Common use of Length of Relationship Clause in Contracts

Length of Relationship. There is a balance to be struck between the commercial interests of the company and those of the Council to ensure that there is a truly symbiotic positive enduring relationship between the parties. Some local authorities have set up LATCs with the aim of “weaning” their direct service arm off being reliant on the council’s services and exposing those services to competition. This is not the intention in this case. The intention is to continue to build on that upward spiral of good, value for money services, being competitive, earning income and supporting the activities of the council. The council and company will therefore enter into long term contracts for services on the same term length for  The provision of services to the Council  The purchase by the company of support services from the Council  Leases for depots and plant  Loans from the Council to the Company to support the development of the Company. All of these arrangements will reflect the best interests of the shareholder, the Council and be compliant with “State Aid” requirements but will also ensure that the company is viable and an attractive proposition for third parties to do business with. The contract length will be for 20 years with the potential for a 5 year extension. At the point of inception charges for services to the Council will essentially be based on the budgeted costs subject to any previous agreements as to efficiency programmes currently in place. For example in building maintenance. Subject to the detailed agreements on risk sharing those costs will be subject to  Pay inflation  Inflation in services and charges from the Council to the Contractor to support the provision of services  Inflation in respect of materials  Changes in policy imposed by the council  Changes in service levels required by either party  Efficiencies achieved in the provision of services by either party These charges and costs may be varied as part of the overall package to ensure that the company set up is profitable, the arrangements are tax efficient and there is sufficient retained profit to cover risks transferred to the company and demonstrate a viable company to both potential customers and suppliers alike. Mechanisms to incentivise cost reduction by both the company in providing services to the Council and vice versa will be reflected in the documentation between the Council and the company. There will be a risk sharing agreement as part of the contractual arrangements between the Council and the Contractor. The risk sharing agreement will be based on the identification of key risks to cost and an apportionment ownership of that risk to the party best able to manage that risk. Risks retained by the Company will be reflected in the profits retained by the company and the view taken by its Directors on the declaration of dividend. The key risks identified are:-  Fuel costs  Pension costs  Policy requirements imposed on the company by the Council through its shareholder representatives  Pay costs  Utilities  Repairs and Maintenance Some of these risks are associated only with the Teckal company and the services contract with the council. Property assets will be retained by the council and the company will be charged market rate for leases, for plant and equipment the Council will fund their purchase through loans but the company will be responsible for repair and maintenance and will take ownership. As the financial interests of the company and council are so close the company will not be charged for the notional value of the business transferred. Instead the council will achieve value through rebates, cost reductions and dividend. Whilst the Council has been trading for some time the new arrangements will provide new ways of accounting and managing cost. It inception services both direct and support will be largely as there are now and charged on a similar basis. The Council and the company will be committed to take all opportunities achieve efficiencies from the status quo. Over time experience is likely to demonstrate new and better ways of working and to ensure that a holistic review is taken of the opportunities a substantial review will be undertaken no later than year three which will renew a resetting of the base. The review will cover but will not be restricted to:-  The services required by the council  The cost of those services charged by the company  The services required by the company  The costs of those services  Review of risk sharing agreement  Review of dividend distribution Fuel Teckal company manages in year risk up to 5%, up and downward movement in price. Council thereafter. Trading company covers entire risk Utilities Lies with Council – on the basis the Council manages the contracts & large procurement benefit in place. Contract will require co-operation to achieve 3% per annum reduction in utility costs. Both operations. Materials As set out in MTFP, Risk sits with Client. Teckal only. Trading company manages it own risks Salaries Reflecting the adoption of the council’s pay scheme this remains a council risk but is re-charged to the trading company Pay mechanism for default The focus will be on service improvement and innovation with dispute resolution mechanisms, As such there will be no default procedures Aged debt associated with trading activity. Existing debt at date of transfer stays with