7.9.1 The approval/acceptance procedure raises other issues if the Contractor is taking over existing services as well as undertaking additional services. The Authority should structure the payment mechanism and any termination compensation so as to incentivise the Contractor to commence delivery of the new service on time, so that it cannot simply choose to provide any existing service only. This is the case even where provision of the existing service is more important to the Authority from an operational perspective than provision of the new service.
7.9.2 The first question to address is, when does the Contractor take over full or partial responsibility for service delivery? Authorities should recognise that any TUPE transfers of staff that may arise out of the Contract are likely to take effect from the time at which the Contractor takes over provision of the relevant service. In the majority of cases, where the Contractor provides Hard FM / lifecycle services only, it may be that there will be no TUPE transfer of existing staff - however the Authority should bear in mind that TUPE is governed by operation of law (whatever the Contract may provide).
There are, in any event, three options open to the Authority:
• responsibility for all sites in the Contract is taken over by the Contractor following financial close, commonly after a brief mobilisation period. This provides a clean start and minimises ambiguity about responsibilities between the Authority and the Contractor, and is therefore the recommended approach. However, in some cases, for example where there are particular concerns or uncertainty about the condition of the buildings, this approach may require the Contractor to take on risks that are unacceptable to it at a realistic price, and so not provide value for money;
• phase the handover so that the Contractor takes over responsibility for the sites when it has planned to start works on them to bring them up to the full output specification standard. This would leave the Authority responsible for some sites between financial close and the programmed start date of the Contractor's work on site. For a large grouped scheme this may well create some greater complexity in the management arrangements throughout the transitional phase from financial close to the point at which all of the sites have reached full Service Commencement, but is recommended where the first approach above does not provide value for money; and
• only hand the sites over to the Contractor once they have been brought up to the full output specification standard. This would cause an additional complexity as the pre-contract arrangements, involving in-house provision or a separate contractor, would continue in relation to facilities management (if relevant) and operation of the accommodation, whilst the Contractor was carrying out works to bring the sites up to the output specification standard. Scope for disputes over responsibility for problems that arise suggest that this would not be an attractive option, and it is therefore not recommended.
7.9.3 In some cases, the existing condition of buildings may be such that there is a risk (however remote) of criminal prosecution, for example under Health and Safety legislation. The output specification will generally require the buildings to be in a condition that complies with all applicable law. In some schemes prospective shareholders of a Contractor will be understandably nervous about taking on such a risk for the period before Service Commencement. In such circumstances, Authorities should consider retaining legal responsibility for the buildings until planned Service Commencement, and so any Existing Services provided by the Contractor may be in the form of a maintenance and/or FM contract.
7.9.4 In relation to the first two options, a specification will be needed for the service level that is expected for the period while the Contractor is responsible for each site, but has not yet reached full Service Commencement. The specification should include requirements in relation to individual FM services that the Contractor will be required to provide (if relevant), and a reactive and responsive maintenance and repair service that at least keeps the sites open to the standard they are when the Contract starts. It is important for all parties that there is a common understanding of the Service required during this period. This will assist in minimising dispute if under performance occurs. There are generally two options available to the Authority:
• use the output specification that will apply from Service Commencement for the transitional period as well, albeit with a relaxed payment and performance regime (including default termination thresholds). However, this may lead to regular performance failures due to the pre-existing condition of the buildings and cause disputes between the parties; or
• tailor a bespoke specification for the transitional period which sets out the Authority's requirements and is realistic in terms of delivery. In relation to some individual service requirements however, the Contract output specification may be relevant and sufficient for the transitional period (e.g. response and rectification periods). However, where the output specification for the Service Period cannot be met by the Contractor during the transitional period, bespoke outputs will need to be tailored.
7.9.5 In PF2 projects, no payment should be made until the Services are available and being delivered. This fundamental principle of "no service, no payment" is not compromised in instances where the Contractor takes over the delivery of existing services and is paid accordingly. There are two approaches that the Authority can take in relation to payment for delivery of services during the transitional period and the Authority should assess which of these approaches to adopt depending on the value for money they provide:
• many Authorities have based payments before full Service Commencement on their current expenditure, pre-contract, and then applied a performance regime so that, in accordance with the principles of the full payment mechanism, there would be no payment if, for example, a building was unavailable and could not be used, and deductions from the payments if there was poor performance, for example a failure to meet response or rectification periods that did not lead to non-availability. Payment for those parts of the services being delivered will not diminish the significance of full Service Commencement provided the Unitary Charge is structured to incentivise the Contractor to achieve this standard; or
• an alternative to the approach described above would be for the Authority to make no payment in relation to the services received during the transitional period. This would maximise the incentive on the Contractor to bring the facilities up to the Service Commencement level as quickly as possible, but the Authority may lose some influence over the standard of service during the transitional period. As the two approaches will lead to different funding requirements and cash flows for the Contractor, it may well have a significant impact on price.