29.4.1 If the Contractor is in breach of an obligation under the Contract, the Authority should notify the Contractor of such breach. This will generally occur through the monitoring arrangements and, in such circumstances, it is then up to the Contractor to rectify the breach within the agreed timetable.
29.4.2 If the breach gives rise to a need for the Authority to step in in the circumstances set out above (i.e. those set out in Clause 29(a) (Authority Step-In)) and the Contractor has failed to remedy the breach within the agreed time period, the Authority should have the right to step in and carry out such rectification itself (for example, using a third party) at the Contractor's expense.
29.4.3 Where the Authority steps in upon Contractor breach, the Authority should continue to pay the Contractor as where there is no breach (see Section 29.3.2). In addition, subject to Section 29.4.4 below, the full Unitary Charge should be paid for all aspects of the Service that are affected by the Authority's step-in, subject again here to the obligation on the Contractor to provide reasonable assistance to the Authority. The Contractor's obligation to perform such part of the Services should be suspended, though any existing right of the Authority to terminate for breach by the Contractor should not be affected.
29.4.4 The Authority should, however, be entitled to set off any costs it incurs in stepping in in such circumstances (i.e. for both costs of work and advice and for time devoted to running the operations) against the Unitary Charge payable to the Contractor. The Contractor should be relieved of its obligations to continue the running of the relevant part of the operation concerned while the Authority has stepped in.
Required drafting is as follows:
(e) If the Required Action is taken as a result of a breach of the obligations of the Contractor under the Contract, then for so long as and to the extent that the Required Action is taken, and this prevents the Contractor from providing any part of the Service:
(i) the Contractor shall be relieved of its obligations to provide such part of the Service; and
(ii) in respect of the period in which the Authority is taking Required Action, the Unitary Charge due from the Authority to the Contractor shall equal the amount the Contractor would receive if it were satisfying all its obligations and providing the Service affected by the Required Action in full over that period, less an amount equal to all the Authority's costs of operation in taking the Required Action.
29.4.5 The Authority should behave in a reasonable manner, taking into account the relevant circumstances (e.g. it should try to avoid action which would detrimentally affect any compensation payable to the Contractor on a termination) but an indemnity is only appropriate where the Contractor is not in breach.
29.4.6 The rights referred to here should not be used as a means to undermine the carefully structured termination arrangements and should tie in with such arrangements. If the breach subsists following the Authority's step-in, the Authority should be entitled to terminate for Contractor Default (see Section 21.2 (Termination on Contractor Default)) subject to any rights the Senior Lenders may have under the Direct Agreement (see Section 31 (Direct Agreement and Senior Lenders)).