Please read the note below before using this template documentation
This template documentation has been produced by Sport England, in
consultation with local authorities, leisure operators and leisure, technical and
legal advisors in the market to provide assistance to local authorities in the
procurement of sports and leisure projects.
The template documentation has been published in good faith by Sport England
with the help of its advisors, FMG Consulting and Nabarro LLP, and neither
Sport England nor its advisors shall incur any liability for any action or omission
arising out of any reliance being placed on the template documentation by any
local authority or organisation or other person. Any local authority or organisation
or other person in receipt of this template documentation should take their own
legal, financial and other relevant professional advice when considering what
action (if any) to take in respect of any initiative, proposal, or other involvement
with any contractual partnership, or before placing any reliance on anything
contained herein.
1
SCHEDULE 19 – SURPLUS SHARE
1
This Schedule shall be applied to calculate the overall Excess Surplus generated as a
result of the management of the following [Facility/Facilities] only; [insert].
2
Subject to paragraph 6, within three (3) months of the end of each Contract Year the
Contractor shall provide to the Authority a calculation of the Operating Surplus, Excess
Surplus and Average Excess Surplus for the previous Contract Year, subject to the
calculation being audited by the Contractor’s auditors if an audited calculation cannot be
provided within the required timescale. The calculation shall be in the form of a statement
and certificate signed by the Contractor’s auditors or another registered auditor (the
"Operating Surplus Statement") confirming the figures for Income and Expenditure and
presented in the same format as in the Leisure Operator's Base Trading Account and
setting out details of the Operating Surplus, Excess Surplus and Average Excess Surplus
for that previous Contract Year.
3
The Operating Surplus for each Contract Year, as set out in each Operating Surplus
Statement, shall be calculated in accordance with the formula:
OS = A – B, where
4
OS
means the Operating Surplus (profit) for the relevant Contract Year
A
means the Income received by and/or due to the Contractor in relation to the
Services during the relevant Contract Year
B
means all the Expenditure actually paid (or incurred but not paid) by the Contractor
during the relevant Contract Year, but excluding Contractor Profit and Head Office
Costs.
Where the Operating Surplus Statement for the Contract Year shows a positive Operating
Surplus, the Excess Surplus (ES) shall be calculated in accordance with the formula:
ES = OS – the Contractor’s Projected Surplus
5
The Average Excess Surplus (AES)1 attributable to a Contract Year shall be calculated by
the Contractor in accordance with the provisions of this paragraph 5 on the dates specified
at paragraph 6 of this Schedule. The AES shall be the total ES for the preceding three (3)
Contract Years divided by the number of Contract Years and shall be calculated using the
following formula:
AES = (ES1 + ES2 + ES3), where
3
ES1
means the ES for the Contract Year ending immediately before the Contract Year
during which the calculation is taking place
1
This template determines an average excess surplus based on a three year rolling look back period. The
Authority may prefer to amend the look back period to allow for a longer lead in to the calculation of any
average excess surplus in order to take into account any proposed capital developments and associated
phasing. Alternatively a different approach could be adopted based on an annual review and share of any
excess surplus. Although this has been agreed on a number of contracts it is considered less attractive by
contractors who believe that an average position over a period of time provides a more accurate
representation of any excess surplus, allows for annual fluctuations and does not dis-incentivise against the
implementation of any initiatives that may take a number of years to stabilise.
2
ES2
means the ES for the Contract Year immediately preceding ES1
ES3
means the ES for the Contract Year ending immediately preceding ES2
6
The first Average Excess Surplus calculation shall be undertaken by the Contractor at the
same time as the Excess Surplus calculation following the expiry of the third (3rd) Contract
Year following the Commencement Date. Subsequent Average Excess Surplus calculations
shall be undertaken annually by the Contractor at the same time as the Excess Surplus
Calculation for the relevant Contract Year.
7
Where the Operating Surplus Statement shows a positive Average Excess Surplus, the
Average Excess Surplus shall be divided between the parties according to the following
table.2
Contractor's share of the Average
Excess Surplus
Authority's share of the Average Excess
Surplus
[X%]
[X%]
8
Any dispute between the parties regarding the Operating Surplus Statement shall be dealt
with in accordance with the Dispute Resolution Procedure.
9
Following agreement or as determined in accordance with paragraph 8, the Authority’s
share of any Average Excess Surplus shall be used at the discretion of the Authority.
10
The Contractor shall pay the Authority’s share of the Average Excess Surplus to the
Authority within thirty (30) Business Days of agreement or determination.
11
For the purpose of this Schedule the following terms shall have the following meanings:
"Actual Income"
means the annual operating income of the Contractor in relation to the [Facility/ Facilities]
(without double counting and excluding any management fee payable to the Contractor),
generated through the provision of the Services in relation to the [Facility/ Facilities];
"Average Excess Surplus" or "AES"
means the average excess profit to be shared between the Contractor and the Authority,
calculated in accordance with paragraphs 5, 6 and 7;
"Base Modelled Income"
means the annual operating income (Indexed) that is projected to be earned in relation to
the [Facility/ Facilities] by the Contractor as shown in row [X] of the ‘summary’ worksheet of
the LOBTA (which at the date of this Agreement for the first Contract Year is [£X,000])3;
2
Percentage share to be determined by the Contractor as a bid back item unless a restricted procurement
process is being followed in which case the percentage share is to be determined by the Authority, as
appropriate. In such circumstances it is recommended that a 50:50 share is applied. In order to encourage a
proactive and positive partnership the Authority may also wish to consider the potential inclusion of additional
provisions whereby the Contractor receives a greater percentage share of the Excess Surplus linked to the
achievement of specific over performance standards.
