1.7 Equity investors respond to three major incentives under PFI contracts:
• Public sector clients (the Authorities) make no payments until receipt of the contracted services, typically following a construction period. This incentivises investors to deliver assets promptly and effectively.
• During the operational period, authorities have contractual rights to make payment deductions from payments of the service charge if the contractors do not meet the agreed performance standards.
• The senior debt lenders can also prevent the project company making payments to the investors if, for example, the project's ratio of debt service costs to net income threatens its long-term viability. This control further encourages the equity investors to manage actively the contracted service delivery so that performance deductions are minimised.