Discussion

The baseline MISMA drafting assumes that there is little risk in making non-recoverable milestone payments on the basis that:

a)  Transformation (and hence transformed service delivery) is not high risk.

b)  Costs of transformation are not substantial.

c)  There may only need to be a single milestone payment (at ATP).

d)  Roll-out of transformed services is neither prolonged nor involves significant scalability risk.

Where there is significant variance from one or more of the above, introduction of provisions relating to a Contract Performance Point (which provides protection against scalability risk by making milestone payments recoverable in the event of termination for under/non-performance) should be considered.

Provisions to consider

Provision and reference

Considerations

Contract Performance Point

References: Model Agreement Clause 55.5.2.  Clause 58.6. Schedule 7.1, Section C, Part A, para 4.4.

The Contract Performance Point (CPP) provisions allow for a CPP to be set at some point after the completion of transformation which, through pre-agreed tests, demonstrates that the Services are performing satisfactorily at full scale operation.  Should the Authority have to terminate for Contractor default prior to CPP, the CPP-related provisions then allow them to recover some or all of any milestones designated as potentially recoverable in the contract. Keeping this claw-back right linked only to a termination event should remove any revenue recognition concerns and for this reason, although the CPP provisions add commercial complexity to MISMA, they should not significantly prolong negotiations.