21.2.8.1 The Authority will in the circumstances referred to in Clause 21.2.7 (Retendering Election) be entitled to elect to sell (i.e. retender) the unexpired term of the Contract on its original terms and pay the proceeds of the sale (net of the Authority's costs) to the former Contractor.
21.2.8.2 Bidders would be invited to tender to the Authority for the provision of the Service set out in the Contract at the same Unitary Charge as that set out in the Contract. Since both the Service and price remain unchanged, the Authority will be no better and no worse off than it would have been had the Contract not been terminated, save for the disruption caused. If the Authority wishes to retender the Contract on the basis of a different Service, then the Authority will need to agree with the Contractor (and its lenders) any changes which would adversely affect the Contractor, or alternatively pay the Adjusted Estimated Fair Value of the Contract.
21.2.8.3 The Unitary Charge should be sufficient, in most circumstances, to represent a positive valuation from prospective bidders (and so generate a cash sum) since, particularly if termination takes place during the Service Period, bidders will not typically incur capital costs on the scale envisaged when the price was originally agreed. The private sector is, of course, familiar with the cashflow valuation techniques which would be used to assess the value of the Contract. These involve their valuing a number of factors, including the revenue stream of the Project, the capital and service costs they expect to incur (taking into account the conditions of the Assets), the perceived risks associated with the Project, financing costs and market appetite.
21.2.8.4 One of the concerns that the outgoing Contractor will have is that, in the period between the Termination Date and the date of the New Contract, there will be no income, finance costs will increase, the condition of the Assets may deteriorate (thereby detrimentally affecting their value) and the Authority will potentially be obtaining some value even though there is no Service (in that, even with the Authority itself performing the Service, a significant benefit exists). For that reason, the Authority should periodically pay a Post Termination Service Amount to the outgoing Contractor which should approximate to the value received in this interim period. The required approach is to take the Unitary Charge that was paid at the Termination Date and deduct from that both the costs of alternative provision of the Service and any rectification costs (allowing the Contractor the benefit of any rectified availability as a result of rectification costs being incurred).
21.2.8.5 To the extent that the term of the New Contract is the same as the unexpired term for the terminated Contract (i.e. the expiry date in the New Contract is later than that in the Contract by the amount of time the Retendering Procedure has taken) then any Post Termination Service Amounts should be deducted from the ultimate payment made. That is, once the estimated value of the post termination period to the Authority has been accurately assessed, this deduction is appropriate.
21.2.8.6 It may be, however, for operational reasons that a service requirement can, in fact, only be delivered for a period that expires on the original Expiry Date. In such circumstances, it would not be possible for the term of the retendered contract to be for a period equal to the unexpired term of the Contract. If it is not possible to relet for a period equal to the unexpired term (e.g. the Expiry Date of the original Contract is the date on which the Service ceases to be required) then the Post Termination Service Amounts should not be deducted from the Market Value of the Contract.326
21.2.8.7 As in the original procurement, the Authority will select the bid which represents best value (which should not simply be the highest price). Given the need for the outgoing Contractor to be protected and to give the Authority flexibility, the highest priced compliant tender is the amount paid by the Authority to the outgoing Contractor in compensation, even if the Authority decides to contract with a separate compliant tenderer offering better value for money and which has agreed to pay a lower price. In such a situation the Authority will have to have satisfied itself as to the value for money benefits of choosing such a tenderer. All things being equal, and provided bidders are able to show that they are capable of meeting the service requirements, the best priced compliant bid should win. The bid price, net of the Authority's own costs of retendering and any costs incurred in relation to running the Service prior to replacement of the Contractor (having taken into account non-payment of the Unitary Charge), will be paid to the former Contractor as compensation (this is defined as the Adjusted Highest Complaint Tender price in the drafting).
21.2.8.8 It is important that neither party is incentivised to delay the process by which market value is determined. These provisions help prevent such a delay occurring.
21.2.8.9 If the Authority elects to retender the Contract, the Authority will be responsible for and will control the retendering process. Consequently, if the Senior Lenders decide not to step in, or have subsequently stepped out without satisfying the requirements of Clause 21.2.7(b), they will cease to have any control over the transfer of the Contract to the new contractor. However, the Senior Lenders will be concerned to ensure that the Authority correctly follows the Tender Process so as to help ensure that a fair market value for the Contract is received. The Senior Lenders (through the Contractor) should therefore have the right to appoint a third party (the "Tender Process Monitor") to monitor the retendering process and report on its progress to the Contractor and Senior Lenders. Although the Tender Process Monitor should have the right to attend meetings, review tender process documentation and bids, the Authority should not be required to have regard to any representations made by the Tender Process Monitor in respect of the Tender Process.
