Supervening Events - Section 5

19  Section 5 of SoPC is relevant to Local Authority social care PFI projects.  Three categories of causes of delay in service commencement are identified, for which relief may be appropriate:

19.1  Compensation Events - events which are the Local Authority's risk and for which the Service Provider should be compensated;

19.2  Relief Events - events that are best managed by the Service Provider and for which the Service Provider bears the financial risk but in respect of which no rights of termination should arise; and

19.3  Force Majeure Events - a limited set of events that are best shared and in respect of which rights of termination can arise.

20  The guidance on each of these events in Section 5 is relevant to Local Authority social care PFI projects and SoPC includes required drafting for supervening events, which has been incorporated into the Model Contract.

21  Compensation Events (which are limited to breach of contract by the Local Authority) only apply during the construction phase.  Bidders often seek to extend Compensation Events to the Service Period.  This extension is contrary to the guidance set out in Section 5.2 of SoPC and should be resisted.  Compensation Events during the Service Period can be considered by Local Authorities but must be identified and justified on project specific grounds in accordance with Section 5.2.1.5 of SoPC.  An alternative approach for Local Authorities to consider is for the Service Provider to be offered protection through a Relief Event and/or an Excusing Cause under the payment mechanism.