7.8.1 Before Handover and at points in the Contract where the Service changes significantly (for example on the introduction of a new asset or new operational procedures), the Contractor should be under an obligation to demonstrate that the arrangements put in place will meet the output specification in the Contract. The method of demonstration by the Contractor will be dependent on each situation but may take the form of:
• a completion inspection of any asset built or developed with demonstration of principal facilities and services;
• completion of acceptance trials for new services; and
• other performance tests or inspections.
7.8.2 The Contract should set out in detail:
• the form of the tests, inspections or demonstrations ("Tests") to be carried out by the Contractor;
• the timetable for the Tests - it may be appropriate to undertake partial Tests over a period rather than a single Test;
• the consequences of a failure to pass a Test;
• the notice of the Tests to be given by the Contractor to the Authority - this is particularly important if the Authority has to roster staff and resources to participate. If it is essential for the Authority to attend the Tests, the Contract should specify a time period for the Authority to respond to the notice and, to the extent that the Authority does not respond in time, a Compensation Event will have occurred (see Section 15.2 (Compensation Events)) although the Authority can still attend once it has responded;
• the responsibility for the cost and organisation of resources for the Tests. Again this is particularly important if the Authority's staff and resources are to be involved (also the responsibility for costs if Tests have to be repeated should be considered);
• the access for the Authority to witness the Tests (if the Authority does not control the Site);
• the documentation required by the Authority as evidence of the results of the Tests;
• who is responsible for assessing satisfaction of the Tests - this should, in most cases, be done by joint assessment by the Authority and the Contractor or by an independent third party, although there will be cases where both parties accept that the Authority is the best judge (e.g. with defence equipment projects the best judge of whether the equipment performs as it should do are its users). The Authority should in no circumstances rely on any technical or other adviser appointed solely on behalf of the Senior Lenders, but may accept an adviser that has been jointly appointed and owes duties to all sets of interested parties; and
• the timing and procedure for acceptance of Handover or Service Commencement if the results of the Tests are satisfactory. Acceptance may be confirmed by the third party tester or by the Authority, in which case again the Compensation Event consequence of being late should be borne in mind if the Service cannot commence before any such confirmation is issued.
7.8.3 At the time of acceptance of Handover and/ or Service Commencement, there must be no "approval" of the means of delivery of the Service, as this may involve the Authority in taking back part of the Contractor's risk. Rather, acceptance should be based as far as possible on satisfaction by the Contractor of objective Handover and/or Service Commencement based tests.
7.8.4 As stated in Section 7.2.5, the Authority should not generally accept stages of work (e.g. by signing off milestones) prior to Handover and/or Service Commencement as this dilutes risk transfer.10 In certain projects, however, it may be appropriate for the Authority to commence payment before a complete service is available. The principal examples of these are as follows:
• in roads projects, where the Highways Agency issues a permit allowing traffic to use the road once certain safety standards have been achieved, although construction may not be fully completed. Final acceptance of the road takes place once the Contractor has completed the outstanding construction works and the payment mechanism is structured to ensure that the Contractor is incentivised to do so;
• in accommodation projects, the Authority may accept Handover and/or Service Commencement where certain minor aspects of the construction works are incomplete but which are not integral to the Contractor's ability to provide the main Service - this may be done by specifying particular areas (e.g. landscaping works) or through more generic descriptions (e.g. "de minimis defects, shrinkages or faults"). Whether this is agreed prior to or after signature of the Contract, the Authority must ensure that the Contractor remains incentivised through the payment mechanism to complete the outstanding works. The Authority's technical adviser should advise on what aspects of the works can be completed after Handover and/ Service Commencement;
• in light rail projects where milestones trigger payments of grant, or where a portion of the repayments are derived from fare box revenues;
• in certain projects there may be aspects of the project for which the Authority retains a part of the risk deliberately, as it will ultimately retain responsibility for a part of the overall Service; and
• in projects in which Handover and Service Commencement is phased (i.e. different buildings or pieces of equipment are brought into service at different times), then an appropriate phasing in the introduction of payments (again with built-in incentives) may be appropriate.