Required drafting (including definitions) is as follows:
"Adjusted Highest Compliant Tender Price"327
means the Highest Compliant Tender Price less the aggregate of:
(a) any Post Termination Service Amounts paid to the Contractor to date;
(b) the Tender Costs; and
(c) amounts that the Authority is entitled to set off or deduct under Clause 12 (Set-off),
plus an amount equal to the aggregate of:
(i) all credit balances on any bank accounts held by or on behalf of the Contractor on the date that the highest priced Compliant Tender is received;
(ii) any insurance proceeds and other amounts owing to the Contractor, to the extent not included in (i); and
(iii) the Post Termination Service Amounts (if a negative number),
to the extent that:
(a) (i), (ii) and (iii) have not been directly taken into account in that Compliant Tender; and
(b) the Authority has received such amounts in accordance with the Contract.
means either:
(a) if Clause 21.2.8 (Retendering Procedure) applies, the earlier of:
(i) the date that the New Contract is entered into; and
(ii) the date on which the Authority pays the Adjusted Highest Compliant Tender Price to the Contractor, or
(b) if Clause 21.2.9 (No Retendering Procedure) applies, the date that the Adjusted Estimated Fair Value of the Contract has been agreed or determined.
means any tender submitted by a Compliant Tenderer that meets the qualification criteria notified under Clause 21.2.8(c).
means a tenderer who is a Suitable Substitute Contractor.328
"Highest Compliant Tender Price"
means the price offered by the Compliant Tenderer (if any) with the highest tender price329 and, if no Compliant Tenders are received, zero.
"Market Value Availability Deduction Amount"330
means for any month or part of a month, an amount equal to the availability deduction that was made to the Unitary Charge under [see Section 7 (Price and Payment Mechanism)] in the month immediately preceding the Termination Date, less an amount equal to any availability deduction that was made for an [available place] which was unavailable at the Termination Date but which has subsequently become available whether as a result of the Authority incurring Rectification Costs or otherwise.331
means, in respect of a month, the unitary charge payable during that month before any deductions under [see Section 7 (Price and Payment Mechanism)] but allowing for indexation under the [indexation provisions (see Clause 1.8.2(c) (Interpretation) and Section 15.2 (Indexation))].
means an agreement on the same terms and conditions333 as this Contract334 at the Termination Date, but with the following amendments:
(a) if this Contract is terminated prior to the Service Commencement Date, then the Service Commencement Date shall be extended by a period to allow a New Contractor335 to achieve Service Commencement;
(b) any accrued [performance points] and/or warning notices shall, for the purposes of termination only, and without prejudice to the rights of the Authority to make financial deductions, be cancelled;
(c) the term of such agreement shall be equal to the term from the [Termination Date]336 until the Expiry Date; and
(d) any other amendments which do not adversely affect the Contractor.
means the person who has entered or who will enter into the New Contract with the Authority.
"Post Termination Service Amount"337
means for the purposes of Clause 21.2.8 (Retendering Procedure), for the whole or any part of a month for the period from the Termination Date to the Compensation Date, an amount equal to the Maximum Unitary Charge which would have been payable in that month under the Contract had the Contract not been terminated, less an amount equal to the aggregate of:
(a) the Market Value Availability Deduction Amount for that month;
(b) the Rectification Costs incurred by the Authority in that month; and
(c) (where relevant), the amount by which the Post Termination Service Amount for the previous month was less than zero.338
means, for the purposes of any Termination Date that occurs during the Service Period, an amount equal to the reasonable and proper costs incurred by the Authority in a particular month or part of a month in ensuring that the Service339 is available.
means the reasonable and proper costs of the Authority incurred in carrying out the Tender Process and/or in connection with any calculation of the Estimated Fair Value of the Contract.
means the process by which the Authority requests tenders from any parties interested in entering into a New Contract, evaluates the responses from those interested parties and enters into a New Contract with a new service provider, in accordance with Clause 21.2.8 (Retendering Procedure).
means a third party appointed by the Contractor under Clause 21.2.8(e).
