19.6.2.1 In order to encourage innovation and optimise risk transfer, the Contract should specify the required performance level through output requirements (i.e. the Service standard required), rather than through prescriptive inputs (i.e. how the Service will be delivered). In some cases there may be no appropriate comparators or benchmarks available. In such circumstances a suitable performance regime will need to be carefully worked out by the Authority and the bidders during the competitive stages of the procurement. The performance regime will form a key element of the risk-transfer mechanism. The Authority should pay due attention to the principles set out in Section 19.7 (Calibration).
19.6.2.2 In setting the performance level, the Authority should focus primarily on the level of Service it requires and not, for example, on what it is familiar with. If, however, the Authority or a third party is already providing the same type of Service or part of the Service, this may provide a benchmark against which the Authority may compare the quality and price of the Contractor's bid.
19.6.2.3 Benchmarking against a comparator group of other providers of the same or similar Services may be useful where the Service to be delivered has not been measured before in the manner required by the performance monitoring regime in the Contract. An untested performance measurement system may by itself result in performance deductions being too high or too low, so a mechanism for setting the level by comparing similar services should avoid this problem.
19.6.2.4. As with availability financiers will be concerned that the performance level required is reasonable and objectively measurable. They will seek to establish that the Unitary Charge will not, save in circumstances which they have satisfied themselves are unlikely to occur, drop below a level that allows Senior Debt to be serviced and an equity return to be paid. In considering what a reasonable level is, the Authority should decide what the optimum 100% performance standard would be and whether it is achievable and essential (taking into account the nature of the Service), to set the required standard in the Contract at this level. For example, in some cases such as operating theatres in hospitals and custody suites in police stations, the optimum 100% standard will always be required and should always be achievable.
19.6.2.5 In other cases, however, the Authority may recognise that the optimum 100% standard is not, in practice, always essential (or necessarily always achievable). In such cases, the Authority may retain the optimum 100% level, but allow a certain leeway before the Contractor suffers for performing below such 100% level. For example, it may be acceptable for the Contractor to incur a certain number of performance points in any specified period before suffering financially where the Service provided is adequate without being excellent and the under-performance does not materially affect the operation in that area, although this is not recommended.