B.2  Principles

MISMA does not seek to over-prescribe the form of the payment mechanism, allowing Authorities to design a solution that best meets their need.  However, it is expected that users of the contract will adhere to the following principles:

1.  Charges during Transition will be based on pre-agreed cost estimates for the Contractor completing transition activities.  No service credits will apply.

2.  Charges during the Legacy Service phase will be based on pre-agreed cost estimates for the Contractor's provision of legacy services.  A service credit regime may apply2 but will not be as aggressive as that which applied to the incumbent under the previous contract.

3.  Milestone payments may be paid in the event that the Contractor incurs significant costs during the Transformation phase.

4.  Delay payments will be due for any failure to achieve Key Milestones as a result of a Contractor default.

5.  The minimum scheme of milestone payments would be a single payment on achievement of the Authority To Proceed.

6.  Any milestone payments other than for ATP should only be made at the point at which the Authority is in receipt of something of tangible business value, and when the relevant tests have been passed.

7.  Any single milestone payment should not exceed the costs pre-estimated as those being directly attributable to the achievement of that specific milestone. Only the ATP milestone payment should also include pre-estimated profit for the relevant activity.

8.  Any deferred profit or transformation costs not recovered through milestone payments should be amortised and added to the Transformation service charge.

9.  Charges during the Transformed Service phase will be based on pre-agreed cost estimates for the Contractor's provision of transformed services. A service credit regime will apply and would normally be more aggressive than that in place during the Legacy phase.

10. All service charges should be based on the 'fixed price for a fixed service' principle (that is, charges should only vary to reflect changes in the volume or nature of service).

For the avoidance of doubt, the baseline contract assumes that there is no Contract Performance Point and therefore that milestone payments are not recoverable.

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2  Depending on the length of the Legacy phase, the complexity of the legacy services and the legitimacy of allocating performance risk to the new supplier.