21.2.8 Retendering Procedure
If the Authority elects to retender the provision of the Project under Clause 21.2.7 (Retendering Election), then the following provisions shall apply:
(a) The objective of the retendering procedure shall be to establish and pay to the Contractor the Highest Compliant Tender Price, as a result of the Tender Process.
(b) The Authority shall (subject to any legal requirements preventing it from doing so) use its reasonable endeavours to complete the Tender Process as soon as practicable.
(c) The Authority shall notify the Contractor of the qualification criteria340 and the other requirements and terms of the Tender Process, including the timing of the Tender Process but shall act reasonably in setting such requirements and terms.
(d) The Contractor authorises the release of any information by the Authority under the Tender Process which would otherwise be prevented under Clause 26 (Information and Confidentiality) that is reasonably required as part of the Tender Process.
(e) The Contractor may, at its own cost, appoint a person (the "Tender Process Monitor") to monitor the Tender Process for the purpose of monitoring and reporting to the Contractor and the Senior Lenders on the Authority's compliance with the Tender Process and making representations to the Authority. The Tender Process Monitor will not disclose any confidential information341 to the Contractor or any other person (and shall provide an undertaking to the Authority to such effect as a condition of its appointment) but shall be entitled to advise the Contractor as to whether it considers that the Authority has acted in accordance with the Tender Process, and correctly determined the Adjusted Highest Compliant Tender Price.
(f) The Tender Process Monitor shall enter into a confidentially agreement with the Authority in a form acceptable to the Authority and shall be entitled to attend all meetings relating to the Tender Process, inspect copies of the tender documentation and bids and shall be required to make written representations to the Authority regarding compliance with the Tender Process. All representations shall be made by the Tender Process Monitor in a timely manner as the Tender Process proceeds. The Authority shall not be bound to consider or act upon such representations but acknowledges that such representations may be referred to by the Contractor in the event that the Contractor refers a dispute relating to the Adjusted Highest Compliant Tender Price to dispute resolution in accordance with Clause 28 (Dispute Resolution).
(g) For all or any part of a month, falling within the period from the Termination Date to the Compensation Date, the Authority shall pay to the Contractor:
(i) the Post Termination Service Amount for that month, on or before the date falling 10 Business Days after the end of that month; and
(ii) the Post Termination Service Amount for the period ending on the Compensation Date, on or before the date falling [20] Business Days after the Compensation Date.
(h) If any Post Termination Service Amount is less than zero then it shall be carried forward and shall be set off against any future positive Post Termination Service Amounts. If any such Post Termination Service Amount has not been set off on or before the Compensation Date then it shall be taken into account in the calculation of the Adjusted Highest Compliant Tender Price.
(i) The Authority shall require bidders to bid on the basis that they will receive the benefit of any outstanding claims under material damage insurance policies and amounts (if any) standing to the credit of the Joint Insurance Account on the date that the New Contract is entered into.
(j) As soon as practicable after tenders have been received, the Authority shall (acting reasonably) determine the Compliant Tenders and shall notify the Contractor of the Adjusted Highest Compliant Tender Price.
(k) If the Contractor refers a dispute relating to the Adjusted Highest Compliant Tender Price to dispute resolution in accordance with Clause 28 (Dispute Resolution), the Authority shall be entitled to enter into a New Contract. The Authority shall pay to the Contractor the Adjusted Highest Compliant Tender Price on or before the date falling [20] Business Days after it has been determined in accordance with Clause 28 (Dispute Resolution) and the Authority shall pay interest to the Contractor at the Senior Debt Rate on any amount of Adjusted Highest Compliant Tender Price which had been withheld, from the date specified in paragraph (I) below until the date specified in this paragraph (k).342 For the avoidance of doubt, where there is an agreed amount and a disputed amount in respect of the Adjusted Highest Compliant Tender Price the Authority shall (where it is agreed that the Adjusted Highest Compliant Tender Price is a positive number) pay to the Contractor the agreed amount no later than the date specified in paragraph (l) below, with the disputed amount being dealt with in accordance with this paragraph (k).
(l) Subject to paragraphs (k) and (o), the Authority shall pay to the Contractor an amount equal to the Adjusted Highest Compliant Tender Price no later than the date falling [20] Business Days after the date of the New Contract.343
(m) The discharge by the Authority of its payment obligation in paragraphs (i) and/or (j) above shall be in full and final settlement of all the Contractor's claims and rights against the Authority for breaches and/or termination of this Contract and the Project Documents344 whether under contract, tort, restitution or otherwise, save for any liability of the Authority which arose prior to the Termination Date that has not already been taken into account in the Adjusted Highest Compliant Tender Price.
