40. In most PFI contracts, once the Estimate is agreed, the contract will oblige the contractor to implement the Change18. However, in the majority of cases, the MOD has little sanction against the contractor for failing to do so and therefore the principal incentive on the contractor is increased revenue following the Change, which is in turn counter-balanced by greater obligations in respect of the services and potentially greater risk. This is in part due to the different incentives which may exist at the beginning of the contract from those at the time of undertaking a Change.
41. In light of the above, when discussing the Change with the contractor, acquisition team members should consider what incentives may be put in place to ensure that the Change is implemented appropriately. For example, the FsAST acquisition team Business Procedure on Pricing of PFI/PPP Change states that: "These incentives may be linked to the value of service credits/deductions19 that would arise from the date agreed that the change will occur, or a specifically negotiated Standing Service Credit regime, or to a nominal figure if this is simpler. Whilst it is acceptable to include a limit to the total value of incentive that can be recovered (e.g. 10% of the value of the change), it may in some circumstances be appropriate to increase the incentives for lengthy delays. It should be remembered that such incentives will attract a premium from the contractor to cover the potential risk that delivery will be late."20
42. In addition to the incentives to complete a change, the MOD should also consider what can be done should a change not be implemented within a reasonable period, or where having been implemented it then fails to deliver the intended performance. Linkages to other aspects of performance, termination triggers in the Project and compensation arrangements must be fully considered and amended, where necessary, in the context of the Change.
__________________________________________________________________________________________
18 This may or may not be affected by the addition of a KPI in the Service Provision Requirements in respect of processing of Changes, linked to service credits/deductions under the Payment Mechanism.
19 Service credits/deductions are a mechanism for assessing poor performance leading to payment service credits/deductions.
20 Flight Simulator & Synthetic Trainers Team Business Procedure Commercial Pricing of PPP/PFI Change FsAST BP/C003 Issue 2, Section 2.2. Other types of incentive that may be considered are set out in para. 2.35 of Partnerships UK's Operational Taskforce Note 3: "Variations Protocol for Operational Projects (entered into prior to Standardisation of PFI Contracts version 4)" dated March 2008.