1.1 This briefing note has been developed following recent research into the effectiveness of payment mechanisms in PPP projects. It has been structured to ensure that the learning points identified during the research are applied to current and future payment mechanisms developed for capital projects. As such, the findings have been presented over the different phases of the payment mechanism from its original development and calibration, through to its implementation in the pre-services commencement phase and its management and operation during the operational period. The specific points covered at each of these stages include:
Section 2: Procurement Phase - Development of the Payment Mechanism
o the objective of the payment mechanism
o the calibration of the payment mechanism
o the negotiation of the payment mechanism
o indexation and sculpting of the unitary charge
o the key stage review process and approval of the payment mechanism
Section 3: Pre-services Commencement - Implementing the Payment Mechanism
o implementing the payment mechanism - procedures manuals and user guides
o monitoring the payment mechanism
o reporting processes supporting the payment mechanism
o shadow running of the payment mechanism
Section 4: Operational Phase - Managing the Payment Mechanism
o grace periods and snagging issues
o incorporating project changes into the payment mechanism
1.2 In addition to this, Section 5 of this guidance summarises areas of the contract which may result in changes to the unitary charge over the course of the contract. The research highlighted the importance of Procuring Authorities being aware of these potential changes in order to effectively manage affordability over the life of the contract. Procuring Authorities also need to ensure that project changes are incorporated into the payment mechanism and that deduction amounts reflect such changes to the unitary charge.