3 Figures and row references to be inserted by the Contractor at financial close based on the agreed LOBTA
3
"Base Profit"
means in relation to the [Facility/ Facilities] an amount (Indexed) which is [X%] of the Base
Modelled Income shown in row [X] of the ‘summary’ worksheet of the LOBTA (which at the
date of this Agreement for the first Contract Year is [£X,000]4);
"Base Head Office Costs"
means in relation to the [Facility/ Facilities] an amount (Indexed) which is a percentage of
the Base Modelled Income profiled on an annual basis for which the annual percentage
profile is shown in row [X] of the ‘summary’ worksheet of the LOBTA. The Base Head Office
Cost percentage figure is shown in row [X] of the ‘summary’ worksheet of the LOBTA
(which at the date of this Agreement is [£X,000] for the first Contract Year)5;
"Contractor Profit"
means an amount which is a fixed amount of the income received by the Contractor in
respect of the Services, calculated as [X%]6 of the Actual Income;
"Contractor’s Projected Surplus"
means the surplus projected in the Leisure Operator’s Base Trading Account, calculated by
adding "Base Profit" to "Base Head Office Costs";
"Excess Surplus" or "ES"
means the excess profit for the year, calculated as per paragraph 4;
"Expenditure"
means the amount of direct costs and expenditure actually paid (or incurred but not paid)
by the Contractor during the relevant Contract Year in respect of the Services but
excluding:
(a)
any sums paid in respect of a previous Contract Year
(b)
any Performance Deductions levied through the terms of Schedule 6 (Payment and
Performance Monitoring System);
(c)
any Contractor Profit; and
(d)
any Head Office Costs;
"Head Office Costs"
means an amount which is a fixed amount of the income received by the Contractor in
respect of the Services, calculated as a percentage of the Actual Income profiled on an
annual basis for which the annual percentage profile is shown in row [X]7 of the ‘summary’
worksheet of the LOBTA;
"Income"
means any income (for the avoidance of doubt including the Annual Payment actually
received by the Contractor in respect of the Services from the Authority in respect of the
relevant Contract Year) but excluding any sums received in respect of a previous Contract
Year;
4
Figures and row references to be inserted by the Contractor at financial close based on the agreed LOBTA
Figures and row references to be inserted by the Contractor at financial close based on the agreed LOBTA.
6 Percentage to be inserted by the Contractor at financial close based on the agreed LOBTA.
7 Row reference to be inserted by the Contractor at financial close based on the agreed LOBTA
5
4
"Operating Surplus" or "OS"
has the meaning ascribed to it in paragraph 3;
"Operating Surplus Statement"
has the meaning ascribed to it in paragraph 2.
5
Worked Example (excluding any inflation impacts)
The following worked example assumes an Annual Payment of £1,000,000 when taking
into account total modelled income (£2,000,000) less total modelled expenditure
(£3,000,000 (including Base Profit and Base Head Office Costs of £150,000)).
Income (A) = £3,000,000 (all income including the Annual Payment)
Expenditure (B) = £2,850,000 (all expenditure excluding Base Profit of £75,000 and Base
Head Office Costs of £75,000)
In the base model, the Operating Surplus is £150,000 which is equal to the Contractor’s
Projected Surplus (Base Profit plus Base Head Office Costs) ie no Excess Surplus.
OS = A – B = £3,000,000 – £2,850,000 = £150,000
ES = £150,000 – £150,000 = £0
If at the end of Year 1:
Income (A) = £3,300,000 (all income including the Annual Payment)
Expenditure (B) = £2,800,000 (all expenditure excluding Contractor’s Profit and Head
Office Costs)
OS = A – B = £3,300,000 – £2,800,000 = £500,000
ES = OS (£500,000) – the Contractor’s Projected Surplus (£150,000) = £350,000
If at the end of Year 2:
Income (A) = £3,000,000 (all income including the Annual Payment)
Expenditure (B) = £2,800,000 (all expenditure excluding Contractor’s Profit and Head
Office Costs)
OS = A – B = £3,000,000 – £2,800,000 = £200,000
ES = OS (£200,000) – the Contractor’s Projected Surplus (£150,000) = £50,000
If at the end of Year 3:
Income (A) = £3,100,000 (all income including the Annual Payment)
Expenditure (B) = £2,870,000 (all expenditure excluding Contractor’s Profit and Head
Office Costs)
OS = A – B = £3,100,000 – £2,870,000 = £230,000
ES = OS (£230,000) – the Contractor’s Projected Surplus (£150,000) = £80,000
The AES for this period is = (ES1 + ES2 + ES3) = (£350,000 + £50,000 + £80,000) = £160,000
3
3
shared between the Contractor and Authority on a [50:50] basis
Contractor – [£80,000]
Authority – [£80,000]
6