CLACKMANNANSHIRE COUNCIL REPORT TO SPECIAL COUNCIL OF 30 NOVEMBER 2006 Subject: Redevelopment of the Secondary School Estate – Final Stages to Financial Close Prepared by: Dave Jones, Director of Services to People, and Lisa Simpson, Service Manager, Administration and Legal Services SUMMARY This report draws together the legal and financial frameworks required to allow Council to conclude a contract with Clackmannanshire Schools Education Partnership (CSEP) for the provision of three new secondary schools. This contract finalisation and signing is known as Financial Close (FC). The report further outlines the stages that have been passed through going from Outline Business Case (OBC) to Financial Close. It shows how affordability of the scheme can be achieved and highlights the changes that have been made to enhance the quality of buildings and the educational environment. The report also identifies the legal powers that enable the Council to enter into the Agreement, the Direct Agreement and other supporting documentation. For ease of reference a summary of the main terms in the PA is appended to this report (Appendix 2). Finally, the report seeks delegated powers for senior officers to conclude negotiations, finalise project arrangements to conclude the Project Agreement within the parameters set by Council RECOMMENDATIONS Subject to the caveat that there is no material change to the final CAPEX figure and affordability being maintained the Council is recommended to: - 2.1.1 Approve the affordability scheme; 2.1.2 Note the content of the report and confirm their continued support for implementation of the Secondary School Estates PPP Project and the arrangements described in the report ; and subject to (a) approval by the Scottish Executive of the final business case for the project and (b) confirmation of the financial assumptions set out in section 4 of this report:- 2.1.3 Delegate authority to Director of Services to People, Director of Development & Environmental Services, Head of Administration & Legal Services and the Head of Finance or their representatives to conclude the pre-contract negotiations and finalise the terms of the Project Agreement and related documentation; 2.1.4 Authorise the Head of Administration and Legal Services to execute the Project Agreement, Direct Agreement and all other relevant agreements and any other documentation required to finalise the Project, on behalf of the Council; 2.1.5 Authorise the Head of Administration & Legal Services, to issue the required certificate under the Local Government (Contracts) Act 1997; and 2.1.6 Incorporate the indemnity as detailed in Appendix 1 as a condition of the Head of Administration & Legal Service’s contract of employment and delegate authority to the Chief Executive to sign the indemnity on behalf of the Council. BACKGROUND AND CURRENT POSITION The Council submission made to the Scottish Executive in December 2002, under the scheme of financial support for PPP, was for the Redevelopment of the Secondary School Estate. The scheme involved, initially, the building of one new school, Alloa Academy, and the refurbishment of the other two. In March 2003, the Council was awarded all that it had bid for; support for £36m capital funding and £48.1m overall; the latter included lifecycle costs. This would be paid throughout the life of the contract (30 years) at £3.43m per year. In late 2003/early 2004 it became increasingly clear that the market was not interested in large-scale refurbishment schemes and that it was not value for money or practical to refurbish the school at Lornshill. Council decided to turn the scheme into one of building 3 new schools, Lornshill inside its existing boundary and the other two on new sites. A revised Outline Business Case was submitted to the Scottish Executive which was approved later in 2004. It was further decided at Council on the 18 February 2004, following a period of public consultation, that Fairfield Secondary Special School should be closed and incorporated into the new Alloa Academy. This would give facilities of an extremely high standard for all pupils especially those with high level additional support needs. In 2004, an architectural competition took place looking to develop innovative designs for schools. At its completion, many of the concepts were put forward for the eventual designers of our new schools to use. In 2004, a bidders conference was held and from this two consortia emerged. One was CSEP (Clackmannanshire Schools Education Partnership) which consisted of Bilfinger Berger BOT; Ogilvie Construction; AMEY; HBOS (Halifax Bank of Scotland); and the other Skanska. An Invitation to Negotiate was issued in November 2004 with a response date of May 2005. Many meetings took place with the two consortia during this period refining and adapting their bids along the way. In the autumn of 2005 a final decision was made to select a Preferred Bidder with whom the Council would work to finalise all the details. CSEP were confirmed as Preferred Bidder in January 2006 and the formal appointment letter was issued 29 March 2006. Negotiations continue to take place on finalising every detail of the contracts but all the major elements are now in place. The overall construction cost (CAPEX) is now £66.873m. The project team are working closely with CSEP to finalise the remaining documentation, with a view to achieving Financial Close during the week commencing 18 December 2006, or