5.6 The structure of the payment mechanism will have a key bearing on the allocation of risks within the PPP contract and it should be developed so that it meets the needs of both the public and the private sectors. Factors which should be taken into account when developing the payment mechanism include:
• the economic fundamentals of the project;
• the likely performance of the private sector;
• the economic fundamentals of the NHS body's business;
• the assessment of underlying project risks and risk management;
• the definition of project requirements and output specifications;
• the definition of project constraints (such as the interface with clinical services);
• external factors such as VAT and the accounting treatment of the scheme.
All these elements must be worked up in a calibration model reflecting the contractual drafting and the design, layout and operation of the facility. Examples and sensitivities must be tested.
5.7 The impact of external factors on the scheme is important. The NHS body should take clear account of these when developing the payment mechanism and should take relevant professional advice where necessary from an early stage.
5.8 The development of the payment mechanism should also encompass factors such as indexation of the payment stream throughout the contract period and the value or market testing of services. Indexation is discussed in Chapter 6, and market testing is discussed in Chapter 7 of this section of the guidance.