The Project Agreement between the Council and the special purpose company established by the Preferred Bidder to carry out this project (IPP (Moray Schools) Limited) (IPP SPV) is based on the Scottish Schools Standard form contract (version 3) (SSSC3) as updated to reflect:
(a) updated guidance from HM Treasury in its Standardisation of PFI Contracts version 4; and
(b) the NPD model (of which more detail is provided in Section 6).
The Project Agreement largely follows the risk-sharing profile set out in SSSC3, updated as aforesaid, save for project specific risks identified through the competitive dialogue process.
The contract provides for the construction of Elgin Academy and Keith Primary Schools with the target dates for completion set for 26 February 2012 and 30 October 2011 respectively. Once constructed, the contract provides for a range of services (including cleaning and janitorial) to be provided to those schools until February 2042. The construction works (including any external landscaping, pitches and playing fields) will be carried out by the Building Contractor, Stewart Milne Group, and the services will be carried out by the Facilities Management contractor, FES FM Limited.
10.2 Contractual Framework of the Project
The diagram below shows the key contractual relationships between the parties:
10.3 Principal Funding Agreements
The senior funder is the General Practice Finance Corporation Limited, of which Aviva forms part. The junior funder is IPP Bond Limited. The main funding agreements are as follows:
1. Loan Agreement between IPP SPV, IPP SPV’s holding company (IPP HoldCo) and Aviva;
2. Junior Funding Agreement amongst IPP Bond Limited and IPP SPV; 3. Senior Funders Direct Agreement amongst the Council, Aviva and IPP
SPV (which follows the form of Senior Funders Direct Agreement in SSSC3, updated as appropriate to reflect the updated guidance from HM Treasury in its Standardisation of PFI Contracts version 4);
4. Junior Funders Direct Agreement amongst the Council, IPP SPV and Junior Funders (which follows the form of Junior Funders Direct Agreement provided to the Council by the Scottish Futures Trust as part of the NPD structure);
5. Joint Insurance Account Agreement amongst the account bank, IPP SPV and the Council; and
Moray Council IPP SPV Shareholders Senior Funders FM Contractor Building Contractor Project Agreement Key sub-contracts Loan Agreement Security Documents Senior Funders Direct Agreement Junior Funders Interface agreement Junior Funding Agreement Junior Funders Direct Agreement
6. Intercreditor Agreement amongst IPP SPV, IPP HoldCo, Aviva and IPP Bond Limited).
The principal funding agreements provided as part of this project follow the same format as standard PPP deals, as adjusted for NPD.
There is also a standard suite of security documents in place which are designed to provide the senior lenders and junior lenders with security in the event of needing to recover their debt. These include charges over bank accounts and assignations in security over shares and certain contracts.
10.4 Principal Sub-contracts The principal sub-contracts are:
1. the Building Contract between IPP SPV and Stewart Milne Group; 2. the Facilities Management Contract between IPP SPV and FES FM
Limited.
Both contracts commence on the same date as the Project Agreement. The Facilities Management Contract expires on the same date as the Project Agreement expires. The Building Contract, as with standard PPP building contracts, expires once all liability of the building contractor has come to an end (typically 12 years after the issue of the final Acceptance Certificate). The Facilities Management Contract is supported by a Parent Company Guarantee granted by FES Limited (a sister company of FES FM Limited). The Building Contract is supported by a performance bond.
For both the Facilities Management Contract and the Building Contract, the Council has direct agreements with the sub-contractors entitling the Council to both warranties and step-in rights. The form of these direct agreements is based upon the SSSC3 draft Collateral Warranty in its Schedule Part 8.
10.5 Project Agreement Key Points
The key areas within the Project Agreement where project specific changes were made are:
1. construction of an all-weather pitch at Keith Primary School which: a. only forms part of the project for construction (services are the
responsibility of the Council once completed)
b. is paid for by way of a one-off lump sum by the Council;
2. construction of certain grass pitches at Keith Primary School which only form part of the project for construction (services being the responsibility of the Council once completed);
3. an agreed provisional sum for dealing with asbestos and a mechanic for IPP SPV’s risk in respect of asbestos to be limited; and
4. limited risks for IPP SPV in respect of planning becoming subject to judicial review.
For further detail on derogations to the SSSC3 Project Agreement (save for updates as referred to in paragraph 10.1 above), please refer to Appendix 6. 10.6
Funding Structure Key Points
The project is financed by a combination of senior and junior debt.
The preferred provider of the senior debt to the project is the General Practice Finance Corporation Limited, part of the Aviva group. GPFC has previously funded a number of NHS, LIFT and Building Schools for the Future (BSF) schemes.
The funding is provided from within Aviva's pension business and is provided on terms that were priced against an underlying benchmark gilt rate plus applicable margin and were fixed at financial close.
The senior debt is provided via one drawdown with the funding placed on deposit within an Aviva account until it is required during the construction period.
The junior funding will be provided by International Public Partnerships (IPP) with a fixed coupon of 12%.
The anticipated ratio of senior and junior funding is around 92:8. 10.7 Corporate Structure
As with standard NPD structures, the IPP SPV’s shareholding is comprised of A shareholders (i.e. the junior funders), a B shareholder (i.e. the Scottish Ministers) and a C shareholder (i.e. the Council).
The members holding the A shares appoint A Directors. The shareholders of IPP HoldCo are entitled to appoint AA Directors and AB Directors. The member holding the B share appoints the B Director (also known as the Public Interest Director) with input from the Nominator, the Scottish Futures Trust.
The A shares are owned by IPP HoldCo. IPP Bond Limited holds the shares in IPP HoldCo.
The memorandum and articles of association for IPP SPV are based on the form provided by the Scottish Futures Trust; amendments made thereto during competitive dialogue have been agreed with the Scottish Futures Trust. 10.8 Sub-Contracts
10.9 Derogations from Scottish Schools Standard Contract V3 These can be found in the table set out in Appendix 6.