3.2 Within one (1) month of receipt of a Variation Enquiry or (if the provisions of paragraph 3.1(b) apply) within one (1) month of the Board confirming that it wishes Project Co to proceed with responding to the Variation Enquiry or in either case such longer period as may be agreed by the parties or determined in accordance with Part 26 of the Schedule (Dispute Resolution Procedure) as reasonable given the nature of the Variation Enquiry and all other relevant considerations168, Project Co shall either:
(a) give notice to the Board's Representative that it objects to the Variation Enquiry stating the grounds of the objection. Project Co may only object to a Variation Enquiry on one or more of the following grounds169:
(i) that implementation of the Variation would materially and adversely affect the health and safety of any person; or
(ii) that implementation of the Variation would:
(aa) infringe any Law; or
(vii) (bb) cause any existing Consent (which is not reasonably likely, on a balance of probabilities, to be capable of modification) to be revoked; or
(cc) require a new Consent which will not (using all reasonable endeavours) be obtainable; or
(dd) have a material and adverse effect on the performance of the Project Operations (except those Project Operations which have been specified as requiring to be amended in the Variation Enquiry) in a manner not compensated pursuant to this Part 22 of the Schedule; or
(ee) be a departure from Good Industry Practice;] or
(iii) that the Board does not have the legal power or capacity to require the Variation to be implemented or to do anything envisaged by this Part 22 of the Schedule in respect of, or in connection with, the Variation; or
(iv) in the case of a Variation Enquiry where the Board has stated an intention that Project Co should obtain finance, either that Project Co has performed its obligations under paragraphs 1.1 and 1.2 of Section 2 of this Part 22 of the Schedule and that finance is not available at the date of such notice to Project Co to implement the Variation, or that Project Co has not yet performed such obligations in which case the provisions of paragraph 3.3 of Section 1 shall apply; or
(v) that the Variation would, if implemented, result in a change in the essential nature of the Hospital170; or
(vi) that the Variation Enquiry does not comply with paragraph 2 of this Section 1; or
vii) in the case of:
(aa) a Board Works Variation, that the Capital Expenditure required in respect of the Board Works Variation, when taken together with the Capital Expenditure in respect of other Board Works Variations which are Qualifying Variations, exceeds the Works Variation Capital Limit; or
(bb) a Board Works Variation, that the delay to the date on which the Actual Completion Date will occur caused by the Board Works Variation, when taken together with the delays caused by other Board Works Variations which are Qualifying Variations, will exceed the Works Variation Delay Limit; or
(cc) a Board Additional Works Item, that the time specified for commencement and/or completion of the Board Additional Works Item cannot reasonably be achieved by Project Co; or
(dd) a Board Service Variation, that the time (if any) specified for implementation of the Board Service Variation cannot reasonably be achieved by Project Co; or
(viii) that the information contained in the Variation Enquiry is inadequate to enable Project Co to respond in accordance with paragraph (b) below (on the assumption, whether or not the case, that it has no objection under paragraphs (i) to (vii));
or
(b) give notice to the Board's Representative stating:
(i) the steps which Project Co proposes to take to implement the Variation giving such level of detail as is reasonable and appropriate in all the circumstances;
(ii) Project Co's estimated out of pocket expenditure or estimated savings in respect of the Variation having regard to all relevant facts and matters, including171:
(aa) any costs (by line item) incurred or to be incurred under paragraph 5 of this Section 1 (Consents);
(bb) in the case of a Board Works Variation, the provisions governing the valuation of variations (however described) in the Construction Contract and any capitalised interest or other costs which may be incurred by Project Co as a result of any delay to the Actual Completion Date by reason of such Board Works Variation172; and
(cc) in the case of a Board Service Variation, any Capital Expenditure or other lump sum expenditure likely to be incurred in the course of the implementation of the Board Service Variation;
(iii) in the case of a Board Works Variation, whether, in the view of Project Co, implementing the Board Works Variation Enquiry would be likely to prevent the Actual Completion Date from occurring at the Completion Date (prior to any adjustment being made to the Completion Date by reason of the implementation or proposed implementation of the Board Works Variation) and, if so, giving an estimate of the extension of time likely to be required (subject to any further time required to obtain or amend any Consent);
