It may make sense in selective cases to consider the termination of contracts.
Voluntary termination should be a consideration for public sector bodies in circumstances where particularly poor value for money is an ongoing issue and where this would be addressed by voluntarily terminating the contract. For example on a number of the early PFI contracts, it was agreed that the asset did not revert to the public sector at the end of the contract - voluntary termination in some cases may allow control of the asset to be regained by the public sector without a significant increase in the termination liability.
There may also be circumstances where operator performance on the contract is so poor that contractor default could and should be enforced. The contractual implication of doing so will vary somewhat for each project, but in most recently signed contracts will require a determination of the market value of the contract and repayment to the project company on this basis. Termination whether voluntarily by an Authority or by contractor default raises a number of questions regarding the future funding and maintenance of the assets - including
a) Is PWLB an appropriate means of financing termination liabilities for local authorities?
b) Is there any capacity / appetite to finance termination liabilities where PWLB borrowing is not available?
c) Does level playing field support remain in place for local authorities, or would capital budget cover be given to bring assets back within public budgets for central government projects?
Amongst these, point c) is of particular significance. SG Finance advise that if a contract was terminated, and termination costs financed through PWLB borrowing in a Local Authority, then existing Revenue Support from SG would become supported borrowing and require capital budget cover. It would not be good business for the Authority to terminate if Revenue Support was not ongoing. Thus, the overall VfM assessment, and even assessment of cash payments made would suggest that termination could be the best option but the capital budget implication for Scottish Government could make termination unattractive in the short term.
As shown in the example below, we are building evidence that the termination route could deliver VfM in some circumstances. Confirmation of whether you would wish us to pursue these with contracting authorities is needed before progressing any further.