Discussion

Where the ICT services market is volatile - that is, where the Contractor's ability to continue to deliver the services over the course of the term could be impacted by corporate financial issues - the Authority may need to consider the desirability of introducing greater protections.  The Authority needs to consider not only the probability of problems occurring but also the impact on their business if it does and the likely effectiveness of the additional provisions. This needs to be set against the cost of negotiating the provisions, which given their nature, can be significant.

Provisions to consider

Provision and reference

Considerations

Financial Distress

Reference: Model Agreement Schedule 7.4 (Long Form)

Although in the normal course of events financially vulnerable suppliers will be de-selected during pre-qualification, there will be times when the Authority has to contract with an unstable market for ICT services.  In these circumstances, it may be appropriate to consider the inclusion of the long form Financial Distress provisions from the Model Agreement.

See also discussion of Financial Distress in Section 5A and note also that the combination of a volatile supplier market and a longer contract term will strengthen the case for the inclusion of Financial Distress provisions

Guarantee

Reference: Model Agreement Clause 46 and Schedule 10.

Where there are concerns regarding the financial resilience of the Contractor but it has a financially strong parent, it may be appropriate to consider inclusion of a Parent Company Guarantee.

See also discussion of Guarantee under Section 5.A above.

Escrow

References: Model Agreement Clause 39 and Schedule 5.3

Exceptionally, if there is a combination of a difficult financial environment and a significant or critical amount of specially written software, it may be appropriate to consider including Escrow provisions.