4.5.7 Authority Step In

Where the Contractor is performing the Services badly there is likely to be pressure within the Authority for the Contract Manager to take steps to rectify the situation. In extreme cases this may lead to suggestions that that Authority should take direct action itself to remedy the problem.  Contracts may allow this remedy but it will invariably only be permitted under very limited circumstances set out in the Contract.  In other circumstances any attempt by the Authority to take over the facilities and operate them itself would lead to an Authority Default and the Contractor would be entitled to terminate (see Section 8.5). 

Under the WIDP Contract (Clause 33) the Authority is entitled to step in and take direct action, referred to as the Required Action, only if poor performance by the Contractor:

•   creates a threat to health and safety; or 

•   is impinging on the Authority's ability to discharge a statutory duty.

Before the Authority can take the Required Action it has to notify the Contractor and the Contract Manager should ensure that any notice submitted complies fully with the contractual requirements.  The Authority is then able to take the Required Action.  Given the risk involved a decision to take such action should be approved by the Contract Management Board or potentially even higher in the Authority's governance arrangements. The approval process should be set out in full in the Contract Management Manual.

The contractual provisions relating to the Required Action depend on whether the need to act has arisen from a Contractor Breach or not. 

If there has not been a Contractor Breach then there is an obligation on the Authority to use Good Industry Practice when undertaking the Required Action.  Under the WIDP Contract (Clause 33.3.2) the Authority also indemnifies the Contractor in relation to Direct Losses caused by the Required Action if the Authority fails to act in accordance with Good Industry Practice. If the Required Action results in the Contractor being prevented from providing any part of the Services then the Contractor is released from its obligation to provide that part of Services and, as long as the Contractor is providing reasonable assistance to the Authority, the Contractor is entitled to be paid as if it were providing all the Services. This is of course a hypothetical scenario so the Contract defines the approach to be adopted to assess what would have been paid. This is typically based on recent service performance in the months preceding the Required Action. 

If there has been a Contractor Breach then the obligation on the Authority to use Good Industry Practice does not apply and there is no indemnity in favour of the Contractor in relation to Direct Losses. If the Required Action results in the Contractor being prevented from providing any part of the Services then the Contractor is released from its obligation to provide that part of Services but the Authority's costs in taking the Required Action are deducted from the Monthly Payment. The Authority will however pay the Contractor's share of Third Party Income actually received in the period, after deducting the Authority's costs incurred in generating this income. 

Using the contractual right to step-in involves certain risks for the Authority and the Contract Manager should always seek advice from the Authority's Legal Department before invoking such rights. Any opportunities for resolving the underlying issue through discussions with the Contractor should also be explored as far as possible before any direct intervention by the Authority. A decision to intervene is sufficiently significant that it should be considered and approved by the Contract Management Board.