1.9 Payments do not usually start until the asset has been built and passed for use and the consortium is delivering the required service. For some projects a part payment may be made for other services being provided before the building is complete.
1.10 In theory, the payment mechanism incentivises the consortium to complete the construction element as soon as possible in order to receive payments. Because the consortium's funders have money which is at risk in the project they too will be concerned that the consortium should progress the project promptly so that the consortium starts to receive income from the project. The funders will also scrutinise the consortium's plans for the project very carefully before finalising the financing arrangements. The funders will wish to be satisified that the consortium has identified, and can manage efficiently, all likely project risks. This pre-contract scrutiny of PFI projects by the external funders is an important factor which increases the likelihood of PFI projects being delivered on time and to the cost expected by departments.
1.11 Because of these incentives construction work in PFI projects may sometimes be completed ahead of schedule. While there may be occasions where it is in a department's interest to receive a built asset early if the construction work is ahead of schedule the OGC guidance on standard contract terms5 notes that:
■ Departments should only accept early service commencement and payment of any relevant bonus if it offers value for money. Early service commencement may clearly prove good value for money if there is critical demand for the service or if it would benefit the department financially;
■ The contract must specify what happens if the contractor is able to provide the service earlier than the planned service commencement date. The department should not be obliged to make any payment before the planned service commencement date unless it has agreed in the contract to accept earlier service commencement.
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5 Standardisation of PFI contracts, OGC (July 2002): paragraphs 4.6.2 and 7.5.1.