sooner if this can be achieved. Work on finalising the Full Business Case for the project is underway, and this document will be submitted to the Scottish Executive for approval in early December. AFFORDABILITY Approvals made to date: 4.1.1 Council has considered the affordability of the redevelopment of the secondary school estate project on 3 occasions to date: In December 2002, on approving the Outline Business Case, where Council Tax increases to support the project were approved as follows: 1% Increase in 2007/08 0.75% Increase from 2008/09 to 2016/17 (9 years) In June 2004, on approving the conclusions of the OBC Addendum and revised project scope. Council Tax increases to support the project were approved as follows: 1% Increase from 2005/06 to 2022/23 (18 years) 0.52% increase in 2023/24 In October and December 2005, when the Council approved the appointment of preferred bidder, and confirmed the extent of capital contributions that will be made to the contract. (See table 1). The affordability gap would be bridged by 1% increase in Council Tax between 2006/07 and 2017/18 (12 years) and a 0.7% increase in 2018/19. 4.1.2 the Council proposed to contribute a total of £16.35m in the form of capital injection to the project. This still stands and the table below demonstrates how it will be made up. Table 1: £(000’s) Elements 05/06 06/07 07/08 08/09 Total Capital Receipts Alva – Existing School Site 1,925 1,925 Fairfield 200 200 Bannockburn Share 520 520 Land South of St Mungos 1,230 1,230 Alloa – Existing School Site 2,725 2,725 Capital Plan Support Alva 700 1,050 1,000 1,000 3,750 Alloa 750 1,250 1,000 3,000 Lornshill 1,150 850 1,000 3,000 TOTAL 16,350 4.1.3 The capital contributions will be paid to CEP on completion of the schools. The programmed completion dates, and associated payments are as follows: Alloa Alva Lornshill Contribution on completion £5.086m £5.664m £5.600m 4.1.4 The full value of the capital assets above (shown as Capital Receipts) need to be assigned to the project so that items being excluded (for example, laptops, wireless ICT solution, external works at Lornshill, white boards and so on) can be funded from the proceeds. 4.2 Identifying the Affordability Gap 4.2.1 In considering whether the proposed PPP project is affordable to the Council, budgetary implications over the whole life of the project have been considered. The extent of capital contributions required under the PPP contract remain as shown in Table 1 above. 4.3 Annual Unitary Charge 4.3.1 The Annual Unitary Charge payable under the contract has been identified from the preferred bidder’s financial model. This payment, made in monthly instalments, will meet the cost of providing services as defined within the project output specification at financial close. The charge will increase by an agreed inflation formula each year throughout the contract term (currently 67% of the unitary charge is subject to RPI increases, with the remainder being fixed.) In considering affordability, it has been assumed that inflation will be 2.5% per annum. The actual amount payable will be agreed annually based on the actual movements in RPI in the year. Movements above and below 2.5% will have to be found from the annual revenue budget. 4.3.2 Where service standards fall below agreed standards, the Council will be entitled to make deductions from the unitary charge due, per the agreed payment mechanism and if failure continues, then step-in rules apply, with termination of the contract being the ultimate sanction available. 4.4 Additional Non-PPP Costs 4.4.1 When considering the value for money aspects of bids received during the Invitation to Negotiate (ITN) period, it was identified that better value for money would be achieved by the Council if energy costs were paid directly by the Council rather than incorporating these costs within the Unitary Charge. The tariff rates applicable to the Council for energy consumption are likely to be significantly better than those achievable by the private sector. Consumption risk however is shared between CSEP and the Council as outlined in the Project Agreement. 4.4.2 The additional Non-PPP Costs identified in the financial model relate to the contractor’s estimated energy costs over the contract term. 4.5 Revenue Support 4.5.1 Following submission of an Outline Business Case to the Scottish Executive, the Council was awarded Revenue Support to assist the funding of the PFI/PPP project. 4.5.2 The award was capped at 80% subject to a maximum amount of £3.430m per annum. The project team has been in regular contact with the Scottish Executive and, at the time of writing, it is anticipated that the Council will receive the maximum amount of Revenue Support given the capital expenditure involved in the final solution as compared to the levels identified at OBC stage. Confirmation will be received from the Scottish Executive on approval of the Full Business Case. 4.6 Contributions from the Capital Budget 4.6.1 An annual contribution of £500,000 from the Capital Budget will be made from 2005/06 towards the cost of the PPP project. The commitment of this sum was approved by the Council, 18 December 2002 at £396k and has been uprated to £500k by inflation. It does, however, remain fixed throughout the period of the contract. 