Perspective | Special Report on Early Termination of PPP Projects — Policy and Regulatory Insights

On the legal level, the grounds for terminating PPP projects primarily include the "Administrative Litigation Law," the "Administrative Review Law," the "Civil Code," and the "Government Procurement Law," among others.

The "Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Administrative Agreement Cases" (hereinafter referred to as the "Several Provisions") defines government franchise agreements and public-private partnership agreements (agreements entered into through consultation between administrative agencies and citizens, legal entities, or other organizations, aimed at achieving administrative management or public service objectives and containing rights and obligations under administrative law) as administrative agreements, subject to the relevant provisions of the Administrative Litigation Law.

According to Article 12 of the Administrative Litigation Law, people's courts shall accept lawsuits filed by citizens, legal entities, or other organizations in the following cases: (11) when they believe that administrative agencies have failed to perform their duties according to law, have not fulfilled contractual obligations as agreed, or have unlawfully altered or terminated agreements such as government franchise contracts or land and property expropriation compensation agreements. Article 78 stipulates that if the defendant fails to perform its duties as required by law, does not fulfill contractual obligations as agreed, or unlawfully modifies or terminates the agreements specified in Item 11 of Paragraph 1 of Article 12 of this Law, the people's court shall order the defendant to assume responsibilities such as continuing performance, taking remedial measures, or compensating for losses.

According to Article 16 of the "Provisions on Several Issues," during the performance of an administrative agreement, circumstances may arise that seriously harm national interests or the public interest. If, after the defendant takes administrative actions to amend or terminate the agreement, the plaintiff requests the court to revoke such actions, and the people's court, after review, finds these actions lawful, it shall dismiss the plaintiff's claim. However, if the actions result in losses to the plaintiff, the court shall order the defendant to provide compensation. Article 17 stipulates that if the plaintiff seeks to terminate the administrative agreement, and the people's court determines that the conditions for termination—whether agreed upon or mandated by law—are met, and that such termination will not prejudice national interests, public welfare, or the legitimate rights and interests of third parties, the court may rule to dissolve the agreement.

The aforementioned relevant regulations provide a legal basis for the early termination of PPP projects through administrative litigation.

According to Article 27, Paragraph 2 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Administrative Agreement Cases": "When hearing administrative agreement cases, people's courts may refer to and apply relevant provisions of civil law governing civil contracts." Furthermore, Article 563 of the Civil Code stipulates that if any of the following circumstances exist, a party may terminate the contract: (1) Force majeure makes it impossible to achieve the purpose of the contract; (2) Before the expiration of the performance period, one party explicitly states or demonstrates through its conduct that it will fail to perform the primary obligation; (3) One party delays in performing the primary obligation and, after being urged, still fails to do so within a reasonable time frame; (4) One party’s delay in performing the obligation or other breach of contract renders it impossible to achieve the purpose of the contract; (5) Other circumstances prescribed by law. For indefinite-term contracts involving obligations requiring continuous performance, either party may terminate the contract at any time, provided that reasonable notice is given to the other party prior to doing so.

The aforementioned provisions of the Civil Code provide a legal basis for the early termination of PPP projects through civil litigation or by way of mutual negotiation.

According to Article 50 of the Government Procurement Law: "The two parties to a government procurement contract shall not unilaterally amend, suspend, or terminate the contract. If continuing to fulfill the government procurement contract would harm national interests or the public interest, both parties must amend, suspend, or terminate the contract. The party at fault shall bear the responsibility for compensation; if both parties are at fault, each shall assume their respective share of liability." Prior to the introduction of the new mechanism, most PPP projects selected social capital partners through government procurement processes, thereby falling under the regulatory framework and constraints of the Government Procurement Law. Under the aforementioned provision, if continuing to execute the government procurement contract would jeopardize national or public interests, both parties are obligated to terminate the contract. Since PPP projects inherently possess public welfare attributes, any prolonged stagnation in such projects will inevitably undermine the public interest. Therefore, both parties may, in accordance with Article 50 of the Government Procurement Law, choose to prematurely terminate the PPP project contract.

Article 50 of the "Government Procurement Law" provides a legal basis for the government to negotiate with social capital parties to terminate PPP projects.

