12 Authorities and contractors need to consider how their relationship will be managed before contracts are let. Failure to do this can lead to misunderstandings and difficulties in the early years of the contract, a period which contains considerable risk as the required service is being brought into operation and the parties to the contract get used to working with each other. The Office of Government Commerce has issued best practice guidance on 'Managing Partnering Arrangements'. It outlines for senior managers the issues to be considered in managing partnering relationships, in PFI and other deals, and the key questions to be asked.
13 The development of a successful relationship between authority and contractor will be assisted by the right contractual framework. This will include allocating risks appropriately, establishing clearly defined quality of service and value for money mechanisms and building in arrangements to deal with change.
14 On these matters we found that:
■ although most authorities are satisfied with the risk allocation in their PFI contracts only two-thirds of contractors shared the authorities' view that risks had been allocated appropriately;
■ virtually all contracts include clearly defined arrangements for assessing quality of service. In over half of these the authority had made performance deductions from the payments due to the contractor. There is also evidence that authorities and contractors are using performance review processes to bring about positive changes to the way that services are delivered;
■ many authorities had included mechanisms in their contracts which allow them to monitor or improve value for money although there is, as yet, very limited experience of making use of these mechanisms. Mechanisms most often included were benchmarking, gain sharing and open book accounting. But only 15 per cent of authorities told us that they had the right to share in refinancing benefits. The Office of Government Commerce is preparing revised guidance (see paragraph 1.9) which is likely to recommend that contracts should give authorities approval rights over refinancings and contain provisions on sharing gains; and
■ although most PFI projects are still at an early stage, dealing with change is already a significant issue. Use had been made of change procedures in 55 per cent of the contracts which contained such procedures. These changes related to alterations in services covered by the original specification, the introduction of new services, additional building works or design changes and amendments to performance measurement arrangements. Using the experience of early PFI projects to get the initial procurement right may reduce the need for contract changes on future projects. But some contract changes may well still be necessary and authorities need to ensure that value for money will be maintained where these occur.