7.1.1 The payment mechanism lies at the heart of the Contract. It puts into financial effect the allocation of risk and responsibility between the Authority and the Contractor. It determines the payments which the Authority makes to the Contractor and establishes the incentives for the Contractor to deliver the Service required in a manner that gives value for money.
7.1.2 Many PFI payment mechanisms involve two key determinants of payment - availability of the Service and performance of Service. This Section is an introduction to the wide range of concepts which can be used in payment mechanisms. These two concepts are discussed in more detail in Sections 8 (Availability Requirements) and 9 (Performance Requirements).
7.1.3 When procuring services through PFI contracts, Authorities should assess not only their current requirements but also their requirements into the future. In many projects, demand or usage will be a key risk over the life of the Contract, regardless of whether or not this risk is passed to the Contractor through the payment mechanism. In drawing up a specification for the Services required, Authorities should be confident that there will be long-term demand for the Service.
7.1.4 The design and calibration of the payment mechanism requires input from the Authority and its advisers, including financial, legal and technical advisers. The payment mechanism should be tailored to the individual project.