7.8.5 In projects where Handover and/or Service Commencement is phased, there are two clear alternatives available to the Authority:
• to stipulate that full Handover and subsequent Service Commencement will only be accepted when all phases in the scheme reach the required output specification level, which would incentivise the Contractor to bring them all up to the output specification standard as quickly as possible. This would mean, however, that the Authority would receive the full output specification level of service for some phases without paying for it; or
• to accept full Handover and subsequent Service Commencement as each phase reaches the output specification standard, so that payments reflect the service received. A slight variant to this that may be adopted in very large grouped schemes, where it would be administratively cumbersome to have phase by phase Handover and Service Commencement, would be to accept Handover and Service Commencement in batches as full service availability is confirmed. If this approach is adopted, some of the incentive effect of the first alternative above can still be achieved if payment is not increased pro rata as phases reach the output specification, so that there is in effect an amount retained or abated until the last phase reaches Handover and Service Commencement.
7.8.6 The overall time period until the planned Handover and service commencement of the last phase is likely to have a significant impact on the relative value for money of these two alternatives - the longer the period, the more reluctant the Contractor is likely to be to accept the delayed payment involved in the first alternative above.
Suitable drafting is as follows:
7.8 Notification of Handover, Services Availability
7.8.1 Inspection
The Contractor shall give the Authority [and the Independent Certifier] not less than [five (5)/ ten (10)] Business Days' notice of the date when it proposes to inspect the Asset with a view to achieving:
(a) the issue of the Handover Certificate; and/or
(b) the issue of the Acceptance Certificate;
and on such dates the Independent Certifier shall inspect the Assets and representatives from the Authority and the Contractor and the Senior Lender shall be entitled to make a joint inspection with the Independent Certifier.
7.8.2 Dates on which Handover may Occur
The Handover Date shall be the date on which the Handover Acceptance Certificate is issued.
7.8.3 Dates on which the Service Commencement may occur
(a) The Service Commencement Date shall be the date on which an Acceptance Certificate is issued, provided that if an Acceptance Certificate is issued prior to the Planned Service Commencement Date, the Service Commencement Date shall be such earlier date and the Service Period shall be extended by a period equal to the amount of time by which actual Acceptance precedes the Planned Commencement Date;
(b) The Acceptance Certificate shall not be issued any less than [thirty] Business Days after the issue of the Handover Acceptance Certificate
7.8.4 Independent Certifier
The Independent Certifier's Deed of Appointment shall specify the duties of the Independent Certifier owed to the Authority and the Contractor.
7.8.5 Issue of Acceptance Certificate or notice of Non Completion
Within five (5) Business Days of any inspection referred to in Clause 7.8.1 (Inspection) to determine whether the Handover, or Services Availability (as the case may be) has been achieved the Independent Certifier shall:
(a) issue a Handover Acceptance Certificate confirming that he is satisfied that the Handover Requirements have been met; or
(b) issue an Acceptance Certificate confirming that he is satisfied that the Services Availability Requirements have been met; or
(c) issue a notice stating that the Handover Acceptance Certificate or the Acceptance Certificate (as the case may be) has not been issued and specifying any outstanding matters that must be attended to before a Handover Acceptance Certificate or an Acceptance Certificate (as the case may be) can be issued, provided that, if the Handover Requirements and/or the Services Availability Requirements have been met, the Independent Certifier shall issue an Handover Acceptance Certificate or an Acceptance Certificate (as the case may be) notwithstanding that there are Snagging Items.
7.8.6 Notice of Non Completion
The Parties shall procure that where the Independent Certifier reasonably considers that the Handover Requirements or the Services Availability Requirements (as the case may be) have not been met it shall immediately following its inspection pursuant to Clause 7.8.1 (Inspection) issue to the Authority and the Contractor a notice a Notice of Non Completion detailing all outstanding matters which are required to be attended to before the Contractor can be considered to have met the Handover Requirements or the Services Availability Requirements (as the case may be) Following receipt of a Notice of Non Completion the Contractor shall attend to such matters and shall give the Authority and the Independent Certifier further notice in accordance with Clause 7.8.5 (Issue of Acceptance Certificate) but dealing only with matters raised in the Notice of Non Completion and with a notice period of no less than twenty-four (24) hours for the purposes of Clause 7.8.1 (Inspection) so that the procedures in 7.8.5 (Issue of Acceptance Certificate) are repeated as often as necessary to ensure that all outstanding matters are attended to and the Handover Acceptance Certificate or the Acceptance Certificate (as the case may be) can be issued in accordance with 7.8.5(a) or 7.8.5(b).
