15.2.1.1 Compensation Events are designed to cater for events which arise before the Service Commencement Date which are at the Authority's risk and which result in a delay to Service Commencement and/or increased costs to the Contractor, although the concept can be extended to the Service Period (see Section 15.2.1.4 (Purpose and Scope). Such events are more appropriately dealt with by compensation methods than by being an Authority Default (see Section 23.1.2.1 (Contractor's Right to Terminate for Authority Default)) as termination should in all circumstances be a last resort (although if an event renders the parties' contractual relationship untenable the Authority may choose to exercise its voluntary termination rights). In fact, even a delay is not strictly necessary for the occurrence of a Compensation Event (see Clause 15.2(a) (Delays in Service Commitments due to a Compensation Event) as cost increases can arise without any timetable changes.
15.2.1.2 Events which can arise before the Service Commencement Date and which are at the Authority's risk (i.e. for which compensation should be paid to the Contractor) are:
• Authority breach of an obligation4 (which includes a breach occasioned by third parties for whom the Authority is responsible,5such as teachers or sub-contractors) or any title warranty;
• Authority changes (see Section 11 (Flexibility and Change)); and
• Discriminatory or specific changes in law (see Section 16.5 (Discriminatory, Specific and General Changes in Law)).
The Authority should bear the effects of Authority changes and Qualifying Changes in Law in accordance with the principles set out in Sections 11 (Flexibility and Change) and 16 (Change in Law) respectively. The only significant difference in relation to how the approaches are dealt with during the Service Period is referred to in Section 15.2.3 (Calculation of Compensation).
As mentioned in Section 15.1.4 (Introduction), it may, after careful consideration in certain projects (or sectors), be appropriate to add other specific events. As Authority changes and Qualifying Changes in Law are dealt with in Sections 11 (Flexibility and Change) and 16 (Change in Law) respectively, the required definition of Compensation Event is as follows:
means a breach6 by the Authority of any of its obligations or of any warranty under this Contract.
To the extent that the Authority, takes responsibility for others under a Contract such as a soft service provider or other sub-contractor, or in a school project governing bodies then they too can trigger a Compensation Event.
15.2.1.3 It is of course possible that Authority Changes and changes in law will occur during the Service Period. The Authority should bear the risk of these events in accordance with the principles set out in Section 11(Flexibility and Change) and Section 16 (Change in Law).
15.2.1.4 The Authority may be faced with a request by the Contractor and its financiers to give compensation for Authority breaches which occur during the Service Period. This will not always be appropriate and the Authority should consider carefully the nature of its obligations during the Service Period.7 If its sole obligation is to make payment, then there is no need to give compensation as non- payment in the Service Period is addressed through the provisions dealing with interest on late payment (see Section 19.10 (Payment) and, in extreme cases, through termination for Authority Default (see Section 23.1 (Termination on Authority Default)). During an insurance reinstatement, however, the concept of Compensation Events would apply irrespective of the position for the treatment of Compensation Events in the Service Period, as the construction period will effectively be starting again until reinstatement is completed. The issues relating to reinstatement are dealt with in depth in Section 17.5 (Reinstatement and Change of Requirement after Insured Event).
15.2.1.5 If, however, the Authority has significant ongoing obligations and breach of such obligations would seriously adversely affect the Contractor's ability to perform (e.g. if the Authority failed to carry out procedures for certifying operating matters) or materially affect the cost of performance, then it may be appropriate to make compensation if such breach occurs. This can most easily be addressed by extending the scope of the Compensation Event concept to cover these particular instances. For example, compensation is relevant if the Authority fails to release surplus land at the required date.
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4 Authorities should ensure that their obligations under the Contract are both limited and specific.
5 Compensation claims should be very much the exception. Particularly where the Works are to be carried out on buildings that remain in use, the Contract should require the Contractor to co-operate with and work around other third party contractors wherever possible, and the effects should be anticipated and factored into the programme up-front.
6 This is a breach that will not normally lead to an Authority Default (which can lead to termination - see Section 23.1 (Termination on Authority Default)), but which will nevertheless cause delay and put the Contractor to material expense, including, for example, a failure to allow the Contractor appropriate access to an Authority provided site.
7 If it is appropriate for the Authority to give the Contractor compensation for Authority breaches arising during the Service Period, the Contract will need to incorporate an appropriate compensation mechanism.