The implicit allocation of operating risk to the private party requires that performance standards are clearly specified in the contract and that an appropriate payment regime (including payment abatement for non-delivery) is established. The private party's liability to meet the agreed performance standards at the agreed price is integral to achieving value for money under the public private partnership policy.
Under long term contracts, the service standards should take account not only of government's present service delivery needs, but also, where practical, future service demands. However, as forecasting future service delivery may be a difficult process, there may also need to be a mechanism by which government may request changes to service standards during the contract term, or for the private party to propose changes.
If service standards are ambiguous or inadequate to meet government objectives, government may effectively be locked in to paying for a deficient product over a long contract term, unless it renegotiates with the private party to achieve the necessary changes. Failure to renegotiate will mean that government must bear the realised risk of sub-optimal performance in relation to its declared objectives. Even where renegotiation occurs and succeeds, additional costs are likely to be incurred.
An alternative may be to enter into shorter term operating contracts.