| PFI Assurance Issue: | 7. Payment/incentive mechanism & performance management …to provide assurance that the PFI contract will be (or continues to be) viable and desirable where the payment and incentive mechanism and performance reporting is understood and in accordance with mandated policy and best practice, is linked to and appropriately incentives delivery of the requirement, with no scope for price movement. | |||||
| Commercial/Financial Assurance Guide Ref: | DE&S Commercial Assurance Guidance: 16. Pricing & Incentivisation, 17. Payment & 20. Performance Management | |||||
| Relevant MOD policy/guidance used as measure for assurance: | Relevant external policy/guidance used as measure for assurance: | |||||
| • [MOD PFU Guidance Note - Payment & Incentive Mechanisms for PFI Projects]28 | • HM Treasury: Standardisation of PFI contracts (SoPC) Version 4 | |||||
| Evidence Required for each Procurement Phase | ||||||
| Up to Initial Gate: | Up to Market Engagement: | Up to close dialogue and Preferred Bidder appointment: | Up to Main Gate: | Up to Contract Award: | Post Contract Award29: | |
| • Principles for how the Performance monitoring, Payment & incentive mechanism will work • Historical trend analysis (e.g. usage data) | • Performance monitoring, Payment & incentive mechanism • Calibration methodology and results (spreadsheet) • Historical trend analysis (e.g. usage data) • Financial advisors letter of support30 • Evidence of dry runs or piloting on existing services | • Performance monitoring, Payment & incentive mechanism • Evidence confirming adequacy of performance reporting, helpdesk and sharing of contractor generated management information (e.g. MIS) • Data summarising level of deductions or service credits to date (as % of unitary charge) and any waived deductions or service credits (if any) • Notices/warnings of poor performance (if any) • Details of step-in events (if any) • Evidence of deductions or service credits affecting the contractor's behaviour (i.e. incentivising the 'right' behaviours) • Evidence of periodic audit of the performance management system31 • Customer survey results • Third party income | ||||
| • ITN/ITT (instructions to bidders) • Protocol for calibration post Preferred Bidder | • Protocol for calibration post Preferred Bidder • Tender evaluation report • Bidders acceptance of payment/incentive mechanism & calibration (& protocol) | • Bidders acceptance of payment/incentive mechanism & calibration (& protocol) | ||||
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28 In draft.
29 The focus post contract award is assurance of ongoing vfm and continuous improvement. This may be demonstrated via benchmarking, market testing or vfm reviews.
30 External Assistance advisors letter of support addressed to MoD PFu must cover:
Whether the deal is appropriately structured to deliver the commercial outcome the MoD is seeking and that it is a realistic commercial position that represents value for money and is deliverable and financeable in the current (2009) PFI market;
Whether the commercial aspects of the project have reached an appropriate level of maturity to support the current phase of engagement with the market and identify significant areas outstanding where the MoD could be exposed to risk of increased cost or delay through lack of maturity; and
Whether the timetable proposed to deal close is realistic indicating key risks that may impact on the delivery of the timetable.
31 Including assessment of the appropriateness of the systems used to validate contractors' service performance. In particular acquisition teams should be alert to the risk of the extent of successful service delivery being overstated in situations where this would not result in an adverse experience for users of the service. Acquisition teams should carry out additional audit work of the performance monitoring systems, consider whether the performance data being provided is adequate and carry out spot checks of the authenticity of the underlying data.