23.5.4.1 In addition to a general right to terminate at any time, an Authority may consider whether it would be beneficial to have the option to terminate the Contract on specified dates ("Authority Break Point Dates") for a specified compensation amount for equity and Junior Debt.
23.5.4.2 The method of calculation used to determine compensation for equity and Junior Debt in the case of Authority Voluntary Termination (see Section 23.1.3 (Compensation on Termination for Authority Default)) may make it difficult to accurately calculate the compensation required in advance. Having a specified compensation amount will assist the Authority in planning, increase transparency in the cost of early termination and provide a tangible basis for assessment of the Contract's flexibility as part of the value for money analysis.
23.5.4.3 The degree of increased Contract flexibility for the Authority introduced through Authority Break Point Dates will clearly depend upon the extent to which the specified compensation amounts are less than the alternative amounts payable under Clause 23.5.2 (Compensation on Voluntary Termination) on these dates. Accordingly, in evaluating bids, Authorities and their advisers should prepare projections of what is expected to be payable on such voluntary termination based upon the bidders' chosen compensation basis (see Section 23.1.3), and evaluate the prospective discount being offered through the specified compensation amounts.
23.5.4.4 Authorities should consider when and how frequently they require Authority Break Point Dates at an early stage in the procurement. If known, these dates should correspond with times when there is likely to be a reassessment of the Services provided under the Contract, to increase Contract flexibility. Authorities should consider their general right to terminate at any time when determining the frequency of these dates. In any event, Authority Break Point Dates should not occur during the construction period.
23.5.4.5 The Contractor should be required, as part of the competitive bidding process, to provide specified compensation sums for equity and Junior Debt for each Authority Break Point Date. The expectation should be that amounts will reduce for later dates.
23.5.4.6 The Contractor may set the compensation sums at any level and by any method, but the final amount must be a set figure and not calculated by reference to any formula. The Contractor should provide this as a no-cost option to the Authority (i.e. without any related change in Unitary Charge).
Suitable drafting is as follows:
23.5.4 Termination on an Authority Break Point Date
(a) Without prejudice to its rights under Clause 23.5.1 (Voluntary Termination by the Authority), the Authority may terminate the Contract on any of the Authority Break Point Dates by complying with its obligations under paragraphs (b) to (d) below.
(b) If the Authority wishes to terminate the Contract under this Clause, it must give notice to the Contractor stating:
(i) that the Authority is terminating the Contract under this Clause 23.5.4 (Termination on an Authority Break Point Date);
(ii) that the Contract will terminate on the specified Authority Break Point Date; which must be a minimum of [30] days after the date of receipt of the notice; and
(iii) whether the Authority has chosen to exercise its option under paragraph (c) below.
(c) On termination, the Authority shall have the option to require the Contractor to transfer its right, title and interest in and to the Assets to the Authority or as directed by the Authority.
(d) Provided the notice has been provided in accordance with paragraph (b) above, the Contract will terminate on the specified Authority Break Point Date.
23.5.5 Compensation on Termination on an Authority Break Point Date
(a) On termination under Clause 23.5.4(d) above, the Authority shall pay the Contractor, in accordance with Clause 24.5 (Method of Payment),97 an amount equal to the amount payable under Clause 23.5.2 (Compensation on Voluntary Default), save that in calculating such amount, the amount specified in Clause 23.1.3(a)(iii) shall be substituted by:
(i) in the case of termination on the first Authority Break Point Date,] £[ ]; [or]
(ii) in the case of termination on the second Authority Break Point Date, £[ ];98
"Authority Break Point Date" means [ ];99
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97 Where Authority Break Points are included in the Contract, Authorities should also include the provisions set out in Section 24.5 (Method of Payment) to allow the Authority to elect to pay the Base Senior Debt Termination Amount or the Revised Senior Debt Termination Amount in instalments. The application of the provisions may be limited to termination on Authority Break Point Dates. Authorities should, at the time of termination, consider whether this would provide value for money.
98 Provisions to be included for each relevant Authority Break Point Date.
99 This term should be defined on a project-specific basis.