23.1.2.1 The Contractor should be allowed the right to terminate the Contract where the Authority or Government acts in a way which renders their contractual relationship untenable or completely frustrates the Contractor's ability to deliver the Service. A minor breach will not fall into this category and even a material breach of itself is likely to be insufficient if the Authority's actions do not have the effect described above.
Required drafting for Authority Default is as follows:
means one of the following events:1
(a) an expropriation, sequestration or requisition of a material part of the Assets and/or shares of the Contractor [or Holdco]2 by the Authority or other Relevant Authority;
(b) a failure by the Authority to make payment of any amount of money exceeding £[ ] (indexed) that is due and payable by the Authority under this Contract within 30 days of service of a formal written demand by the Contractor, where that amount fell due and payable [two] (or more) months prior to the date of service of the written demand;3
(c) a breach by the Authority of its obligations under this Contract which substantially frustrates or renders it impossible for the Contractor to perform its obligations under this Contract for a continuous period of [two] months,4 or
(d) a breach by the Authority of Clause 32 (Assignment) occurs.
23.1.2.2 Beyond this, the circumstances in which the Contractor is permitted to terminate for Authority Default must be considered on a project by project basis. The Authority needs to examine the nature of its obligations during the Contract and should only extend the list of Authority Default events to include breaches of other obligations which will render the contractual relationship untenable or completely frustrate the Contractor's ability to deliver the Service.
23.1.2.3 Termination by the Contractor should be a last resort and it is important to ensure that there are no "hair triggers" which could put the Authority at risk of termination before it has had an opportunity to remedy its default. There can be no question of reciprocity with the defaults that trigger a Contractor Default as the obligations of the Authority are principally payment obligations and approval rights, rather than detailed performance or other credit related obligations.
23.1.2.4 The Contractor should bear in mind that a failure by the Authority to comply with the provisions of the Contract before Service Commencement (for example issuing approvals) and sometimes after that date, can in most cases be adequately dealt with by way of a Compensation Event (see Section 15 (Supervening Events)). In addition, any failure by the Authority to pay sums when due should give rise to interest on late payment (see Section 19.10 (Payment)) and so a reasonable grace period for non-payment should be built into the Contract and so neither of these should trigger termination. Required drafting is as follows:
23.1.2 Termination on Authority Default
(a) If an Authority Default has occurred and the Contractor wishes to terminate the Contract, it must serve a termination notice5 on the Authority6 within [45] days of becoming aware of the Authority Default.
(b) The termination notice must specify the type of Authority Default which has occurred entitling the Contractor to terminate.
(c) The Contract will terminate on the day falling [45] days after the date the Authority receives the termination notice, unless the Authority rectifies the Authority Default within [30] days of receipt of the termination notice.
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1 In certain cases, it may be appropriate to include additional events. See Section 23.1.2.2.
2 This may need to be extended to cover shares in the holding company of the Contractor if the main shareholdings in the Contractor are held through such a medium and/or the assets and shares of the Construction Sub-Contractor and the Operating Sub-Contractor if such an expropriation, sequestration or requisition would prevent the Contractor from performing its obligations under the Contract.
3 This provision assumes that interest on late payment is provided for in the Contract (see Clause 19.10 (Payment)).
4 The periods triggering Authority Default in paragraphs (b) and (c) are subject to the further rectification periods set out in Clause 23.1.2 (Termination on Authority Default).
5 This will contain detailed requirements and information on the Authority Default. See Section 15 (Supervening Events).
6 In certain cases a third party (e.g. the relevant Secretary of State) should also receive notice.