4.7 Contributions from the Schools Fund 4.7.1 An annual contribution from the Scottish Executive’s Schools Fund of £175,000 in the first financial year of unitary charge, rising to £200,000 for the following and subsequent years, will be made to the project. The commitment of this sum was approved by the Executive Team with all Elected Members informed, via a briefing note in March 2005. 4.8 Savings from Existing Budgets 4.8.1 An analysis of the existing schools budgets has been undertaken to identify the level of funding available for services which will transfer in the PPP arrangements and will therefore form part of the annual unitary charge. These costs relate to existing facilities management and janitorial services. Currently, these total about £1.2m. Once the scheme is committed to, these budgets will in effect be ring-fenced for the next thirty years, and will not be available to the Council, from which to find savings. This budget will need to be uprated by inflation annually throughout the contract’s life. 4.9 Meeting the Affordability Gap 4.9.1 A sinking fund has been established which currently contains the 1% increase from Council tax in 2006/07. This will be added to by contributions from the schools fund which will be committed once the construction phase is completed and the other annual increases in Council tax and capital allocations as shown above in 4.1.1 and 4.6.1. 4.10 Other financial considerations 4.10.1 The affordability position outlined above has been derived from CEP's financial model, and reflects the contractual position agreed between the Council and their prospective private sector partner. 4.10.2 The model is currently being audited as part of the funder HBOS’s due diligence process and subject to findings from that audit process, no significant amendments are anticipated prior to financial close. 4.10.3 The financial model assumes a base rate of 4.84% and affordability has been confirmed at this level. The current market rate is 4.55%, which provides a buffer of 29 bps (basis points) within the affordability threshold to provide for any potential increases in interest rates between now and financial close. This means that unless interests rates increase by 0.25% prior to Financial Close there will be no impact on affordability Project Specific Issues 5.1 The original project was for 1 new school and 2 refurbishments. By 2004, it became obvious that refurbishments were not liked by the PPP market and that new build was the only possibility. In June 2004, Council approved a revised Outline Business Case for 3 new schools including the closure of Fairfield Secondary Special School which is to be incorporated into the new Alloa Academy. 5.2 The two building consortia submitted their final bids in May 2005. A period of revision then took place until September 2005 when the final offer from the bidders were received. After a rigorous selection process, CEP were awarded Preferred Bidder status; confirmed at Council in October 2005 and finally signed off in March 2006. 5.3 Changes to the bids culminated in a Revise and Confirm (R&C) stage with the bidders. CEP submitted their R&C positions on 17 September 2005 and it is from that point all further changes follow (see tables below). 5.4 To maintain affordability against a background of considerable construction inflation has meant that changes to the project have been necessary. The one thing that has never been compromised is the commitment of Council and its officers to providing the very best educational environments for all young people in the 12-18 age range. 5.5 In maintaining that quality, no element of furniture, fixtures or fittings has been compromised. The schools will have all new equipment (including chairs, tables, dining equipping and assembly furniture). The only elements from the old schools will be personal items and one or two very large expensive pieces of technology equipment. All the computers will be wireless linked laptops; all rooms will have electronic white boards and projector systems; assembly halls and dance areas will have specialist lighting and surround sound systems and there will be a cashless catering system in place. All staff and pupils will be issued with their own personal laptops. The schools, overall, are bigger than originally planned by some 354 sq.m. 5.6 The above must be set against a background of heavy inflation amounting to 9.91% since R&C; increased costs for a more DDA compliant replacement for the Tulligarth Sports Complex; improved lifts (4x16 person); increased car parking spaces and bus drop-off points; bigger dining and social spaces at Lornshill and Alva; up-rated serveries to attract young people and mechanical and electrical changes which amount to about £0.75m. 5.6.1 Table 2 Total Costs at Revise & Confirm (September 2005) Alloa Academy (12660m2) £19,101,200 Alva Academy (13200m2) £20,621,800 Lornshill Academy (13380m2) £22,037,800 TOTAL COST (39240m2) £61,760,800 TOTAL BEFORE DESIGN, PLANNING & £54,829,700 INFLATION Changes to scope from 09/05 to 10/06 (extra) £ Tulligarth 530,175 Lifts 180,000 Extra dining space 520,579 Car parking 164,726 Substructures 566,703 Utilities 233,760 Serveries 238.072 M&E 704,990 Bus drop-off 20,585 Extra ventilation Alloa 200,000 Prelims uplift 422,000 TOTAL 3,781,590 From above: From Above Total before design etc 54,829,700 Plus changes (above) 3,781.590 Sub-total 58,611,290 Inflation 5,808,379 Sub-total 64,419,669 Design Fees 4,214,900 Sub-total 68,634,569 Planning & Building warrants 139,900 Sub-total 68,774,469 Extra legal fees 75,000 TOTAL 68,849 469 5.6.2 It was decided that