4.2 When the parties drafted the contract, they had not contemplated a negotiated termination so no governing provisions existed. The gap had to be filled by creating a new agreement to effect the termination (Figure 12). The termination sum was therefore an outcome of bargaining between the Department, Laser and the Lenders.
12 | The main elements of the termination agreement |
Payment of the termination sum to Laser and transferring ownership of the assets to the Department. Consequently, the Department was no longer liable for paying the unitary charge of £11.5 million (1998 prices) per annum. | |
The Department's step-in to Laser's contract with its facilities management contractor, Serco Limited | |
The transfer of all warranties covering the assets from Laser to the Department | |
Entitlement for the Department to pursue claims against JLC Ltd in Laser's name | |
Source: National Audit Office | |
4.3 To inform its negotiating position, the Department used provisions in the contract governing a termination on the grounds of Laser's default, under which the Department had to pay a termination sum that was the lesser of:
■ The Lenders' liabilities.
■ Laser's budgeted construction costs7 in 1998, as amended by the cost of subsequent variations ordered by the Department; less 105 per cent of (a) the Department's costs of completing the outstanding work and (b) any unpaid liquidated damages owed by Laser to the Department.
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7 Under the contract, Laser's budgeted construction costs included construction costs, start up costs incurred by Laser's facilities management contractor, capital purchases, insurance, interest, and fees but excluded VAT.