The payment mechanism may encompass payments from third parties and/or Service Payments from government. The key aspects of the payment mechanism are:
• Availability of the service for which an availability fee is paid regardless of usage (e.g., heat provided, light, equipment standards)
• Performance relates to the operation of the facility to agreed operational standards. These standards are expressed in terms of measurable key performance indicators. In the event of poor performance that does not meet the performance standards, deductions may be made
• Volume/usage is typically incorporated in the Payment Mechanism where demand risk is shared between the government and the private sector party. This is often the case where the payment structure is wholly or partly demand or market driven. For example, toll road revenues are a function of usage and user charges; payments for water treatment plants are determined by the plant throughput
• Indexation linking the service payment to inflation.
Each aspect of the payment mechanism is linked to risk allocation. The payment mechanism should include performance-based incentives as well as payment abatements (penalties), liquidated damages and termination provisions.
The payments are linked to the services provided by the private sector and the risks borne by both the private sector and government.