1.31 The contract covers the five-year construction period and defines the Department's occupancy rights for each part of the Estate over the 25 years from acceptance. To ensure that the contracted service is delivered effectively, the Contributions Agency have established a contract management team to manage the contract for operational buildings, and a separate implementation team for the redevelopment work. The implementation team's role is to focus in particular on minimising disruption to the Department's activities during the construction phase at Longbenton and to oversee the movement of staff and IT. The contract management team was established before the contract was signed. The team uses its knowledge of the contract and its links with users to ensure that buildings and facilities management services meet the standards required.
1.32 The Agency consider that termination of the Private Finance contract as a whole would result in considerable disruption to the Department's operations on the Newcastle Estate. They therefore sought to enter into arrangements for managing the contract in the event that something goes wrong that should, wherever possible, minimise disruption to the Department's core business.
1.33 The dispute resolution procedures embodied in the contract involve a series of stages, leading to the appointment of an expert whose decision will be binding on both parties. Only in the event that an expert cannot be appointed would a dispute be referred to the courts. Our advisers, Theodore Goddard, considered that this approach had definite advantages of speed, cost and certainty over alternative arrangements that allow arbitration or resolution by the courts if either party disagrees with the decision of the expert.
1.34 The contractual agreements lay down arrangements covering the rights of both parties to terminate the contract. Termination clauses are broadly in line with termination clauses on other Private Finance contracts. The arrangements, including which party has the option to terminate and whether the Department must make termination payments, depend on the cause of termination.
1.35 The Department's rights should the maintenance targets not be met by NEP are subject to certain constraints. The maximum deduction from the maintenance payment for failure to achieve performance targets in any year is 15 per cent, which the Agency managed to raise during negotiations from 10 per cent. They told us that a higher maximum penalty would have made it difficult for NEP to fund the deal.
1.36 Persistent failure to achieve performance targets could result in the replacement of the consortium's maintenance services provider, with the consortium itself selecting the replacement. This remedy is ring-fenced, so that failure to achieve performance targets in the buildings south of the River Tyne (the Southern Estate) would only lead to replacement of the facility management company for those buildings, and not for the buildings north of the Tyne (the Northern Estate). Only after three companies have been replaced for failing to achieve performance targets does the Department have a right to select a replacement provider itself. This replacement right is also ring-fenced between the Northern and Southern Estates.
1.37 If maintenance is below the agreed standards or not carried out, it may lead to buildings becoming unavailable and to the Department stopping the 75 per cent of the payment that is for availability of the buildings. This acts as an incentive to NEP to ensure that maintenance services are adequate.
1.38 At the end of the contracted period of occupancy of 25 years for each part of the Estate:
■ the Department may continue to occupy any building on the Estate on terms based on the current agreement with NEP. NEP and the Department could agree to alter any terms, including how long the Department would be committed to reoccupy, as they see fit;
■ if NEP and the Department were to fail to reach agreement, the Private Finance contract establishes a reserve position, in which the Department would enter into a standard commercial lease for 26 years, with a five-yearly break option. The Private Finance contract fixes the rent in these circumstances at half of the prevailing market rent for similar buildings in Newcastle City Centre. The parties considered that such rents would be in line with the market for the outskirts of the city; or
■ alternatively, the Department could vacate the Estate which NEP now own, and seek accommodation elsewhere.