7.8.7 Effect of Issue of Acceptance Certificate
The issue of a Handover Acceptance Certificate or an Acceptance Certificate shall, in the absence of manifest error, bad faith or fraud, indicate for the purpose of ascertaining the Handover Date or the Services Availability Date that the Contractor is in compliance with the Handover Requirements or the Services Availability Requirements (as the case may be) and, without prejudice to the right of either Party to make a claim under the Independent Certifier's Deed of Appointment, shall in no way lessen or affect the other obligations of the Contractor under this Agreement in relation to any part of the Works or the Services or signify the Authority's approval of the means of delivery of the Services, and the Contractor shall pursuant to Clause 7.8.8 (Snagging Items) following the date of issue of the Handover Acceptance Certificate or Acceptance Certificate carry out and complete such (if any) of the items on the Snagging List as have not been so completed on the date of issue of the Handover Acceptance Certificate/Acceptance Certificate
7.8.8 Snagging Items
In the event that a Handover Acceptance Certificate or an Acceptance Certificate is expressed to be subject to Snagging Items:
(a) the Independent Certifier shall within five (5) Business Days of the issue of the relevant Handover Acceptance Certificate or Acceptance Certificate issue to the Contractor and the Authority a list of the relevant Snagging Items (the Snagging List). Within five (5) Business Days of receipt from the Independent Certifier of the Snagging List the Contractor shall provide to the Authority and the Independent Certifier a reasonable programme for making good each Snagging Item set out in the Snagging List provided that such programme shall require that each Snagging Item shall be made good within twenty (20) Business Days of the date of provision of that programme or within such time as is reasonably practicable and, where the Snagging List has been issued following the issue of the Handover Acceptance Certificate, so that rectification of such Snagging Items does not interfere with the Authority Service Provider. The Parties shall seek to agree such programme and in default of agreement shall refer the matter for determination under the Dispute Resolution Procedure. Any programme agreed or determined in accordance with this Clause shall be known as the Snagging Programme; and
(b) the Contractor shall procure that each Snagging Item is made good in accordance with the Snagging Programme to the satisfaction of the Independent Certifier. If any Snagging Item has not been rectified by the date set out in the Snagging Programme then the Authority shall be entitled to effect such repairs as may be necessary and recover the costs of doing so from the Contractor as a debt.
"Facilities Output Specification"
means the Facilities Output Specification of the Authority contained in Schedule [ ] (Facility Output Specification);
"Handover"
means satisfaction of the Handover Requirements;
"Handover Acceptance Certificate"
means a certificate issued by the Independent Certifier confirming that the Handover Requirements have been met;
means the date determined in accordance with Clause 7.8.2 (Dates on which Handover may occur);
means the period commencing on the Handover Date and ending on the Services Commencement Date;
means the requirements set out in [ ] (Completion Requirements);
means the person appointed jointly by the Authority, the Contractor [and the Senior Lenders] to act as independent certifier to the Project in accordance with the Independent Certifier's Deed of Appointment
"Independent Certifier's Deed of Appointment"
means the deed of appointment of the Independent Certifier in the Agreed Form;
means the date shown as the Planned Handover Date in Schedule [ ] or such later date as may be allowed in accordance with the terms of this Agreement;
means minor defects, differences or omissions which do not prevent the Independent Certifier from issuing a Handover Acceptance Certificate or an Acceptance Certificate as the case may be.
means the list of relevant Snagging Items as referred to in Clause 7.8.8;
"Works"
means all of the works (including design and works necessary for obtaining access to the Site) to be undertaken in accordance with this Contract to satisfy the Facilities Output Specification;
7.8.7 Soft Services Mobilisation
There will need to be a period of mobilisation for the soft services. The process and timings of this should be agreed between the Authority, the Contractor and the Authority Service Provider as agreement of all parties will be necessary to ensure mobilisation works properly and expeditiously. It is suggested that a mobilisation plan is used to get all parties' agreement. This will operate normally in the period between Handover and Service Commencement.
Suitable drafting is as follows:
7.8.7 The Contractor acknowledges that the Authority and each Authority Service Provider will need to be at the Site for the purposes of mobilising for the performance of the Authority Services at the Facility, and that the Authority Services shall be mobilised and commenced in accordance with the agreed mobilisation plan.
Failure by the Contractor to adhere to the mobilisation plan will normally constitute a Contractor breach and may result in a late service delivery for an Authority Service Provider. The Authority will need to ensure it has an appropriate remedy for this and that it can pass down to the Contractor loss that the Authority Service Provider may suffer as a result of delayed mobilisation and possible late service commencement.
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10 Neither should the Authority seek to impose any milestones during the construction phase.