because of the uncertainty around technology that whiteboards would be removed from the scheme along with unnecessary mechanical ventilation in some areas. The whiteboards, like the laptops will be purchased by Council at the time of the schools being ready for occupation. This gives benefit of having the latest kit that at the keenest price. This reduced the total by: Whiteboards £446,500 Mechanical Ventilation £240,000 It was further decided to do the final external work at Lornshill, including demolition, under a separate contract. This will save another £1,289,284. THE FINAL CAPEX FIGURE IS £66,873,216 (however this excludes the purchase of white boards, the demolition works and the final external works at Lornshill which will require to be separately funded by the Council from capital receipts from the existing Alloa site). An additional paper detailing the elemental changes to the project cost is currently being finalised and will be issued to members in advance of the Special Council Meeting. For each school: Alloa Academy (12648m2) £20,883,368 Alva Academy (13450m2) £23,095,676 Lornshill Academy (13496m2) £22,894,171 TOTAL £66,873,216 This gives a cost of £1688.97 per square metre. (Note: having compared this figure with other schemes in Scotland, it is considerably cheaper per square metre than any other that has closed in the last twelve months.) 6.0 LEGAL FRAMEWORK 6.1 The purpose of the contract is to enable the design, construction of works, fit- out and subsequent provision of facilities management services in respect of three new secondary schools. 6.2 The contract is for a term of 30 years from completion of the works. 6.3 The Council has sufficient legal powers to enter into the proposed Agreement and Direct Agreement. IT has powers under a number of statutes namely the Education (Scotland) Act 1980, Local Government (Scotland) Act 1973, Local Government etc. (Scotland) Act 1994, Local Government (Contracts) Act 1997 (“the 1997 Act”) , and Local Government in Scotland Act 2003, to enter into the proposed contract with the developer, Clackmannanshire Schools Education Partnership (“CSEP”), the terms and conditions of which are contained within the Project Agreement. 6.4 The Council has powers under Section 1(2)(b) of the 1997 Act, to enter into a Direct Agreement, (which is related to the Project Agreement), with Halifax Bank of Scotland. 6.5 The Council shall also be require to enter into other documents in relation to the Project Agreement including the following; Admission Agreement Collateral warranties with sub-sub-contractors; Direct Agreement with the Construction and FM provider; Independent Certifier Appointment. 6.6 The contract is a contract falling with Section 4(3) of the 1997 Act and the Council requires to issue a Contract Certificate, under that Act, in respect of the Project Agreement. 6.7 In terms of the Council’s Approved Scheme of Delegation the Head of Administration & Legal Services is the proper officer for the purposes of issuing the Contract Certificate under the 1997 Act. She also has delegated authority in terms of the Council’s Standing Orders to sign and seal deeds and other documents on behalf of the Council. 6.8 As the issuing of the Contract Certificate leads to the signatory assuming personal liability for the declarations contained within the certificate, it is considered reasonable that the Head of Administration and Legal Services, as signatory, be indemnified by the Council against such claims on the basis that the Certificate has been signed in good faith in belief that the contract is lawful. An indemnity, (the form of which is set out in Appendix 1), can be incorporated as a terms and conditions of the Head of Administration and Legal Service’s contract of employment by virtue Section 64 (2) of the Local Government (Scotland) Act. 7.0 FINANCIAL IMPLICATIONS 7.1 The financial implications are as set out in the body of this report. ______________________ Director Head of Service _______________________________ Chief Executive APPENDIX 1 FORM OF INDEMNITY The Council resolves that the following indemnity be incorporated into the Head of Administration and Legal Service’s contract of employment under Section 64 (2) of the Local Government (Scotland) Act 1972: That the Council shall, subject to the exceptions set out below in paragraph (e), indemnify the Head of Administration & Legal Services on the following basis: a) the Head of Administration & Legal Services being authorised to sign a certificate under the Local Government (Contracts) Act 1997 and Regulation 7 of the Local Authorities (Contracts) Regulations 1997 ; b) that the indemnity will cover any claims against the Head of Administration & Legal Services or other amount payable by him (including costs incurred by and awarded against him); and c) that the Council will not itself make any claim against the Head of Administration & Legal Services for any loss or damage occasioned by any neglect, act, error or omission committed by such officer in the course of or arising out of signing a certificate within paragraph a) above; d) that the exceptions are: (i) any amount which results directly or indirectly from the commission of a criminal offence of which the Head of Administration & Legal Services is convicted, save where the Council, upon consideration of all the circumstances, determines that the Head of Administration & Legal Services shall nonetheless benefit from this