4.6.1 It is sometimes proposed that "bonus payments" should be paid for early Service Commencement, particularly where the Authority has required protections of the types described above against late Service Commencement. The term "bonus payment" can be misleading, however, so it is important to understand what is envisaged and how it ties in with the implications of early Service Commencement.
4.6.2 The key point for the Authority is that it should not be under an obligation to accept early Service Commencement (unless it has agreed to be). It should only accept early Service Commencement and payment of any relevant bonus if it offers value for money. Early Service Commencement may clearly prove good value for money if there is a critical demand for the Service or if it would benefit the Authority financially. This might be the case, for example, if the early start date meant the Project generated additional third party revenue, or the Contractor made savings, in which the Authority shared. Any benefit to the Authority should be assessed on a case by case basis.
4.6.3 There may be budgetary problems for some Authorities in accepting and paying for early Service Commencement. These should generally be surmountable, however, if sufficient warning is given by the Contractor of early commencement, particularly as the Authority would in many cases be sharing in extra revenue or savings.64
4.6.4 If the Authority decides to accept early Service Commencement, the Contractor's revenue stream will commence earlier than originally planned. The Authority will have the choice between bringing the Expiry Date of the Contract forward to retain the length of the original Service Period or retaining the original Expiry Date, thereby extending the original Service Period. This is where the "bonus payment" concept is relevant since:
• if the Authority retains the original Expiry Date, the Contractor will receive a "bonus" amount of revenue through the Unitary Charge payable in respect of the extra Service Period;
• if the Authority brings the Expiry Date forward, the Authority may either simply pay the Unitary Charge for the same length of Service Period (i.e. essentially what it would have paid originally), which involves a "bonus" element (as payment is being received earlier) or it may pay the Contractor a "bonus payment" equivalent to the additional amount the Contractor would have received if the original Expiry Date had instead been retained. The difference between this approach and the alternative outlined in the first bullet point is that this bonus would not be subject to deductions as a result of unavailability or poor performance. It would also be likely to be paid as a lump sum;
• the Authority may alternatively simply opt to make a "bonus payment" which is unrelated to the length of the Service Period or any additional amounts of revenue which the Contractor may expect to receive due to its early Service Commencement. Such a bonus would typically be an agreed fixed amount.65
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64 See also Section 8.5 (When Does Availability Commence?).
65 If "bonus payments" are to be made for early Service Commencement then the parties will need to consider what, if any, further compensation should be paid to the Contractor in circumstances where the occurrence of a Compensation Event prevents early Service Commencement (see Section 5.2 (Compensation Events)).