5.1 The payment mechanism for a scheme forms a vital part of the PPP contract. It is important because it will:
• define much of the risk transfer in areas such as availability risk and in performance risk relating to service level agreements;
• establish the incentives for providing continuity of service;
• establish incentives for providing flexibility in design and operation;
• form a key determinant of the accounting treatment for the scheme.
5.2 A standard payment mechanism has been applied in Scottish Health projects. It does require project specific adaptation. However, only project specific changes are acceptable.
5.3 NHS bodies should set out the proposed payment mechanism for the scheme in the Invitation To Participate in Dialogue. The payment mechanism should be fully calibrated and drafted before a scheme is advertised.
5.4 Development and calibration of the payment mechanism, including the modelling of unit and area weightings and failure thresholds, is a critical area of the commercial development of the project. It will involve all disciplines and advisers within the Project Team including technical, FM, financial and legal. Project Team members will be involved in detailed negotiation of the payment mechanism with their Preferred Bidder and should gain a thorough understanding of its operation. Further guidance can be found in the Scottish Government Briefing Note on Payment Mechanisms.