11.2.1 The Unitary Charge will usually be made on a broadly level basis in accordance with the principles of value for money, whereas the need for capital replacement will only occur at intervals. The Unitary Charge will accordingly include amounts to cover the Contractor's anticipated future expenditure on maintenance, such as servicing plant and other more major refit maintenance.
11.2.2 The Contractor will therefore usually build up a sinking fund over some years, in anticipation of significant capital expenditure in future periods. It will usually be required to do so by its financiers, particularly where the maintenance risk is left with the Contractor and not passed to Sub-Contractors. The sums involved could be considerable.
11.2.3 Maintenance should be left firmly at the Contractor's risk and the Authority should not attempt to prescribe the quantum, location or availability of a sinking fund.167 The Authority should not require rights over any sinking fund established by the Contractor and should instead ensure that the maintenance requirement is adequately protected through payment and termination provisions.168 The Authority will wish to ensure that the Contractor is as equally incentivised to maintain the Assets in the later years of the Contract as it is to the early years. The Authority should have the ability to conduct a final survey towards the end of the Contract and withhold payment of the Unitary Charge if the Assets are not restored to the required maintenance standard.169
11.2.4 To protect themselves in the event of Contractor Default, the Senior Lenders will have a charge over the sinking fund as security (see Section 24.5 (Financers' Security)). The Contractor should look to its own resources first to repay its Senior Lenders, and so any compensation payable to the Contractor by the Authority on a termination should be reduced by all cash held by the Contractor, including amounts in sinking funds (see Section 22 (Calculation and Payment of Early Termination Payments) and the definitions of "Base Senior Debt Termination Amount" and "Revised Senior Debt Termination Amount " in Clause 1.8.1 (Definitions)). The Authority should not need any additional rights over the sinking fund.
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167 The Contractor may, however, be required to provide the Authority with details of the balance of the sinking fund in accordance with Clause 26.2 (Contractor's Records and Provision of Information).
168 If, however, the size of the Project (including associated maintenance obligations) is comparatively large in relation to the financial resources of a Contractor which is not relying on third party Senior Debt financing, the Authority may want to consider requiring a sinking fund over which it has secured rights. Similarly, if the term of the Senior Debt is significantly shorter than the term of the Contract, the Authority may wish to have secured rights over a sinking fund once the Senior Debt has been repaid in full.