(iv) any Consent which must be obtained or amended for the Variation to be implemented and the latest date by which Project Co must receive a Variation Confirmation and any such Consent must be obtained or modified for the matters set out in (i)-(iii) above to remain valid, such date being a reasonable period of time after service of the notice by Project Co under this paragraph 3.2 (b) to enable the Board's Representative to consider any matter under paragraph 4.1(c) below;
(v) whether Project Co considers that a Service Variation, including, in the case of a Variation Enquiry for a Service Variation, another Service Variation (which for the purpose of this paragraph 3.2(b)(v), shall include a change in the cost to Project Co of performing periodic or life cycle maintenance) shall be required as a consequence of the Variation specified in the Variation Enquiry and, if so, stating the matters specified in this paragraph 3.2 in respect of such Service Variation;
(vi) such amendments to the provisions of the [Payment Mechanism and] the Performance Monitoring System and other associated provisions of this Agreement which are necessary as a consequence of the Variation, the objective of such amendments being to ensure that (save for the obligation of the Board to make payments or altered payments in respect of the Variation or any other adverse consequences for the Board arising from the Variation itself) the parties are in no better and no worse position in relation to the Project than they would have been in if such Variation had not been implemented173; and
(vii) whether, in the view of Project Co, implementing the Service Variation or the Board Additional Works Item, would [cause any Non-Availability to all or any part of the Facilities and/or] cause the issue of any Service Failure Point, giving an estimate in each case of relief from any Service Failure Points required to put the parties in no better and no worse position in relation to the Project than they would have been in if such Variation had not been implemented.
3.3 Finance
If Project Co shall give notice pursuant to paragraph 3.2(a)(iv) and it has not performed its obligations under paragraphs 1.1 and 1.2 of Section 2 of this Part 22 of the Schedule then it shall, as soon as reasonably practicable, perform such obligations. In the case of a Board Works Variation, if Project Co cannot obtain finance from the sources referred to in paragraph 1 of Section 2 of this Part 22 of the Schedule, the timetable set out in this Part for implementation of the Variation shall be suspended until the Board either instructs Project Co to proceed with, or withdraws, the Variation as contemplated in paragraph 1.3 of Section 2 of this Part 22 of the Schedule (which the Board shall decide and notify Project Co within twenty (20) Business Days of the notification from Project Co to the Board in accordance with paragraph 1.3 of Section 2 (Funding not available). If the operation of those provisions results in finance being available then, as soon as practical after such finance becomes available, Project Co shall, unless it has other objections falling within paragraph 3.2.(a)(i)-(iii) or (v)-(viii) (inclusive), give a notice pursuant to paragraph 3.2(b) of this Section 1 and the other provisions of this Section 1 shall come into operation accordingly.
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168 Consider whether provision is to be made for a longer period of time being a possibility or whether the 1 month period should be left as it is, in which case Project Co may give a less detailed response.
169 Boards should note that some (but not all) banks have sought and obtained their approval as an additional ground for objection.
170 Boards should note that Funders will want a ground of this nature because they see themselves as lending against a particular project risk profile which may be changed by a Variation of this kind. For example, if a Variation has the effect to introduce a new category of patients (for example, mental health services or social services generally, with an increase in the number of day care patients who are considered to present a higher risk to the Project Operations), the Funders may see this as changing the characteristics of the Project and seek a right to object. This standard form has been drafted on this basis, but Boards may wish to consider the inclusion of this ground on a project specific basis.
171 Boards to consider (with their financial adviser), in the light of project specifics, whether any additional factors for determining costs should be included such as, for example:
• Project Co's right to charge a margin/profit on external costs
• If the provisions for valuing variations in the Construction Contract are inadequate, the basis for valuing a Board Works Variation
• The basis for valuing a Board Additional Works Item which falls below the threshold specified in paragraph 8.1 of Section 1 of this Part 22 of the Schedule.
172 These provisions must be reviewed to ensure that they are satisfactory to the Board.
173 The purpose of this paragraph is for provision to be made for adjusting these parts of the Agreement to accommodate Variations. However, the Board should note the sensitivity of Funders to this issue, and to availability in particular, who are likely to resist a solution whereby the risk profile can be set by a third party, even on the "no better no worse" formulation.