Redevelopment of the Secondary School Estate - Final Stages to by dfhrf555fcg


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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


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

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


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

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.


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

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.


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
              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

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
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

        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

      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.)


6.1       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.


7.1 The financial implications are as set out in the body of this report.


Director                                          Head of Service


Chief Executive


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.”



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.


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

     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.


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.


The Project Agreement sets out the use of the relevant Schools by the Council, and
the community.


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.


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


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.


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.


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

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.

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