Partnerships UK's research into operational projects35 found that 78% of the Contract Managers surveyed agreed that the payment mechanism supported the effective contract management of their project.
That research also found that 45% of public sector respondents to their survey regarded the PFI payment mechanism as quite difficult or very difficult to use. The Contract Manager should ensure that the Authority undertakes a trial run of the Payment Mechanism and performance monitoring system as early as is practicable in order to test whether it works in a "live" environment. It is also good practice to use an audited spreadsheet that incorporates the logic and financial inputs from the Payment Mechanism and calculates the Monthly Payment on the basis of monthly waste and performance data inputs. This spreadsheet may have been developed during the final stages of the procurement process but if it has not the Contract Manager should ensure it is developed in time to be used from the Services Commencement Date. The spreadsheet can be developed by either the Authority or the Contractor but to achieve the desired outcome both parties must have sufficient confidence in its integrity and accuracy to rely on it outputs. To achieve this it is likely to be necessary to employ an independent party, owing a duty of care to both parties to confirm that the spreadsheet is fit for purpose. There will also need to be a procedures agreed for updating the model when required which should be recorded in the Contract Management Manual.
As the Contract Management Team may not have used such complex payment mechanisms before, the Authority (possibly in conjunction with its advisers) should provide training on the contractual Payment Mechanism and the spreadsheet so that sufficient team members are aware of how variations in tonnages and the Contractor's performance affect the monthly payments to the Contractor.36 It may be beneficial to involve the Contractor in such sessions so that there is a common understanding of how the mechanism works.
It is desirable for the Contract Manager to integrate the system for monitoring performance with the systems for checking invoices and making payments as these functions are so inter-related and this process should be fully documented in the Contract Management Manual.
The Contract Manager should also consider holding training sessions testing out the procedures for when the Contractor fails to provide the services as agreed in the contract documents. Practical examples may be used such as "what happens if the Contractor fails to accept Contract Waste?" or "what happens if the residual waste treatment facility is unable to treat waste for a prolonged period?"
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35 Partnerships UK's Report on Operational PFI Projects (March 2006) is available online at http://www.partnershipsuk.org.uk/uploads/documents/doc_70_22-3-2006-13-58-41.pdf
36 See Section 1.4.3 for details of the training WIDP offer.