23.2 Minimum Tonnage46
23.2.1 Without prejudice to Clause 23.1 or Clause 23.4, where the tonnage of Contract Waste delivered falls below the Minimum Tonnage the Minimum Tonnage shall apply in calculating the "B" Base component of the Unitary Charge as provided in paragraph [ ] of Schedule 4 (Payment Mechanism). 47
23.2.2 Without prejudice to any other right or remedy of either Party, the Minimum Tonnage shall be reduced tonne per tonne for any Contract Waste Not Accepted [save where such Non Acceptance arises as a direct result of [an Excusing Cause or] a Compensation Event].48.
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46 This drafting is dependent on the drafting of the definitions of Contract Waste and Municipal Waste. These definitions ought not to be amended without careful consideration on the impact on this clause.
47 Authorities may consider on a value for money basis whether to additionally pay the Contractor for a Third Party Income Minimum Tonnage compensation (a TPI MT compensation) to reflect the reduction of the relevant Third Party Income (if any) where the aggregate of Contract Waste and Substitute Waste tonnages is below the Minimum Tonnage (for example the electricity income). Where an additional TPI MT compensation is provided, Authorities should take into consideration the following principles:
i. The TPI MT compensation should be subject to the Contractor having complied with its obligations to secure Substitute Waste (see Clause 25.2.6. where the Minimum Tonnage is adjusted if the obligation is not complied with). The Authority should only pay for this element if there is still a tonnage shortfall from the Minimum Tonnage (as adjusted by Clause 23.2.2 and Clause 25.2.6 if applicable) after taking into account the Substitute Waste tonnage obtained.
ii. The formula to calculate the TPI MT compensation should be discussed during the dialogue process and the level of compensation per tonne of waste shortfall should be capped at Base Case (i.e. lower of actual and Base Case). The payment mechanism should contain a table on what the applicable cap (i.e. the TPI assumed in the Base Case per tonne of waste processed) is for each contract year.
iii. If the Minimum Tonnage payment has an annual reconciliation taking account of the actual Contract Waste and Substitute Waste tonnages for the relevant year, the TPI MT amount paid should be subject to a similar reconciliation.
iv. In addition, if the actual Third Party Income is above the level assumed in the Base Case, the Authority should be reimbursed for the TPI MT compensation paid before the Third Party Income sharing mechanism is applied.
v. The impact on funding of this separate compensation being offered or not should be considered with Bidders and Senior Lenders in particular how a separate TPI MT compensation reduces the Minimum Tonnage payment compared to when Authorities choose not to have a separate TPI MT element.
vi In deciding whether or not to offer or accept a separate TPI MT compensation, Authorities should also consider whether the tender evaluation framework incentivises the Bidders to set the level of Minimum Tonnage and TPI MT compensation at a competitive level.
48 Authorities may decide to continue to pay the Minimum Tonnage where Non Acceptance arises as a result of either a Compensation Event or an Excusing Cause to ensure that the Contractor's cash flow is protected but this is subject to the service period Compensation Event and Excusing Causes being narrowly defined and any overpayment above the Minimum Tonnage will need to be taken into account as part of the reconciliation in the Payment Mechanism. Equally, any payment of the Minimum Tonnage during a Compensation Event will need to be taken into account in any assessment of compensation payable by the Authority and/or adjustment to the Unitary Charge pursuant to Schedule 19 to ensure no double recovery by the Contractor.