21.2.7.1 Clause 21.2.7 gives the Authority a choice in certain circumstances whether to retender the Contract or not following termination. It would not be appropriate for the Authority to choose between these two methods of compensation if:
• there is no liquid market for similar PFI projects; or
• the Senior Lenders have stepped in and are using their reasonable efforts to find a buyer for the Contract.
The Authority should, however, in other circumstances have the right to elect whether to require retendering of the unexpired term of the Contract or to have the Contract valued on the basis of there being no retendering (i.e. which of Clause 21.2.8 (Retendering Procedure) and Clause 21.2.9 (No Retendering Procedure) applies) (e.g. if Senior Lenders decide not to step-in).
21.2.7.2 If there is no liquid market for the Contract or similar contracts, and the Contract terminates, then the procedure set out in Clause 21.2.9 (No Retendering Procedure) should be used.
21.2.7.3 There will be a liquid market for the Contract if there are a sufficient number of contractors in the prevailing PFI market (or markets for similar contracts to PFI Contracts)320 to ensure that the price that a Contractor will offer for the Contract is reasonably likely to represent a fair value.
21.2.7.4 The question is whether the market for contracts of this type in general is liquid (it is possible for there to be no bidders for a retendered Contract and there still to be a liquid market). If the Authority only receives one compliant tender then the amount that the compliant tenderer bids for the new contract should not automatically be rejected as not representing the fair value of the new Contract. The relevant test is not what happens at the end of the Retendering Procedure, but the state of the PFI market for similar contracts at the time the liquid market test is run. If there is a liquid market for PFI and the Authority elects to retender the Contract, the market will determine the Fair Value of the Contract (i.e. if there are no bidders for the retendering of the Contract, the market has, by definition, determined that the market value of the Contract is less than or equal to zero). The Senior Lenders are therefore incentivised to exercise their rights under their Direct Agreement with the Authority321 to ensure greater control by means of retendering of the Contract.
21.2.7.5 If the Contract is transferred to a new contractor via the Retendering Procedure, the price for which the Contract is to be sold will be determined through a competitive bidding process, controlled by the Authority. The Senior Lenders will generally prefer to control any transfer of the Contract, and the price achieved for the transfer, themselves. This they are permitted to do by stepping in under the Direct Agreement (see Section 31 (Direct Agreement and Senior Lenders)). Accordingly, the Senior Lenders are incentivised to exercise their rights of step-in and take control of the sale of the Contract to a new contractor.
21.2.7.6 Any dispute as to the existence of a liquid market for the Contract should be dealt with through the dispute resolution procedure (see Section 28 (Dispute Resolution)).
Required drafting (including definitions) is as follows:
means the amount at which an asset or liability could be exchanged in an arms length transaction between informed and willing parties, other than in a forced or liquidation sale.
means that there are sufficient willing parties (being at least two parties, each of whom is capable of being a Suitable Substitute Contractor) in the market for PFI contracts or similar contracts for the provision of services (in each case the same as or similar to the Contract) for the price that is likely to be achieved through a tender to be a reliable indicator of Fair Value provided always that any vehicle controlled and established by the Senior Lenders specifically for the purposes of this Project and to which this Contract may be novated shall be discounted in assessing whether there are sufficient willing parties in the market for such purposes.
21.2.7 Retendering Election
(a) Subject to paragraph (b), the Authority shall be entitled322either to:
(i) retender the provision of the Project in accordance with Clause 21.2.8 (Retendering Procedure); or
(ii) require an expert determination in accordance with Clause 21.2.9 (No Retendering Procedure).
(b) The Authority shall be entitled to retender the provision of the Project in accordance with Clause 21.2.8 (Retendering Procedure) if:
(i) the Authority notifies the Contractor on or before the date falling 20 Business Days after the Termination Date that it intends to retender; and
(ii) there is a Liquid Market, and either:
(A) the Senior Lenders have not exercised their rights to step in under Clause 5 of the Direct Agreement;323 or
(B) the Contractor or Senior Lenders have not procured the transfer of the Contractor's rights and liabilities under this Contract to a Suitable Substitute Contractor324 and have failed to use all reasonable efforts to do so,325
but otherwise the Authority shall not be entitled to re-tender the provision of the Project and Clause 21.2.9 shall apply.
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320 By definition, a liquid market must consist of more than one bidder. In the context of any new PFI project, the Authority will wish to ensure that there is at least one bidder in the market for similar contracts. This principle should also apply in this context and accordingly, a liquid market should only exist if there are at least two suitably qualified entities capable of bidding in the market. Advice should be taken from SIB on a case by case basis as to what would constitute a liquid market for a specific NI deal.
321 See Section 31 (Direct Agreement and Senior Lenders).
322 The presumption should be in favour of a retender.
323 See Section 31 (Direct Agreement and Senior Lenders).
324 As defined in Section 31 (Direct Agreement and Senior Lenders).
325 The Retendering Procedure should apply during both the construction and operational period.