23.2.4.1 The Authority should afford the Contractor the opportunity of remedying any breach capable of remedy and/or financially compensating the Authority for the effects of the breach. As stated in Section 23.2.1 (Introduction), termination should only be used as a last resort. Accordingly, the Contract should set out a mechanism allowing the Contractor the opportunity to remedy breaches which are capable of remedy to avoid termination. Rectification will not be appropriate in respect of all types of breach. Some breaches may not be capable of remedy (for example, failure to complete construction by the long-stop date) and some events may only qualify as termination events after some kind of grace has already been given (e.g. after the accrual of a specified level of performance points or because of the tolerances contained in the Persistent Breach concept).
Required drafting is as follows:
23.2.4 Rectification
(a) If a Contractor Default has occurred and the Authority wishes to terminate the Contract, it must serve a termination notice32 on the Contractor.
(b) The termination notice must specify:
(i) the type and nature of Contractor Default that has occurred, giving reasonable details; and
(ii) that in the case of any Contractor Default falling within the limbs (a), (g), (h), (i) and (o) of the definition of Contractor Default this Agreement will terminate on the day falling [sixty]33 days after the date of the Contractor received the termination notice, unless:
(A) in the case of a breach under limb (a) of the definition of Contractor Default the Contractor puts forward an acceptable rectification programme within [thirty] days after the date the Contractor receives the Termination Notice (and implements such programme in accordance with its terms and rectifies the Contractor Default in accordance with the programme); or
(B) in the case of any Contractor Default falling with the limbs (a), (g), (h), (i) and (o) of the definition of Contractor Default the Contractor rectifies the Contractor Default within [sixty] days after the date the Contractor receives the Termination Notice; or
(iii) that in the case of any other Contractor Default (not being limbs (a), (g), (h), (i) or (o)), this Agreement will terminate on the date falling [thirty] days after the date the Contractor receives the termination notice.
(c) If the Contractor either rectifies the Contractor Default within the time period specified in the termination notice, or implements the accepted rectification programme, if applicable, in accordance with its terms, the termination notice will be deemed to be revoked and the Contract will continue.
(d) If:
(i) in the case of a Contractor Default within limb (a) of the definition of that term no acceptable rectification programme has been put forward pursuant to Clause 23.2.4(b) (ii) (A) and the Contractor fails to rectify the Contractor Default within the time period specified in the termination notice; or
(ii) in the case of a Contractor Default falling within limbs (g), (h), (i), or (o) of the definition of Contractor Default, the Contractor fails to rectify the Contractor Default within the time period specified in the termination notice,
the Authority may give notice stating that the Contract will, subject to the terms of the Direct Agreement, terminate on the date falling [seven] days after the date of service of such notice.34
(e) If the Contractor fails to implement any rectification programme in accordance with its terms, the Contract will, subject to the terms of the Direct Agreement, terminate on the date falling [seven] days after the date of notification by the Authority to the Contractor of such failure to implement the rectification programme in accordance with its terms.
23.2.4.2 The rectification procedure should allow the Contractor to propose a rectification programme which the Authority may comment on and approve. There will usually be a fixed period within which such programme must be carried out, although it may be appropriate to agree a different, reasonable, period in circumstances where the period set out in the Contract is agreed to be inappropriate, taking into account the nature of the specific breach.
23.2.4.3 During the rectification period it will be to the Contractor's benefit to claim that a Relief Event has occurred. It is for this reason that wilful acts and defaults of the Contractor are excepted from the definition of Relief Events (see Section 15.3.2 (Scope of Relief Events)).35 36 Failure to rectify the default within the agreed period will lead to termination, subject to any step-in rights of the Senior Lenders under the Direct Agreement.
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32 This notice will specify at least the information in paragraph (b). For the Direct Agreement to work effectively, a similar notice should be delivered to the Agent containing the information required by the Senior Lenders (see Section 26 (Funders' Direct Agreement).
33 This will depend on the Project concerned and (as stated in Section 23.2.4.1) the breach concerned.
34 See footnote 37 below.
35 See Section 26 (Funders' Direct Agreement). This gives the Senior Lenders an opportunity to rectify or "sell" the unexpired term of the Contract themselves.
36 It may be appropriate in the light of these concerns to extend the exceptions to the definition of "Relief" to cover the wilful acts and defaults of other concerned parties.