Generally

The construction contract in an international project financing serves to give the project company a fully completed and equipped facility. In addition, it provides for delivery by the contractor of a facility that satisfies specified performance criteria, for a fixed or predictable price, and completed on a specified date. To do so, the contract typically requires the contractor to provide all engineering and construction work, procurement of equipment and supplies, and start-up and testing.

The tension between the project company and contractor in a project financing is based on the turnkey nature of the construction contract: The contractor must deliver the project at a fixed or predictable price, on a date certain, warranted to perform at agreed levels. The contractor is, of course, concerned with the difficulty of predicting events that could delay project completion, increase the price, or reduce guaranteed performance. Thus, unless the contract price is extremely attractive (that is, the risk premium sufficiently high), significant objectives of the contractor in contract negotiation are to limit risks of any increase in the cost of the project, to ensure there are sufficient contractual excuses for late delivery, and to provide sufficient time to satisfy performance guarantees.

A customary reward to the contractor, in return for assuming these price, delay, and performance risks, is through a bonus payment. The project company pays a bonus payment to the contractor if the project is completed ahead of the scheduled completion date. In a project financing, the bonus concept must conform with the rights and obligations of the project company under the other project contracts.