2.27 Private finance contracts are built around a performance regime that outlines service levels and applies penalties to providers if they fail to deliver them. This provides incentives to perform effectively and can, arguably, help build a better culture of service delivery.
2.28 Performance management regimes that tie payments to performance are not unique to private finance, and are generally a feature of major service contracts,30 but private finance introduces performance management where it includes services that have traditionally been delivered in-house. The Building Schools for the Future programme involves the establishment of the first formal performance regimes for school IT administrators, through their transfer to the private sector. Such steps can be controversial, particularly as they often involve the transfer of staff from the public to private sectors, with significant changes to their role and job.
2.29 Such performance regimes are potentially a powerful means of controlling performance. Seventy four per cent of PFI contract managers surveyed by Partnerships UK in 2008 agreed that such mechanisms support the effective management of their project. 55 per cent said that applying financial penalties has led to performance improvements, although 46 per cent said mechanisms are difficult to use.31 We discuss some of the problems with performance regimes in part five.
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30 Central Government's management of service contracts, National Audit Office (HC 65, 2008-09).
31 Investigating the performance of operational PFI contracts: a research study conducted for Partnerships UK on behalf of HM Treasury, ipsos MORi (2008). The National Audit Office was represented on the steering panel to verify the quality of the work, although the conclusions belong to ipsos MORi. in total, 151 Pfi contract managers were surveyed during October-November 2008.