to cover the loss or costs caused. It is not defined by statute or case law; it is a descriptive term used across UK and Irish PPP documentation and is flowed down on a back-to-back basis into the Construction/EPC and FM/O&M subcontracts. Typical compensation events include Authority breach, Authority-initiated changes (including scope/requirement changes), certain Changes in Law allocated to the Authority, delayed site access or utilities attributable to the Authority, and material errors in Authority-provided data. Remedies commonly comprise: extension of time, relief from availability/performance deductions and liquidated damages, and payment of evidenced costs (often including financing costs) to restore the Project Co’s economic position. Compensation events are distinct from relief events (time-only) and force majeure (usually time-only, with termination relief governed separately). Usage is broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland, though event lists, valuation mechanics, and notice/mitigation requirements vary by sector and procuring authority. In NEC construction contracts, the term has a separate contractual mechanism for adjusting price and...