council. Newer debt – 50/50 split (at the point of being uncollectable) i.e. main responsibility lies with the Council on the assumption there is an agreed process and that is adhered to by both sides. If the company overrides that process the associated debt transfers to the company. Trading company only. Block payments (e.g. responsive repairs) +/- 5% of average spend over proceeding 3 years sits with company. Teckal only. Delivering MTFP (over / under) MTFP as agreed with the company is guaranteed. Surplus distribution in line with dividend policy. Both Pensions Deficit at transfer remains with Council. On going payments with companies. Both Recycling credits (and other statutory related incomes Stays with Council. Teckal only New Council policies Costed and additional charges made by the company. Both Repairs and Maintenance to leased property With Council as it manages all such functions. Total costs reflected in the lease charges. Trading company to cover that part that relates to trading activity. Income Risk Those sitting with council Those sitting with company Car park income Remain with the council. Remain with the company The parties will agree a base income target for the year. An incentive agreement will be entered into. Any income over the base will be shared with the company as per the incentive scheme. Redundancy The council and the companies in agreeing the MTFP, the Business Plans and workforce plans will work to smooth out workforce requirements so that there are no unexpected drops in demand that cannot be managed out. Client Change Lost commercial business Client covers – applies to Council to company and vice versa Trading company –company to hold contingency to cover this. Change in law etc. Teckal covered by Council, trading arm by itself

Length of Relationship. There is a balance to be struck between the commercial interests of the company and those of the Council to ensure that there is a truly symbiotic positive enduring relationship between the parties. Some local authorities have set up LATCs with the aim of “weaning” their the direct service arm aim off being reliant on the council’s services and exposing those services to competition. This is not the intention in this case. The intention is to continue to build on that upward spiral of good, value for money services, being competitive, earning income and supporting the activities of the council. The council and company will therefore enter into long term contracts for services on the same term length for  The provision of services to the Council  The purchase by the company of support services from the Council  Leases for depots and plant  Loans from the Council to the Company to support the development of the Company. All of these arrangements will reflect the best interests of the shareholder, the Council and be compliant with “State Aid” requirements but will also ensure that the company is viable and an attractive proposition for third parties to do business with. The contract length will be for 20 years with the potential for a 5 year extension. At the point of inception charges for services to the Council will essentially be based on the budgeted costs subject to any previous agreements as to efficiency programmes currently in place. For example in building maintenance. Subject to the detailed agreements on risk sharing those costs will be subject to  Pay inflation  Inflation in services and charges from the Council to the Contractor to support the provision of services  Inflation in respect of materials  Changes in policy imposed by the council  Changes in service levels required by either party  Efficiencies achieved in the provision of services by either party These charges and costs may be varied as part of the overall package to ensure that the company set up is profitable, the arrangements are tax efficient and there is sufficient retained profit to cover risks transferred to the company and demonstrate a viable company to both potential customers and suppliers alike. Mechanisms to incentivise cost reduction by both the company in providing services to the Council and vice versa will be reflected in the documentation between the Council and the company. There will be a risk sharing agreement as part of the contractual arrangements between the Council and the Contractor. The risk sharing agreement will be based on the identification of key risks to cost and an apportionment ownership of that risk to the party best able to manage that risk. Risks retained by the Company will be reflected in the profits retained by the company and the view taken by its Directors on the declaration of dividend. The key risks identified are:-  Fuel costs  Pension costs  Policy requirements imposed on the company by the Council through its shareholder representatives  Pay costs  Utilities  Repairs and Maintenance Some of these risks are associated only with the Teckal company and the services contract with the council. Property assets Assets will be retained by the council and the the company will be charged market rate for leases, leases for property and finance leases for plant and equipment the Council will fund their purchase through loans but the The company will be responsible for repair and maintenance and will take ownership. As charged the financial interests of the company and council are so close the company will not be charged market rate on a revenue basis for the notional value of the business