15.2.2.1 A practical consequence of a Compensation Event occurring is that the Planned Service Commencement Date may have to be postponed, usually by the length of any delay planned handover date and the caused (and any long-stop date will be similarly put back). This means that the start date of the Contractor's revenue stream is also delayed and/or additional costs8 are incurred. As a result, the Contractor may incur finance charges and additional costs which could involve the Contractor in significant expense.9
15.2.2.2 The Contractor should be compensated for any delay to Service Commencement resulting directly from a Compensation Event. The original Expiry Date should be retained and the Contractor compensated for its loss. This does not mean that payment of the Unitary Charge is made for a month in which no Service has been provided although the monetary value of the compensation may be the same as the Unitary Charge.
15.2.2.3 If the Contract contains liquidated damages provisions (see Section 8 (Late Service Commencement)), then the Contractor's liability for liquidated damages will also be relieved for the period of delay caused by the Compensation Event. The Contractor should, of course, also be relieved of any other liability for the Authority's losses in respect of the Compensation Event. This should be taken into account in determining the consequences for the Authority of a Compensation Event.
15.2.2.4 The main advantages of this approach are first, simplicity and second, it will be preferable to financiers, since the senior debt loan life cover ratio and equity return can be preserved. This approach also means that the Authority has an incentive to manage its rights and obligations in the construction period in a way that does not result in delay. The detail of how this approach should work in practice can be seen by reference to Section 15.2.3 (Calculation of Compensation).
5.2.2.5 Some early projects sought to compensate the Contractor by paying up-front for its additional Sub-Contractor's costs, but dealt with financing costs by extending the Expiry Date. This is unlikely to be financeable and so should not be pursued. If the Contractor is fully compensated for the delay, there is no need to extend the Expiry Date and a danger exists of unnecessary complication by doing this. Provided compensation has been paid as set out below, extension of the Expiry Date is not appropriate.
15.2.2.6 The Contractor should be obliged to use reasonable endeavours to mitigate its losses and costs (for example, by rescheduling its works timetable or by redeploying staff). Such mitigation may result in there being no delay in the Planned Service Commencement Date (although extra costs may result from steps taken to mitigate).
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8 A Compensation Event may not affect the Contractor's ability to achieve the Planned Service Commencement Date but increase the Contractor's costs.
9 If "bonus payments" are to be made for early Service Commencement (see Section 8.6 (Bonus Payments for Early Service Commencement)) the parties will need to consider what, if any, further compensation should be paid to the Contractor where early Service Commencement has been prevented by the occurrence of a Compensation Event.