25.1.1 A distinction can be drawn between:
• Contracts where it represents best value for money for the Authority to take control of the Assets on Expiry. This includes Assets where the long-term public sector demand is clear or for which there is no practical alternative use (for example, schools, hospitals, prisons, and office accommodation that, due to its location or nature, is only of value to the public sector client). These are dealt with in Section 25.2 (Assets where the Authority Retains Residual Value on Expiry); and
• Contracts where residual value of the Assets is best transferred to the Contractor. These are generally generic Assets which have alternative use outside the public sector and for which there is no clear long-term public sector need (for example, office or housing accommodation in areas where there is demand from other users, and alternative land use). These are discussed in Section 25.5 (Transfer of Residual Value Risk).
25.1.2 By "residual value" this guidance means, in the context of a Contract, the market value of the Assets associated with the Contract at the time it expires. When the Contract is signed, the residual value of the Assets is not known. "Residual Value Risk" refers to the uncertainty as to what the residual value will prove to be. There will usually be some estimate of the approximate residual value to be expected, which may be factored into the overall financing structure of the Contract.
25.1.3 The Contract should deal comprehensively with the treatment of Assets on all types of terminations which party retains the Assets on termination, and whether those Assets have any alternative use, will affect the level of termination payment (if any) payable by the Authority.