A performance measurement system was put in place, but this is currently not working satisfactorily

3.22 The STEPS contract has a performance measurement system (PMS) that is intended to incentivise the contractor to perform well and to make deductions for poor performance. This is a typical feature of a PFI deal. The STEPS PMS as envisaged in the contract was built around five Key Performance Indicators (KPIs) that are measured in every building (Figure 15). The contractor is responsible for generating the performance information against each of these indicators and the Departments are responsible for verifying the accuracy of performance reporting by reference to Mapeley STEPS' own records.

3.23  The PMS mechanism was developed by the Departments and their advisers and supplied to all three shortlisted bidders for their consideration and input. The IT to support the operating system was developed by Mapeley STEPS and it was not practical to fully test it prior to implementation. Neither Mapeley STEPS nor the Departments could therefore be certain how it would operate in practice. Because both parties accepted that it would take a few months for service delivery to bed in, a three-month review period was created at the start of the contract (April-June 2001). Under this arrangement, the contractor would still pay a full year's deductions but these would be calculated on the level of deductions in the other nine months of the year. The bedding-in period was subsequently extended to six months, as a result of problems encountered in generating reliable information from Mapeley STEPS' software system and insufficient understanding of systems by Mapeley STEPS' subcontractors. Using the contractual provision that allows the PMS to be revised, a version of the full system was implemented in October 2001.

3.24  Shortly into the operation of this version of the system, Mapeley STEPS considered that the PMS was not sufficiently incentivising it and that it was punitive in certain areas. At the time, part of KPI 1 and KPI 3 were the only ones being used in the PMS reports, KPIs 2 and 4 were not being measured at all, and the use of KPI 5 had been deferred altogether. It was clear that even the revised PMS was not operating as intended, particularly in terms of incentivisation and prioritisation for Mapeley STEPS. The result was that the PMS would reward it for being reactive in dealing with problems, rather than incentivise it to carry out the day-to-day activities that would help to prevent problems. Since May 2003, KPIs 2 and 4 have been operating as part of the PMS; KPI 5 is still not being measured.

3.25  Mapeley STEPS argues that the charges are punitive and therefore an unfair contract term. The Departments do not share this view. To try to resolve this dispute, the contractor and the Departments have commissioned a joint review in an attempt to devise a way forward that is acceptable to both parties. The Departments have told us that the revised version of the PMS that is currently being negotiated would lead to an average monthly deduction of around £121,000. Mapeley STEPS is challenging these potential deductions, but it has made an interim payment for the period April 2001 to September 2003 and has agreed to make further monthly deductions on a without prejudice basis pending the outcome of the review.