8.1.1 The Contract must ensure that the Authority is protected against late Service Commencement by the Contractor in a way which gives the Authority value for money, taking into account the type of loss the Authority may suffer and the need for (and cost of) any contingency plans that are put in place (see Section 7.3.1.(Critical Dates)). This Section deals with the level, types and combinations of protections appropriate in relation to a particular project.
8.1.2 In considering the issue of late Service Commencement, the Authority should acknowledge that the Contractor is likely to be at least as concerned as the Authority to commence Service delivery on time due to significant financial pressures. The Contractor's financing will often be structured with limited contingency to deal with a delay in Service Commencement (particularly where Senior Debt is involved), and the Contractor risks suffering a cash flow drain because its Senior Debt obligations are not being met by payments of the Unitary Charge by the Authority. For every day the Contractor is late in commencing Service delivery, not only does it lose revenue, but its revenue earning period is also reduced. The longer the construction period is, relative to the Service Period, the greater the concern for the Contractor.
8.1.3 Since under the new PF2 model it is recommended that the Authority retains the obligation to provide soft services, as set out in Section 7 (Services), there is a requirement to consider how the interface between the parties will operate and in particular to ensure that Service Commencement is not delayed. The Interface Protocol will need to include relevant measures to ensure this (see Section 7.11 General Interface Obligations).
8.1.4 If the Authority will not suffer any significant loss as a result of late Service Commencement, then it is unlikely to need specific protections. The Authority will however need to consider the impact of any delay in Service Commencement on any contracts that it has entered into for the provision of soft services and seek to ensure that the Authority Service Provider takes the risk of any delay to his start date. Furthermore, in exceptional cases, the Authority may need protections from the Contractor (in addition to the non-payment of the Unitary Charge) such as liquidated damages, performance bonds and/or parent company guarantees. These types of protections are, however, likely to increase the price and affect the project timetable, so the Authority must consider carefully their effect on value for money (see Sections 8.2 (Liquidated Damages), 8.3 (Performance Bonds), 8.4 (Parent Company Guarantees) and 14.5 (Financiers' Security)).
8.1.5 The Authority should also protect itself against prolonged uncertainties arising from late Service Commencement by having a cut-off date after which it may terminate the Contract if the Contractor has not commenced Service delivery by such a date (see Section 8.5 (Long-stop Date)). As stated in Section 7.3.2 (Critical Dates) and elsewhere throughout this guidance, termination should be a last resort.
8.1.6 The Authority should also consider the issue of early Service Commencement and whether the Authority should accept and reward early delivery (see Section 8.6 (Bonus Payments for Early Service Commencement)).