2.27 The payment mechanism will be subject to detailed review and negotiation during the dialogue period by both the short-listed bidders and their funders. Experience indicates that the areas they are likely to focus upon are:
o Services specification: the service standards included within the project documentation and the associated rectification periods. This affects the Bidders' assessment of the likelihood of deductions.
o Payment Mechanism: the amount of the actual deductions. How are these calculated? Are there any elements which may influence the level of deductions to be incurred? Areas under detailed review and scrutiny will include the use of minimum deductions; reliefs available for availability and performance deductions; any provisions which may trigger whole service unavailability; caps on potential deductions limiting them to the maximum of the monthly unitary charge and the interaction of availability/performance deductions.
o Warning Notices and Termination Triggers, Project Agreement: the Procuring Authority needs to consider the triggers they include within the project agreement. They need to be able to demonstrate to Bidders why these are appropriate and reasonable for the specifics of their project and to resist erosion of these triggers during the bid negotiation process.
2.28 Within the private sector consortium, the SPV will seek to step-down the payment mechanism, triggers for warning notices and termination triggers to its sub-contractors. The sub-contracts will therefore include similar provisions to the Project Agreement although, the triggers attached to the warning notices and termination events will be tighter to enable the SPV to terminate a sub-contract and address any performance issues before the main project agreement attracts warning notices and/or termination notices.
2.29 The service delivered will in part depend upon the ability and skill of the SPV to enforce its sub-contracts. There is evidence that a few SPVs have been unable to enforce some sub-contractor obligations especially in relation to snagging items and performance issues. This has adversely affected the services received by the Procuring Authority. It is therefore recommended that Procuring Authorities consider including SPV performance measures within their services specification which they can use to ensure that the SPV enforces the sub-contractor obligations.
2.30 During the bid negotiation and dialogue phase, it is important to ensure that all the Procuring Authority's requirements are captured within the services specification. For example, there have been examples in early PPPs where a bidder's approach to service delivery, which was clearly outlined within their bid, was not fully captured within the bid documentation and therefore, not enforceable in practice. The recommended approach ensures all parties have a clear understanding of the service obligations included within the contract. In some sectors, standard service specifications should help to achieve this however, care will need to be taken if standard specifications are not available for example, for Managed Equipment in health schemes.