The Performance Specification needs to be drafted so that the emphasis is on the proponent keeping pace with changing standards. How the risks and rewards of such changes are reflected in the unitary charge must be included in the Project Agreement and the payment mechanisms. The approach will vary according to the nature of the risk. For example, some of these risks will fall within the generic definitions of general/specific legislative and regulatory risks, whilst others will have to be separately identified and catered for. In determining how such risks should be managed, a balance needs to be struck between providing incentives to the proponent to continue providing the same service levels, and value for money. Sufficient incentives should be developed to encourage the absorption of any additional costs arising from changing standards, without transferring so much risk that the proponent will try to recover the possible costs indirectly, whether or not they occur.
In some instances, it may be better value for money to share the risks of changing standards. This may be done in a number of different ways, including:
• Formula
• Capping the costs of change to both the department and the proponent.
• Negotiation at the time of the occurrence of the change within a pre-agreed framework.
• Both the department and the proponent bearing the risks at different points in the contract.