Discussion

The Authority needs to be mindful of the nature of the services that it is contracting out and specifically their significance in terms of its ability to discharge its statutory duties.  Since the responsibility to discharge statutory duties is not transferable, the Authority needs to consider whether it places that responsibility at risk through the contracting out of certain services. If the risk is material, it may then need to consider whether there is value in negotiating a right that allows it to "step in" in circumstances when for whatever reason the Contractor cannot meet its obligations.

Provisions to consider

Provision and reference

Considerations

Step-in Rights

Reference: Model Agreement Clause 60

There are two considerations that need to inform the decision as to whether or not to negotiate step-in provisions:

1.  Whether a serious performance failure within the contract would represent a material and unacceptable risk to its ability to discharge a statutory duty; and

2.  Whether a step-in right would provide an effective measure to mitigate or respond to such a risk.

The Authority needs to bear in mind that step-in rights tend to be very unpopular with Contractors and their negotiation could be difficult. Contractors will be especially concerned with the feasibility and consequences of step-in, the implications during the period of step-in and the consequences for continued service delivery once the Authority has stepped out again.  Such concerns will be exacerbated, the wider the conditions that can trigger step-in rights are.

Step-in may be complete or partial (i.e. temporarily stepping-in to only some of the services) and the Authority should consider scenarios under which a) the provisions might be desirable and b) could feasibly be used for the required effect. In so doing, the Authority should be mindful of situations where the more likely outcome would be the invocation of termination rights rather than step-in.

Step-in conditions

As mentioned above, Contractor concerns with step-in are a function of both the rights themselves and the conditions under which they might be invoked.  The wider the trigger conditions the more concerned bidders are likely to be and the more complex the negotiations.

If the Authority believes (having fully considered the context of the services with respect to statutory duties and the possible scenarios where step-in might occur) that step-in rights are justified, it is recommended that the step-in provisions are limited to:

•  Mitigating a Health & Safety risk; or

•  The need to discharge a statutory duty.

(in other words Model Agreement sub-clauses 60.1.1-8 and 60.1.11 should not be included  - though 60.1.11 may need to be considered if there is no Parent Company Guarantee)