Concepts

The payment mechanism is based on a single Unitary Charge plus payments for energy payable in monthly instalments. The Unitary Charge is subject to a series of performance standards and performance targets against which the performance of the Service Provider will be judged, with adjustments being made from the Unitary Charge if those standards are not attained.

The performance standards, performance targets and the methods for monitoring performance are set out in the Output Specification.  The period, over which performance will be assessed against the standards, and for which adjustments shall be made, will be a calendar month.

The Service Provider is required to measure its own performance under the contract and report monthly to the Authority.  The Authority has rights under the Model Contract to check the accuracy of the measurement and reporting carried out by the Service Provider.

To accommodate the objectives of the payment mechanism, in parts the formulae used to calculate payment adjustments include a multiplier, the aim of which is to generate proportionately greater adjustments for persistent sub-standard performance to reflect the proportionately greater costs to the Authority of managing such sub-standard performance.

In addition to the Unitary Charge there is a payment in respect of electricity - the 'Electricity Cost Adjustment'.  The principle of this payment is that the Authority is subject to price risk and the Service Provider is subject to consumption risk. This recognises that the Authority is best placed to manage the risk of variations in energy prices over the contract term. It also provides incentives for bidders to bid back efficient electricity consumption profiles and for the Service Provider to manage electricity consumption efficiently as possible.