indemnity; (ii) any amount directly or indirectly resulting from fraud, or dishonesty on the part of the Head of Administration & Legal Services ; e) the indemnity shall not apply if the Head of Administration & Legal Services without prior written consent of the Council, admits liability or compromises any claim falling within the scope of the indemnity.” APPENDIX 2 SUMMARY OF THE PROJECT AGREEMENT 1 SCOPE OF OBLIGATIONS Under the Project Agreement the Contractor is required to design, build, finance, operate and maintain the new schools and leisure facility at Lornshill, Alloa and Alva, for the contract period. The Services Period for this contract is 30 years from the last Service Availability Date. 1.1 Construction: The Contractor is obliged to ensure that each School is constructed and ready for use by the Target Service Commencement Dates. Except for the Council’s agreed capital contributions, no payments will be made to the Contractor until this time subject to relief in certain circumstances (most notably where the Council proposes a change to its requirements, where there are certain types of Change in Law or where the Council is in breach of its obligations). 1.2 Services Availability: When the Contractor believes that a School is complete, that School will be subject to independent certification. If the independent certifier is content that the School meets all of the requirements set out in the Project Agreement then an Acceptance Certificate will be issued. This will trigger the commencement of operations and payment of the Unitary Charge for the services to be provided during the Services Period. 1.3 Services Period: The Contractor is obliged to maintain each School throughout the life of the Project Agreement. This will involve both “hard” maintenance e.g. replacement of boilers or other fixtures and fittings (e.g. window frames) and several “soft” facilities management services such as cleaning and grounds maintenance. These requirements will again be set out in the Project Agreement. During the Services Period the Contractor will be paid a Unitary Charge for provision of these services. The Project Agreement will be “output based” i.e. it will specify a minimum level of service to be provided throughout the Services Period. To the extent that the services are not delivered to the required standard then full payment of the Unitary Charge will not be made and deductions will be made. If the performance of the Project Agreement is sufficiently poor then this can lead to termination. 1.4 Contract Flexibility: The Project Agreement permits either the Council or the Contractor to propose changes to the Project Agreement after it has been signed. If the Council wishes to propose a change then there will be limited circumstances in the Project Agreement under which the Contactor will be permitted to reject such change. Any changes implemented at the instigation of the Council will be at the risk and cost of the Council. Any cost increases arising as a result of a Contractor Change will be at the risk of the Contractor unless otherwise agreed by the Council, and any cost decreases will be shared between the Council and the Contractor. The Council is entitled to unilaterally reject any change proposed by the Contractor. 2 PROJECT RISK The Project Agreement will set out the risk allocation between the parties. The key risks are set out below. 2.1 Ground Condition Risk: Except in relation to the External Works area, site conditions are the Contractor’s risk. 2.2 Benchmarking and Market Testing: At specified periods in the Project Agreement, the Contractor must benchmark some of the “soft” facilities management services provided under the Project Agreement to ascertain the quality and competitiveness of the services in question. This is done by comparing the standards and prices of those services provided with the costs of providing them in similar circumstances by reputable organisations possessing the appropriate skills, resources and financial standing relative to the provision of the benchmarking services in question. The Project Agreement will specify the circumstances in which the price paid by the Council should change on the basis of that benchmarking exercise having been undertaken. If the parties are unable to agree this cost change then a market testing exercise will be undertaken. This involves tendering for provision of the existing, specified, services in the open market. 2.3 Change in Law: The Contractor will be concerned that, over the life of the Project Agreement, legislation may change which has a material or adverse impact on the Contractor’s ability to perform its obligations under the Project Agreement. Relief is given to the Contractor in respect of any Qualifying Change in Law. This involves any change in legislation which applies to the Project (and not to similar projects procured under the Private Finance Initiative); or to the Contractor, (and not to other persons,) and/or to persons who have contracted with the public sector to provide services under the Private Finance Initiative (and not to other persons), or any change in law which specifically refers to the provision of Schools. 2.4 Indemnities: The Project Agreement will provide for the Contractor to indemnify the Council against death or personal injury, loss of or damage to property and third party actions arising out of the performance or non- performance by the Contractor of its obligations under the Project Agreement. The final terms of the indemnities are currently being concluded. 