(n) Subject to paragraphs (o) and (r) below, if the Authority has not paid an amount equal to the Adjusted Highest Compliant Tender Price to the Contractor on or before the date falling two years after the Termination Date then the following provisions of this Clause shall not apply to that termination and the provisions of Clause 21.2.9 (No Retendering Process) shall apply instead.
(o) If the Adjusted Highest Compliant Tender Price is zero or a negative number then the Authority shall have no obligation to make any payment to the Contractor and with effect from the time that the Authority gives notice of that event to the Contractor, the Authority shall be released from all liability to the Contractor for breaches and/or termination of this Contract and any other Project Document345 whether under contract, tort, restitution or otherwise save for any antecedent liability of the Authority which arose prior to the Termination Date (but not from the termination itself) that has not already been taken into account in determining the Adjusted Highest Compliant Tender Price.
(p) If the Adjusted Highest Compliant Tender Price is less than zero then an amount equal to the Adjusted Highest Compliant Tender Price shall be due and payable by the Contractor to the Authority on the date of the New Contract.346
(q) The Authority may elect at any time prior to the receipt of a Compliant Tender to follow the no retendering procedure under Clause 21.2.9 (No Retendering Procedure) by notifying the Contractor that this election has been made.
(r) If the Authority has received all bids from bidders under the Tender Process and has received a Compliant Tender but decides not to complete the Tender Process, it shall notify the Contractor of this decision and pay to the Contractor an amount equal to the Adjusted Highest Compliant Tender Price within [20] Business Days of such notification.
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326 If this is the case then the parties will have to fix a date for the new Contract to come into effect, so that tenderers can bid for a fixed term.
327 This definition sets out the adjustments which should be made to the Highest Compliant Tender Price before it is paid by the Authority.
328 As defined in Section 31 (Direct Agreement and Senior Lenders).
329 The tender price must be bid as a lump sum. If this were not the case then the Authority would have to fund the delay in payment of the compensation amount which is unlikely to represent value for money.
330 See Section 21.2.8.4 above.
331 This is effectively adding back to the Unitary Charge any such deduction. The Rectification Costs themselves are then deducted from the Post Termination Service Amounts.
332 This will require careful consideration if significant third party income or usage payments exist.
333 The New Contractor will take over from the Contractor as counterparty under the Contract and therefore take on all existing and antecedent liabilities (except in respect of Performance Points and Warning Notices). Any bidder will therefore conduct extensive due diligence over the Project for the purposes of correctly pricing its bid.
334 This should also include other documents entered into between the parties, where appropriate.
335 That is, time to complete is given if termination occurs prior to Service Commencement. If termination occurs during the construction period or rectification work is required following termination, but while the new Contract is in effect, then the remaining service period under the New Contract may be shorter than the unexpired Service Period under the existing Contract.
336 In projects in which the Service ceases to be required on or shortly after the original Expiry Date, then the term of the New Contract will be reduced and so Post Termination Service Amounts will not be deducted (or added back).
337 This payment is made both to ensure that the Authority is incentivised to expedite the retender and that any value received by the Authority is reflected post termination. Usage based payments will need to be addressed specifically.
338 A positive Post Termination Service Amount will occur where the cost incurred by the Authority in procuring the Service itself (including rectification costs) is less than the Unitary Charge. A negative Post Termination Service Amount will arise if the costs incurred in procuring the Service (including rectification costs) are greater than the Unitary Charge.
339 That is, in accordance with the output specification under the Contract.
340 The Authority may wish to define qualification criteria. See the Department of Health standard form PFI Agreement and equivalent NI standard form.
341 The parties will agree what constitutes "confidential information" when the Tender Process Monitor is appointed.
342 If there is an agreed amount and a disputed amount then the Authority should only be entitled to retain the disputed amount.
343 It may be that the Authority decides for value for money reasons to receive the capital sum over time. Even if this is the case the old Contractor should receive the capital sum bid (i.e. the Authority would have to demonstrate the value for money of the financing of such amounts).
344 Any other relevant contract should also be included here.
345 See footnote 343 above.
346 This right is granted to give the Authority a claim as an unsecured creditor of the Contractor and is not intended, or likely, to result in any significant recovery for the Authority.