31.4.1 One key point is the extent to which performance points can continue to accrue when the Senior Lenders have stepped in.
31.4.2 The relevant approach depends in part on the issues referred to in Section 24.6 (Damages Claims) and the likelihood of any claims arising. To the extent the performance points accrual rate reflects the loss to the Authority, then by performance points being incurred, the Authority is protected. Its main concern in such circumstances is to ensure that it is not paying for the Service if it is not being provided.
31.4.3 To the extent this is the case, then relief from termination should be given for an extended period to allow rectification to occur, so that a significant period can be given to allow implementation of the rectification programme. Sufficient flexibility should be included in the Step-In Period so that default is not an inevitable consequence (for example, if one more penalty point triggers a termination, the Senior Lenders will be reluctant to step-in) and time is given to rectify, so allowing the Senior Lenders the opportunity to rectify.
31.4.4 The approach taken is that performance points should continue to accrue during the Step-In Period but that during any Step-In Period there should be a suspension (but not cancellation) of any performance points that accrued prior to the Step-In Date, but only for the purposes of triggering a termination (i.e. not in accruing deductions from the Unitary Charge). Although performance points will accrue during the Step-In Period, the Authority should not be able to terminate the Contract if the Senior Lenders are using reasonable endeavours to rectify any breach that arose prior to the Step-In Date but which is continuing. If the Senior Lenders subsequently step-out, the suspension of those performance points should be lifted.540 If the Authority does not have this protection and the Senior Lenders step-out because they no longer wish to rescue the Project, the Authority will need those points that accrued prior to the Step-In Date to be taken into account so as to ensure that the Authority has the ability to terminate the Contract. If the Step-In Period ends because of a transfer of the Contract to a Suitable Substitute Contractor, any accrued performance points will be cancelled for the purposes of triggering a termination.
31.4.5 To the extent that a rectification programme is being implemented (and so no termination right exists) it is possible that a refinancing may be required to incorporate, for example, new working capital.
___________________________________________________________________________
540 See Section 9.5 (Consequence of Poor Performance). The "wipe clean" of deductions for termination purposes should be limited to two occasions during the life of the Contract.