10.1.1 Robust contract management arrangements must be in place in respect of all areas of the Contract and payment mechanism. In many contracts the performance measurement system will be the most complex element of the payment mechanism, and the detail in the following Sections relates most directly to that element.
10.1.2 The following issues must be considered:
• the requirement for the monitoring system to be set out in the Contract so that all parties are clear where their responsibilities lie (see Section 10.2 (Monitoring Against the Payment Mechanism));
• when monitoring/transition arrangements should start (see Section 10.3 (Commencement of Monitoring));
• what to do where Sub-Contractors have been replaced (see Section 9.3 (Replacement of Sub-Contractors));
• who performs the monitoring function (see Section 10.4 (Who does the Monitoring?)). In many cases it will be appropriate for the Contractor to self-monitor, with Authority audit procedures and Authority rights to investigate complaints;
• who pays for monitoring against the payment mechanism (see Section 10.5 (Who pays for the Monitoring?)). The Contractor should normally pay for monitoring, and the ITPD should make this clear;
• what information must be communicated, to whom, when and in what format (see Section 10.6 (Reporting the Results of Monitoring)). Lack of adherence to information requirements needed to enable the payment mechanism to be applied should itself be subject to incentives on the Contractor;
• the relationship with other contracts or activities of the Authority, or dependencies of the Authority on the successful performance of the PFI Contract. This area is generally referred to as "interface risk", but also includes the initial transition/handover of the Project; and
• the relationship between the requirements of the Contract and the Authority's actual procedures in relation to such matters as invoicing and acceptance of completed works.
10.1.3 Authorities have developed a number of points of best practice, to help ensure that the desired performance level is achieved. These points include the following:154
• Authorities should develop a "manual" or "user guide" to support effective monitoring. This manual should provide a plain English explanation of the payment mechanism, together with references to the Contract as appropriate, to facilitate effective management by individuals who may not have been involved with the original negotiation. It may be helpful to include worked examples in this;
• the manual should provide references to relevant guidance and contact details;
• for complex payment mechanisms or complex elements of payment mechanisms, the manual should explain the desired incentive effects;
• successful Contract management has resource requirements for the Authority, which should be considered at the Project planning stage and during procurement. There must be adequate resourcing of suitably-qualified staff during the Project's operational phase. The individuals or groups who will be involved in Contract management should be brought into the procurement process prior to Financial Close;
• training should be provided on the payment mechanism to relevant staff, on both the Authority and private-sector side, and also involving users as appropriate. This is particularly important where the knowledge retained by relevant staff may be limited, for example, where the procurement has involved external advisers for project management or where the lead managers for the Authority have not been involved in the development of the Contract;
• Authorities should consider holding a "dry run" of the payment mechanism and monitoring system prior to Financial Close, by testing scenarios to see how the payment mechanism and monitoring staff would deal with these. Similarly, Authorities might also perform a "shadow" or "trial" run of the payment mechanism after Contract signature but prior to Service Commencement, in order to ensure its effective application once the Project is in operation and to ensure that the relevant staff have been trained adequately in its application;
• review mechanisms for the calibration of the payment mechanism can be appropriate (see Section 7.7.1 (Flexibility));
• the payment mechanism should not be constructed as a technical document drafted only by technical, financial and legal advisers. It must be user-friendly. An over-complex mechanism risks being ignored in practice. Where it is necessary to have a complex structure, consideration should be given to what in practice might be the distinction between features applied on a day-to-day basis and those which are designed to ward off specific potential performance problems; and
• where the Contract will be managed for the Authority by an individual or group which is relatively remote from the actual Project, careful consideration should be given to initiatives to ensure that contract management arrangements are robust and that the Service is responsive to the requirements of users. Authorities and Contractors should put in place training sessions to assist third parties in understanding their monitoring role and should issue user guides so that the processes and the communications between the Authority/Contractor/third party are clearly set out.
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154 See also Operational Taskforce note 2, issued in March 2007, Procurement to Service Delivery, Guidance (see HMT website at www.hm-treasury.gov.uk).