33.1.1 Although the Authority should not generally seek to interfere in the management of the Contractor's affairs,598 the Authority should ensure that it understands how the Contractor is seeking to deliver the Service (both in terms of sub-contractual arrangements and financing), and be comfortable that those arrangements are (on an ongoing basis) sufficient to allow the Contractor to deliver the Service. Ultimately, termination of the Contract will always be the last resort for the Authority and such a remedy is no substitute for a thorough understanding and assessment by the Authority of how the Contractor proposes to deliver the Service to it.
33.1.2 Accordingly, the Authority (and its advisers) should conduct thorough due diligence over the Sub-Contracts and financing documents which the Contractor is seeking to put in place at the financial close. This is essential for several reasons, including the following:
• the amount of compensation payable to the Contractor on early termination will (except in the case of Contractor default) have reference to the amounts owed by the Contractor to its lenders under the financing documents. The Authority should therefore understand what those amounts will be and, in particular, understand how any breakage costs will be calculated.599
• the Authority may be seeking to retain the right to take over the Contractor's Sub-Contracts in the event of termination of the Contract or, more significantly, may have the benefit of a collateral warranty from the relevant Sub-Contractor. The Authority should conduct due diligence under the relevant Sub-Contracts to ensure that the principles agreed in the Contract are not undermined in the Sub-Contracts (i.e. the Sub-Contracts and the Contract are consistent); and
• the financing documents should reflect the terms of the financial model agreed at Financial Close. To the extent that there are discrepancies between the two, the Authority should make itself comfortable that the discrepancy is justified.
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598 But see clauses 16.11 (Changes to Project Documents and Financing Agreements)
599 See Section 21.1.3.7 (Compensation on Termination for Authority Default).