According to Article 11 of the Administrative Reconsideration Law, citizens, legal entities, or other organizations may apply for administrative reconsideration under any of the following circumstances: (13) when they believe that an administrative agency has failed to enter into, properly fulfill, honor as agreed, or lawfully amend or terminate administrative agreements such as government franchise contracts or land and housing expropriation compensation agreements. General Secretary Xi Jinping presided over the third meeting of the Central Commission for Comprehensive Law-Based Governance, emphasizing the need to leverage the institutional strengths of administrative reconsideration—its impartiality, efficiency, convenience for the people, and its pivotal role in resolving administrative disputes. In accordance with the "Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Administrative Agreement Cases," PPP project contracts that qualify as administrative agreements can, in cases of early termination where the parties fail to reach a mutual agreement, rely on administrative reconsideration as a key mechanism to resolve disputes and restore fairness. For social capital entities, the administrative reconsideration process, with its option for higher-level review, offers the best chance to minimize the influence of local governments on judicial decisions.

On December 2, 2014, the National Development and Reform Commission issued the "Guiding Opinions on Promoting Public-Private Partnership Initiatives" (NDRC Investment [2014] No. 2724), simultaneously publishing the "General Contract Guidelines for Public-Private Partnership Projects (2014 Edition)" (hereinafter referred to as the "General Contract Guidelines") as an annex. According to Chapter 12 of the General Contract Guidelines, which outlines contract termination provisions, this chapter specifically addresses the grounds for contract termination, the termination procedures, as well as financial arrangements and project handover arrangements following contract termination. This chapter is an essential part of the project contract. In particular, Article 65 details the grounds for contract termination, stipulating that the project contract should clearly specify various circumstances that may lead to contract termination, including: (1) The occurrence of force majeure events that render contract performance impossible or prevent the parties from reaching agreement on contract amendments; (2) Significant changes in laws or regulations that make it impossible for the parties to agree on contract modifications; (3) Material breach of contract by one party, rendering the achievement of the contract's objectives unfeasible; (4) Bankruptcy liquidation or similar situations involving the private sector partner; (5) Mutual agreement among all parties to the contract; (6) Other reasons prescribed by law or agreed upon by the contracting parties.

The "General Contract Guide" outlines the grounds for terminating PPP project contracts and further clarifies the procedures and financial arrangements for termination in this chapter. Specifically, the financial arrangement provisions require clearly defining the methods for calculating compensation or damages under various contract termination scenarios, ensuring that such compensation reflects both liability for breach of contract and the transfer of benefits to the party not at fault. When assessing the amount of compensation or damages, fairness, reasonableness, and the principle of safeguarding public interest must be upheld. Additionally, an operational and practical formula for calculating compensation or damages could be developed.

On December 30, 2014, the Ministry of Finance issued the "Notice on Standardizing the Management of Government and Social Capital Partnership Contracts" (Cai Jin [2014] No. 156), simultaneously publishing the "PPP Project Contract Guide (Trial)" as an annex. Section 18 of the "PPP Project Contract Guide (Trial)" clearly outlines provisions regarding default events, grounds for early termination, and post-termination handling mechanisms. Currently, most existing PPP project contracts have been drafted in accordance with the content of the "PPP Project Contract Guide (Trial)." Although this document has since been abolished, its guidelines still hold significant value and relevance in providing guidance for the early termination of PPP projects.

On November 28, 2017, the National Development and Reform Commission issued the "Guiding Opinions on Encouraging Private Capital to Participate in Government and Social Capital Partnership (PPP) Projects," which stipulates in Article 6 that PPP project contracts must be signed in accordance with the law, ensuring they are standardized, effective, and comprehensive. These contracts should be drafted objectively, reasonably, thoroughly, and comprehensively, based on full consultation with private enterprises, shared benefits, and joint risk management. The agreement must clearly define the responsibilities, rights, and dispute-resolution mechanisms of all parties involved, rationally determine price-adjustment mechanisms, scientifically establish operational service performance standards, and effectively incorporate exclusivity clauses to ensure smooth project implementation. At the same time, PPP project contracts should not only regulate the investment behavior of private enterprises, guaranteeing the continuous and stable operation of the projects, but also ensure that private companies can promptly receive fair compensation—or even legally exit—should the government fail to fulfill its contractual obligations as required by law. Furthermore, throughout the entire lifecycle of PPP projects, supervision must be conducted strictly in accordance with relevant laws, regulations, and contractual agreements. Importantly, governments and investors are prohibited from entering into commitments such as guaranteeing the repurchase of invested capital or promising minimum returns. Any attempt to illegally or improperly use the PPP model to circumvent debt restrictions is strictly forbidden, particularly to prevent hidden debt risks associated with local governments.