transferred. Instead the council will achieve value through rebates, cost reductions and dividend. Whilst the Council has been trading for some time the new arrangements will provide new ways of accounting and managing cost. It inception services both direct and support will be largely as there are now and charged on a similar basis. The Council and the company will be committed to take all opportunities achieve efficiencies from the status quo. Over time experience is likely to demonstrate new and better ways of working and to ensure that a holistic review is taken of the opportunities a substantial review will be undertaken no later than year three which will renew a resetting of the base. The review will cover but will not be restricted to:-  The services required by the council  The cost of those services charged by the company  The services required by the company  The costs of those services  Review of risk sharing agreement  Review of dividend distribution Fuel Teckal company manages in year risk up to 5%, up and downward movement in price. Council thereafter. Trading company covers entire risk Utilities Lies with Council – on the basis the Council manages the contracts & large procurement benefit in place. Contract will require co-operation to achieve 3% per annum reduction in utility costs. Both operations. Materials As set out in MTFP, Risk sits with Client. Teckal only. Trading company manages it own risks Salaries Reflecting the adoption of the council’s pay scheme this remains a council risk but is re-charged to the trading company Pay mechanism for default The focus will be on service improvement and innovation with dispute resolution mechanisms, As such there will be no default procedures Aged debt associated with trading activity. Existing debt at date of transfer stays with council. Newer debt – 50/50 split (at the point of being uncollectable) i.e. main responsibility lies with the Council on the assumption there is an agreed process and that is adhered to by both sides. If the company overrides that process the associated debt transfers transferred to the company. Trading company only. Block payments (e.g. responsive repairs) +/- 5% of average spend over proceeding 3 years sits with company. Teckal only. Delivering MTFP (over / under) MTFP as agreed with the company is guaranteed. Surplus distribution in line with dividend policy. Both Pensions Deficit at transfer remains with Council. On going payments with companies. Both Recycling credits (and other statutory related incomes Stays with Council. Teckal only New Council policies Costed and additional charges made by the company. Both Repairs and Maintenance to leased property With Council as it manages all such functions. Total costs reflected in the lease charges. Trading company to cover that part that relates to trading activity. Income Risk Those sitting with council Those sitting with company Car park income Remain with the council. Remain with the company The parties will agree a base income target for the year. An incentive agreement will be entered into. Any income over the base will be shared with the company as per the incentive scheme. Redundancy The council and the companies in agreeing the MTFP, the Business Plans and workforce plans will work to smooth out workforce requirements so that there are no unexpected drops in demand that cannot be managed out. Client Change Lost commercial business Client covers – applies to Council to company and vice versa Trading company –company to hold contingency to cover this. Change in law etc. Teckal covered by Council, trading arm by itself.

Length of Relationship. There is a balance to be struck between the commercial interests of the company and those of the Council to ensure that there is a truly symbiotic positive enduring relationship between the parties. Some local authorities have set up LATCs with the aim of “weaning” their the direct service arm aim off being reliant on the council’s services and exposing those services to competition. This is not the intention in this case. The intention is to continue to build on that upward spiral of good, value for money services, being competitive, earning income and supporting the activities of the council. The council and company will therefore enter into long term contracts for services on the same term length for  The provision of services to the Council  The purchase by the company of support services from the Council  Leases for depots and plant  Loans from the Council to the Company to support the development of the Company. All of these arrangements will reflect the best interests of the shareholder, the Council and be compliant with “State Aid” requirements but will also ensure that the company is viable and an attractive proposition for third parties to do business with. The contract length will be for 20 years with the potential for a 5 year extension. At the point of inception charges for services to the Council will essentially be based on the budgeted costs subject to any previous agreements as to efficiency programmes currently in place. For example in building maintenance. Subject to the detailed agreements on risk sharing those costs will be subject to  Pay inflation  Inflation in services and charges from the Council to the Contractor to support the provision of services  Inflation in respect of materials  Changes in policy imposed by the council  Changes in service levels required