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38 The US-Israel Legal Review 2019
ISRAEL: INFRASTRUCTURE, ENERGY & PROJECT FINANCE
e.g., indemnification for direct costs, schedule
extension in the respective agreement, etc.
• Force Majeure
– Contractual clauses designated
to minimize the liability and risk to the
Concessionaire in such situations as natural
catastrophes or unavoidable circumstances,
which interfere with the planned Works that
make it difficult for the Concessionaire to fulfill
its obligations, as further detailed below.
• An exception to the risk allocation principle,
whereby the party with the most control and
knowledgewill assume all/some responsibility, is
a Force Majeure Event. These types of events are
considered exceptional, beyond the reasonable
control of either party to the Concession
Agreement.
• The assumption is that neither party could have
foreseen and prevented an event of Force Majeure
and that such event shall directly affect the
performance of the works. To define an event as
a Force Majeure event, it needs to cause material
physical damage or destruction to equipment,
or materially delays the scheduled performance
of the works and/or the State’s obligations, or
materially interrupts the Services and/or the
State’s obligations.
• Although the definition of Force Majeure may
seem broad, there are some exclusions which are
common in the Israeli PPP/PFI/BOTprojects field,
such as strikes, labor disputes, boycott lock-outs
or their similar occurrences (which are not part of
a National Strike); inclement weather conditions
(except for natural disasters); physical conditions
or obstacles above/underneath the ground/sea
level (excluding large-scale oil contamination of
seawater). War and terror events shall also be
included explicitly in such definition, in line with
the customary practice and notwithstanding the
Israeli Supreme Court’s determination that such
events are foreseeable.
• Price Adjustment
– Bilateral clause to the
State and the Concessionaire providing that
all amounts and payments payable to either
party shall be linked and adjusted to the
applicable Indices basket (to be selected by the
Concessionaire at the tender stage).
RISK ALLOCATION REGARDING PERMITS
AND AUTHORIZATIONS
The responsibility for obtaining the permits and
authorizations of the competent authorities
required for the performance of the project is
allocated between the State and the Concessionaire
and its proxies. Obtaining building permits, for
instance, is usually imposed on the Concessionaire.
Regarding other authorizations from competent
regulatory authorities (e.g., the Ministry of
Environmental Protection; Water Authority) the
allocation is commonly shared by the State and the
Concessionaire.
RISK MITIGATION
Regarding the Concessionaire, a detailed
risk analysis at the tender stage (technical,
financial and legal) has to be made. Moreover,
the Concessionaire (and sometimes its proxies)
should issue clarification requests at the
tender stage for incorporation of the required
amendments, including, for instance, with respect
to limitations of liability and liquidated damages
and providing remedies for certain significant
risks. Additionally, the Concessionaire should
enter into EPC and O&M Turn-Key Contracts, with
lump-sum payment, on a back-to-back basis (which
in recent projects is mandatory according to the
tender provisions); obtain proper securities from
the EPC & O&M Contractors (Performance and
Warranty Guarantees – autonomous, irrevocable,
unconditional bank guarantees); obtain proper
insurance; and ensure that the project is a limited
or non-recourse project (it is important to note that
the BOT projects are financed mostly by external
finance entities, i.e. banks and institutional
investors which enter into limited or non-recourse
Regarding the Concessionaire,
a detailed risk analysis at the
tender stage (technical, financial
and legal) has to be made.