2.5 Vandalism: The Project Agreement sets out in detail the risk allocation in relation to vandalism and accidental damage. The vandalism damage drafting is currently being considered. 3 INSURANCE The Project Agreement sets out in detail the insurance policies the Contractor must take out and maintain throughout the life of the Project Agreement. The Project Agreement will provide relief if a risk becomes uninsurable or the price for maintaining such insurance increases beyond a specified level. 4 USE OF THE SCHOOLS The Project Agreement sets out the use of the relevant Schools by the Council, and the community. 5 EMPLOYMENT AND PENSIONS Under employment legislation, a number of employees of the Council will transfer to the Contractor or a subsidiary of that Contractor as a result of entering into the Project Agreement. The Project Agreement sets out in detail the risks of the parties in relation to any such transferring employees. This will provide that the Council will assume liability for any costs or liabilities of those transferring employees arising prior to the transfer date, and the Contractor will assume costs or liabilities arising after the transfer date. The Project Agreement will require the Contractor to obtain admission to the Local Government Pension Scheme in respect of any transferring staff. The unions have been fully consulted in relation to these issues. 6 REFINANCING The financing terms of a project may be amended (usually after the Construction Period). This is because once construction has ended, some of the bigger risks in the project have fallen away. This means the project can be refinanced on preferential terms which in turn will give rise to a financial gain (the “Refinancing Gain”) to the Contractor (who has borrowed the money from the bank). The Project Agreement provides that any Refinancing Gain is shared equally between the Council and the Contractor. 7 TERMINATION The Project Agreement sets out in detail the circumstances in which the Project Agreement may terminate. In summary, termination may arise as a result of: Default by the Council or voluntary termination by the Council; Default by the Contractor; Force Majeure Events; and Breach of the Corrupt Gifts or Refinancing Provisions. The compensation payable to the Contractor will depend on the circumstances giving rise to termination. If the Contractor fails to carry out some of its obligations under the Project Agreement then the Council is entitled to terminate the Project Agreement. The provisions of the Agreement are designed to achieve a balance between the Council’s desire to be able to terminate for inadequate service provision and to allow for reasonable tolerance, bearing in mind the undesirable consequences of a termination. 8 DISPUTE RESOLUTION Inevitably in a long-term relationship the parties will disagree from time to time about matters. Equally true is that it is impossible for the parties in advance to anticipate every eventuality and provide for its outcome explicitly within the Agreement. The Agreement therefore incorporates a Disputes Resolution Procedure and applies the procedures to given events within the Project Agreement where the agreement of the parties to certain courses of action or costs changes, for example, cannot be reached. 9 PAYMENT AND PERFORMANCE Included within the Project Agreement is the Payment Mechanism. It is important for the practical reason that it is the principal means by which performance is both monitored and incentivised through a comprehensive system of deductions from payment of the Unitary Charge. The cornerstone of the mechanism is the concept of the availability of space to prescribed standards. The basic principle applied to this is that if space is unavailable, then the Contractor does not get paid in respect of that space. Space is categorised by reference to the different types of room or other space at each School. The Council may make a deduction for unavailability of a space, where the unavailability remains unremedied within a permitted period according to a formula for valuing the deduction based around the period of unavailability and the weighting accorded to the space affected. Continuing unavailability will incur accelerated deductions. The Contractor can avoid the incurrence of unavailability deductions in certain circumstances, for example by providing acceptable alternative accommodation, or where the unavailability arises from planned maintenance previously agreed with the Council. In addition to the concept of unavailability, the Contractor might also incur performance failures where its performance of the services at the Schools fails to meet the acceptable standards but which do not cause actual unavailability. An appropriate deduction can be made in those instances. Deductions are made on a monthly basis in response to a report submitted by the Contractor in respect of its own performance. This reflects the fact that the Contractor is obliged to self-monitor its performance. However, the Council is able to monitor in a number of ways in addition. The deductions are designed to compensate each School for substandard performance and the non-availability of parts of the School arising out of such performance. In addition, continuing poor performance puts the Contractor at risk of termination where the total deductions accrued exceed various thresholds.