by either party  Efficiencies achieved in the provision of services by either party These charges and costs may be varied as part of the overall package to ensure that the company set up is profitable, the arrangements are tax efficient and there is sufficient retained profit to cover risks transferred to the company and demonstrate a viable company to both potential customers and suppliers alike. Mechanisms to incentivise cost reduction by both the company in providing services to the Council and vice versa will be reflected in the documentation between the Council and the company. There will be a risk sharing agreement as part of the contractual arrangements between the Council and the Contractor. The risk sharing agreement will be based on the identification of key risks to cost and an apportionment ownership of that risk to the party best able to manage that risk. Risks retained by the Company will be reflected in the profits retained by the company and the view taken by its Directors on the declaration of dividend. The key risks identified are:-  Fuel costs  Pension costs  Policy requirements imposed on the company by the Council through its shareholder representatives  Pay costs  Utilities  Repairs and Maintenance Some of these risks are associated only with the Teckal company and the services contract with the council. Property assets Assets will be retained by the council and the the company will be charged market rate for leases, leases for property and finance leases for plant and equipment the Council will fund their purchase through loans but the The company will be responsible for repair and maintenance and will take ownership. As charged the financial interests of the company and council are so close the company will not be charged market rate on a revenue basis for the notional value of the business transferred. Instead the council will achieve value through rebates, cost reductions and dividend. Whilst the Council has been trading for some time the new arrangements will provide new ways of accounting and managing cost. It inception services both direct and support will be largely as there are now and charged on a similar basis. The Council and the company will be committed to take all opportunities achieve efficiencies from the status quo. Over time experience is likely to demonstrate new and better ways of working and to ensure that a holistic review is taken of the opportunities a substantial review will be undertaken no later than year three which will renew a resetting of the base. The review will cover but will not be restricted to:-  The services required by the council  The cost of those services charged by the company  The services required by the company  The costs of those services  Review of risk sharing agreement  Review of dividend distribution Fuel Teckal company manages in year risk up to 5%, up and downward movement in price. Council thereafter. Trading company covers entire risk Utilities Lies with Council – on the basis the Council manages the contracts & large procurement benefit in place. Contract will require co-operation to achieve 3% per annum reduction in utility costs. Both operations. Materials As set out in MTFP, Risk sits with Client. Teckal only. Trading company manages it own risks Salaries Reflecting the adoption of the council’s pay scheme this remains a council risk but is re-charged to the trading company Pay mechanism for default The focus will be on service improvement and innovation with dispute resolution mechanisms, As such there will be no default procedures Aged debt associated with trading activity. Existing debt at date of transfer stays with council. Newer debt – 50/50 split (at the point of being uncollectable) i.e. main responsibility lies with the Council on the assumption there is an agreed process and that is adhered to by both sides. If the company overrides that process the associated debt transfers transferred to the company. Trading company only. Block payments (e.g. responsive repairs) +/- 5% of average spend over proceeding 3 years sits with company. Teckal only. Delivering MTFP (over / under) MTFP as agreed with the company is guaranteed. Surplus distribution in line with dividend policy. Both Pensions Deficit at transfer remains with Council. On going payments with companies. Both Recycling credits (and other statutory related incomes Stays with Council. Teckal only New Council policies Costed and additional charges made by the company. Both Repairs and Maintenance to leased property With Council as it manages all such functions. Total costs reflected in the lease charges. Trading company to cover that part that relates to trading activity. Income Risk Those sitting with council Those sitting with company Car park income Remain with the council. Remain with the company The parties will agree a base income target for the year. An incentive agreement will be entered into. Any income over the base will be shared with the company as per the incentive scheme. Redundancy The council and the companies in agreeing the MTFP, the Business Plans and workforce plans will work to smooth out workforce requirements so that there are no unexpected drops in demand that cannot be managed out. Client Change Lost commercial business Client covers – applies to Council to company and vice versa Trading company –company to hold contingency to cover this. Change in law etc. Teckal covered by Council, trading arm by itself.