3.  General Guidance

There will normally be 2 sets of derogations requests: (a) SoPC4 ones and (b) HPP ones. All derogations requests should be accompanied by a project specific explanation of why they are needed and submitted in separate documents: one covering tables for SoPC4-based derogations and another covering HPP derogations.  

There will normally be 2 points in the procurement process when approval for derogations should be sought by an Authority:

•  pre-ISDS when derogations will be those exclusively generated by the authority; and

•  pre-close of competitive dialogue when derogation requests will have been generated by bidders based on discussions during dialogue.

There will therefore be two sets of derogations at the pre-close of dialogue stage, one from each bidder. In submitting pre-close of dialogue bidder derogations HCA will require an Authority to confirm that, firstly, there are no additional Authority requested derogations at this stage and, secondly, that the Authority is itself entirely satisfied that the bidder requested derogations are legitimate i.e. (a) project specific and value for money and (b) complete.  The HCA does not expect authorities to simply pass through bidder requested derogations for consideration.

Key principles determining the structure of a project and requiring derogations, such as:

•  the treatment of land and associated non-PFI development activity,

•  the relationship of any works development provisions to the PFI contract

•  the approach to securing a benefit from residual value in non-HRA housing projects,

•  options on project expiry and termination,

•  financing structure, and

•  any other aspects which drive the need for derogations

must be set out comprehensively in a narrative paper explaining their rationale and accompanying the requested derogations.

All SoPC4 and "difficult/unusual/contentious" (i.e. those connected with the above project principles) HPP derogations will be notified by HCA to CLG (unless rejected by HCA). CLG will consider these and if CLG reject them they will be closed off at this point.

If CLG support them (or is not sure, and wants to discuss them) then they would be passed to IUK, via HCA. HMT/IUK would not expect to consider a derogation which CLG/HCA did not themselves support.

Difficult/unusual/contentious issues are best resolved early in the project development process and should be raised at the earliest opportunity. CLG/HCA can be asked for their views early in the process at the level of principle even if the contractual drafting has yet to be developed.

(If a difficult/unusual/contentious HPP derogation is approved, consideration will be given to formal amendment of the HPP drafting to allow for this approach in similar circumstances and future projects).

Authorities and Bidders should note that any proposed derogations may affect the project risk profile and the resulting Authority value for money. Authorities are asked to note that derogations should be considered from the principle that risk should best rest with the party able to manage the risk, that transfer of risk from an authority to a bidder comes at a cost to the authority, and that a value for money case is required in support of any derogation.

Authorities are asked to ensure that Bidders are aware that derogations which affect the risk profile of a project may impact negatively on the evaluation of their Bid, not simply in respect of the evaluation score awarded for the Financial and Commercial section, but also, where appropriate, where the amendment evidences, for example, a negative approach to partnering or service provision.

CLG/HCA generally require that the Standard Form Documentation is used without amendment save in those instances which are genuinely project specific with required changes supported by strong project specific reasoning. In particular, CLG/HCA will not approve clarificatory amendments save where, exceptionally, an error is identified in the Standard Form Documentation which prevents the contract operating in the manner intended nor will CLG/HCA approve an authority's 'preferred' drafting. There is therefore a general CLG/HCA presumption against derogations except where they are project specific and, as appropriate, value for money.