A design feature of PFI is a long term commitment to the provision of the contracted asset, maintenance and facilities management services. The long term nature of the commitment has the advantage of providing certainty for both the procuring authority and the supplier and also ensures that the asset is appropriately maintained over time. There may be instances, however, in which the authority's service requirements change, for example where there is a policy change or changing demographics that make some or all of the contracted assets or services redundant.
The current standardised terms have specific compensation arrangements for the voluntary termination of a contract by the contracting authority. In addition, SoPC gives guidance on the option of building in to the contract specified break points that are priced by the contractor at the outset. The market value principle used to calculate voluntary termination compensation reflects the full expected period of investment by the private sector under the original agreement, irrespective of how early or late in the contract the voluntary termination event arises. The option of priced authority break points is intended to provide greater transparency and certainty of costs to assist the public sector authority with budgetary planning. However priced break options have not been widely used in practice.
Question 40: Should there be more and/or earlier break points in contracts and what would be the expected pricing impact for the public sector? Are there specific points that break points should be linked to? Question 41: What are respondents' views on the current approach to determining voluntary termination compensation, are there alternative approaches that should be considered, in particular should there be differentiation in compensation amounts reflecting the point at which the termination arises? |