The aforementioned document explicitly states, "ensuring that private enterprises can promptly receive fair compensation or even legally exit when the government fails to fulfill its contractual obligations according to the law." As a currently valid and authoritative regulatory document for PPP projects, it provides crucial grounds for the early termination of PPP projects, particularly offering a basis for social capital parties seeking compensation upon withdrawal.

On November 8, 2023, the National Development and Reform Commission and the Ministry of Finance jointly issued the "Guiding Opinions on Standardizing the Implementation of New Mechanisms for Public-Private Partnerships" (Guobanhán [2023] No. 115), hereinafter referred to as the "Guiding Opinions on the New Mechanism." Article 14 stipulates: "Standardize the procedures for amending franchise agreements and transferring projects. During the validity period of the franchise agreement, if it is indeed necessary to modify the agreement's terms, the parties involved must, based on mutual consent, legally sign a supplementary agreement. Upon expiration or early termination of the franchise period, handover or exit procedures shall be carried out strictly in accordance with the agreement and relevant regulations—under no circumstances should early termination be used as an excuse to covertly shift the franchise arrangement into a debt-financing model via the Build-Transfer (BT) approach." The "Guiding Opinions on the New Mechanism" clearly outlines the restrictive conditions governing the early termination of PPP projects under the new framework, explicitly prohibiting the use of such termination procedures as a backdoor channel for local governments to engage in off-budget borrowing.

On March 28, 2024, seven ministries including the National Development and Reform Commission and the Ministry of Finance jointly issued the "Administrative Measures for Franchising of Infrastructure and Public Utilities" (hereinafter referred to as the "Measures"), which stipulate in Article 41: "During the franchise period, if the franchisor is unable to continue fulfilling its contractual obligations due to serious breach of contract by one party to the franchise agreement or force majeure events, or if circumstances arise that trigger early termination of the agreement as outlined in the franchise contract, the agreement may be terminated ahead of schedule after reaching a consensus with the creditors." The "Measures" clearly outline the conditions under which both the government side and the social capital side can terminate the project early, providing a policy basis for mutually agreed-upon project terminations.

On August 16, 2025, the General Office of the State Council issued the "Guiding Opinions on Regulating the Construction and Operation of Existing Government and Social Capital Cooperation Projects" (Guobanhán [2025] No. 84), hereinafter referred to as the "Guiding Opinions on Existing Projects." Article 13 of the document stipulates: "Prevent all types of secondary issues. Local governments must take concrete measures to firmly avoid contract disputes and debt evasion, ensuring the legitimate rights and interests of all parties involved, including the government side, social capital partners, and financial institutions. Both the government and social capital parties should strengthen their commitment to contractual integrity and properly handle any contract terminations that may arise during the project term. If termination becomes necessary after thorough deliberation, both parties must engage in legal consultations and strictly follow the prescribed termination procedures. The government side should carefully select high-quality enterprises to seamlessly continue project implementation, preventing project stagnation or unfinished outcomes, and ensuring uninterrupted delivery of public services. Additionally, it is crucial to enhance policy communication and interpretation, promptly addressing public concerns. Any significant developments must be reported in a timely manner." The "Guiding Opinions on Existing Projects" further emphasize the importance of mutual contractual integrity, requiring that any early termination of existing PPP projects must rigorously adhere to due diligence and consultation processes—and mandates seeking a third party to assume project implementation responsibilities. While the document does not explicitly clarify whether this third-party entity can include local government-owned companies, its ultimate focus remains firmly on maintaining the continuous construction and operation of the projects.