Early in the planning for the end of term arrangements, the contract director will need to consider the degree of flexibility to extend the existing project deed (i.e. does that State have a short-term option that it is able to exercise in the existing project deed?). This flexibility may determine whether or not the State pursues a short-term contract extension. Additionally, planning for a short-term extension may be a prudent contingency exercise should implementing new arrangements be delayed.
Importantly, a short-term contract extension should not be regarded as a means of providing additional time to undertake end of term arrangements or to compensate for poor planning, as an extension may:
• not be acceptable to the incumbent service provider or subcontractors;
• not provide adequate flexibility to assist with managing timelines for procurement;
• require difficult negotiations with the incumbent service provider; or
• require additional project funding and/or not provide value for money.
As part of reviewing the existing project deed, the contract director must gain an understanding of the existing project deed provisions (and provisions in associated project contracts) that may affect a short-term contract extension. Such provisions may include
• whether the contract is able to be extended;
• the potential length of contract term extension;
• the number of times the contract may be extended;
• the process to provide notice to the private party;
• whether the private party has the right to refuse or re-negotiate an extension;
• how the services to be provided by the private party will be determined; and
• how payment for these services will be determined.
All these factors will influence whether a short-term contract extension is a valid option. In addition to the project deed there may be other project contracts that impact options for the future, such as lease arrangements that detail site tenure arrangements, which could also constrain the State's options.
If a short-term contract extension is a valid option, it is important to recognise that contractual may need to be amended (i.e. service payment model and performance regime requirements). If a contract does not specify how either the service payment model or performance regime requirements will change in the event of an extension of the contract term, negotiations with the private party should be commenced as soon as is practicable.