Possible fee structures include:
• hourly rates for individuals
• hourly basis with a price cap
• a fixed fee
• fixed fees for each defined stage agreed in advance within an overall budget
• monthly retainers, with a fixed fee or success fee component paid at completion of the project.
The appropriate fee structure will largely depend on the nature and stage of development of the public private partnership project and the extent of advisory services to be provided. In deciding upon an appropriate fee structure, it is important that the right incentives be established at an early stage to maximise value for money in the provision of the advisory services.
Agencies should avoid paying an hourly rate without a performance timeframe. In all cases, it is strongly recommended that a fixed fee or a price cap be administered. To establish an appropriate fixed fee or price cap, tenderers should be given as much information as is reasonable so they can properly scope the project based on known assumptions. The appropriateness of these assumptions can then be tested as the project progresses and the price cap revised as necessary in line with hourly rates.
It may be necessary in some instances for the final price cap to be agreed once the preferred tenderer has had the opportunity to properly scope the project by obtaining further detailed information about the project. Under these circumstances, it is recommended that the agency retain the flexibility to negotiate with the second preferred tenderer in the event that it is unable to negotiate an acceptable price cap with the first preferred tenderer.
Investment banks usually structure their fees based on monthly retainers, with a fixed fee or success fee being paid at completion of the project. Monthly retainers may be appropriate where the adviser's services are to be used on a regular and ongoing basis throughout the project.
Examples of success fee structures include remuneration for getting the project to financial close or awarding a contract that generates a certain percentage better value for money than that of an agreed benchmark. An example of a situation where a success fee would not be appropriate is where the adviser has been awarded the contract for all stages of the framework. In the public private partnership business case development stage it is critical that objective advice is given about whether delivery a public private partnership model will deliver the best value for money. The adviser may not have incentive to provide objective advice where the major component of their fee is based on project completion.