11.3  Structuring the payment mechanism

The structure of the payment mechanism is critical in implementing the risk allocation and in providing the correct incentives to the private party.

Depending on the nature of the project, the payment mechanism may contain elements that relate to:

•  availability of the service;

•  performance of the service;

•  usage of the service;

•  quality of the private sector's processes; and

•  wider defined benefits.

Many PPP projects use a combination of two or more of these elements. For example, a court services project may use an availability component for payment associated with the physical courtrooms and a service delivery component for operational services, such as court reporting and prisoner movements. It is important that these elements do not have their own independent payment regimes. They need to be part of a unitary payment which reflects overall service performance. This way, payment for usage, for instance, is not made without regard to whether availability or performance standards were met for the service.