1.15 If the level of performance abatement is too low, it reduces the extent to which the Service has actually transferred this risk to Consul. The payment mechanism should be sufficiently sensitive to different levels of performance so that the supplier has a clear incentive to perform at the required level. Figure 7 shows the abatement from the monthly service payment at each of the standards of performance, using the designated formulae in the PFI contract. The maximum monthly abatement when the performance score is 0% amounts to only £18,274. The Service considers that the level of abatements is appropriate in relation to the estimated profitability of the facilities management element of the deal.
1.16 The Service has a number of step-in rights and has told us that it secured a reduction in the unitary charge from £4.2 million a year to £3.6 million a year in return for agreeing to limit the size of financial deductions for non-availability and poor performance. The negotiated reduction in the unitary charge was closely linked to the Service's view on what it could afford for the new courts over the term of the contract and ensured that a hard bargain on price was negotiated with Consul. Nevertheless, the levels of performance abatement appear proportionately small for even poor and unacceptable standards of performance. This may limit the incentive for Consul to remedy any failures and the Service will need to monitor performance carefully in the early years of the contract.