The definition of Force Majeure is very limited in PFI contracts. However the Contract Manager should be aware of the definition in the Contract and the implications of a termination caused by Force Majeure.
As neither party is at fault under a Force Majeure event if the assets transfer to the Authority the compensation payable is less favourable to the Authority than for Contractor Default but more favourable than for Authority Default.
The compensation is sufficient to ensure the Contractor can pay:
a) the senior lenders in full (including any fees for early repayment of debt and the breakage of hedging arrangements);
b) Sub-Contractors breakage costs due to them for early termination;
c) any redundancy costs arising; and
d) an amount to the shareholders in the Contractor which is sufficient to ensure the original investment is repaid, but not to provide a return on that investment.
Under the WIDP Contract the Authority has the option to pay the compensation in instalments. Given the sums involved it is important that the Contract Manager ensures that the Authority's Finance Department is involved in making the decision regarding this option.
|
The Authority should notify Defra as soon as it reasonably expects to receive a termination notice from the Contractor. The Authority's entitlement to WI Credits will cease on termination of the Contract. If the Authority elects to pursue a Revised Project Plan as a result of the planning process rather than terminate the Contract it will have to submit a Variation Business Case to Defra to make the case for retaining the entitlement to WI Credits. |