Early Termination - Section 21 and Calculation and Payment of Early Termination Payments - Section 22

71  The approach set out in Section 21 of SoPC, supplemented by Section 5 of the Local Government Supplement to SoPC, in terms of both events of default and consequences, is fully applicable to a Local Authority social care PFI project.   

72  The circumstances of Service Provider Default set out in the Model Contract follow SoPC drafting.  In particular, significant sub-standard performance in any one month or over, say, a three-month period can lead to termination provided appropriate performance failures have occurred and/or payment deductions made.  Persistent, unacceptable level of performance where deductions cannot be made under the payment mechanism can be deemed to be persistent breach which can lead to termination.  Appropriate provisions are included in the Model Contract together with a warning notice procedure which prevents "hair trigger" terminations.

73  Where the deductions from the Service Payment is lower than the cost of rectification, there is a need to ensure that the entire social care service receives an acceptable standard of performance.  No parts of the social care service should have to suffer unacceptable standards over a sustained period.  In such circumstances it is not appropriate to 'take-back' parts of the Services and the payment mechanism and the contractual arrangements must ensure that such a situation can be dealt with, such as through the ratchet system of payment deductions and/or the award of performance points.  

74  Funders may have concerns about the exposure of the whole project funding to termination due to the Service Provider's performance in relation to individual or distinct parts of the Service.  There will therefore need to be a clear incentive on the Service Provider to address the needs of the whole social care service included in the contract if there is a risk of termination of the whole contract for their performance in relation to part or parts of the Services.  In this way, the interests of the Local Authority, the Service Provider and the funders, are consistent, as the incentive on the Service Provider to prevent persistent poor performance on individual or distinct parts of the social care service is maximised.

75  Sections 21 and 22 of SoPC include required drafting on early termination and calculation and payment of early termination payments respectively.  This drafting has been incorporated into the Model Contract, taking account of the issues raised above.