Direct Agreement (see also Collateral Warranty) meaning

This Practice Note explores the purpose of a direct agreement in the specific setting of a PFI or PF2 project. It outlines the types of direct agreement commonly provided and explains how such an agreement operates, including the mechanics of step-in rights. It also clarifies the distinction between direct agreements and collateral warranties within PFI and PF2 arrangements. In the 2018 Budget (delivered on 29 October 2018), the government announced it would cease using PF2 for new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). This approach was confirmed in the National Infrastructure Strategy in 2020. Existing PFI and PF2 projects will nevertheless continue and, given their usual lifespan, are likely to run for many years. What are direct agreements? A direct agreement is a relatively brief tripartite contract. Its primary aim is to enable the beneficiary under that agreement to step into Project Co’s role—either directly or via a nominated substitute—where Project Co has defaulted under the principal project contract to...

Abandon Describes a situation where the contractor halts performing the works for an extended, uninterrupted span of days (eg 20 business days) or for a greater aggregate of non-consecutive days (eg 60 business days) across the project’s duration or within a stated timeframe (eg 12 months), doing so wilfully and without justification at any stage of delivery or execution. Abandonment is ordinarily treated as a contractor default, enabling the Authority to terminate the Project Agreement and/or permitting Project Co to end the construction contract immediately for cause. Acceptance Tests Tests carried out to confirm whether the facility (or another project asset) achieves the standards required for the Authority to deem facility complete and accept it. Access Protocol The protocol that Project Co must follow in order to obtain access to the buildings forming part of the project at any time during the term. For instance, on a social housing scheme or a school, prerequisites would have to be satisfied by Project Co before...

On construction schemes, it is routine for the contractor, principal sub‑contractors and consultants (together called warrantors in this Practice Note) to issue collateral warranties to a range of parties, including funders and purchasers (termed beneficiaries in this Practice Note). See Practice Note: What are collateral warranties? Collateral warranties establish a direct contractual relationship between the beneficiary and the warrantor. Without that link, a beneficiary would have no basis to pursue the warrantor if it fails to properly discharge duties under the building contract, sub‑contract or professional appointment, as applicable. Typically, a collateral warranty includes an undertaking mirroring obligations in the underlying agreement, and also addresses issues such as copyright licences, assignment, professional indemnity insurance, and, in some instances, a clause granting step‑in rights. This Practice Note sets out what step‑in rights involve, identifies which parties in a construction project are commonly given such rights, and outlines the usual procedure for triggering them. In addition to collateral warranties, step‑in rights are frequently incorporated into development agreements (for an...