6.3.1 As previously stated in this Report, in accordance with the conditions set down in the PPP1 Project Agreement, the City of Edinburgh Council is entitled to make deductions from the unitary payments, to which ESP would otherwise be entitled, for certain failures of performance of the contracted services or non-availability for use of the accommodation provided under the contract.
6.3.2 The City of Edinburgh Council commenced the implementation of this provision of the contract following the collapse of the wall at Oxgangs and as the need for further closure of schools was identified the level of deductions was appropriately increased.
6.3.3 Following the discovery of the missing head restraints and the decision to close all schools from 11th April, in accordance with the requirements of the contract, the City of Edinburgh Council formally wrote to ESP on 14th April 2016 informing them of these extensive service failures on the part of ESP and listing the relevant clauses relating to availability of the facilities and the maintaining of the facilities to the appropriate compliant standards.
6.3.4 The City of Edinburgh Council confirmed its intentions to continue to exercise its rights to make deductions in relation to service failures arising from the non-availability of the schools as from 8th April 2016 and advised ESP that it also reserved its rights to apply deductions for service failures in relation to defects that may have been present prior to 8th April 2016.
6.3.5 There followed several exchanges of letters expressing disagreement between the two parties in relation to the quantum of deductions being applied. The City of Edinburgh Council were convinced of the appropriateness of their methodology for calculating the deductions they proposed and proceeded to apply them in relation to the closures that commenced on 8th April 2016. The provisions of the contract were such that deductions became due to be made in the second month after a service failure. Accordingly, the first of these significant larger monthly deductions was due to be made in June 2016, two months after the closure decision taken in April.
6.3.6 In a letter dated the 27th April 2016 from the City of Edinburgh Council to IML, in respect of their role as representatives of ESP, it was stated that, in addition to the deductions made by the Council from the payments due to ESP as part of the Unitary Charge, the Council would require reimbursement of all expenses and losses caused by the closure of the schools.
6.3.7 In so doing they stated that they were differentiating between deductions, being a contractual adjustment to the payment stream, and damages for breach of contract.
6.3.8 The payment schedule below reflects the fact that a payment is not made in July due to the holiday closure and that the last remedial works, in relation to the problems associated with the structure of the external walls to the schools, finished on 12th August 2016 on which day the last of the schools was handed back as available for use.