14.1.1  Service fee

(a)  The service fee may be made up of sub-elements reflecting particular categories of expenses faced by the private party (both fixed and variable), but collectively these will comprise a single service fee payable for each unit of service.

(b)  In some very limited circumstances, there may be specific components of a project's construction costs that may be highly uncertain, leading to those components being highly priced in bids.  In these circumstances, government may hope to obtain a better value for money outcome by including a "provisional" sum for that construction component in the service fee, which represents the expected cost of that component, but is subject to adjustment once the actual cost becomes known during construction.  

(c)  If it is proposed that provisional sums will be included in the service fee, care is needed to ensure that:

(i)  the component of the works to which the provisional sum relates is clearly and comprehensively defined;

(ii)  the costs incurred in delivering the component of the works to which the provisional sum relates is identifiable as a discreet component of the total construction costs;

(iii)  the project agreement contains a clear and robust process for determining the actual amount payable by government in respect of the relevant component of the works - for example, a tender process to engage a sub-contractor to perform the works, with both government and the private party having a role in evaluating the tenders; and

(iv)  government is only liable for those costs reasonably and properly incurred by the private party.