Where the contractor is paid directly by the users, such as in the case of a toll road, the contractor has an incentive to design the facility so that benefits to users are maximised, as that will maximise user demand and therefore revenue. The incentive to do so will be lower, however, where the facility has monopoly characteristics, such as is often the case with toll roads.
If there is no user charge, this incentive can in principle be replicated through a shadow charge8 or by having tender selection criteria which are known to the market and which clearly reward the winning bidder for design features that maximise usage9. A similar effect can be achieved through the use of a customer-focused, performance based payment mechanism.10 More generally, the incentive to maximise user benefits depends on whether the payment mechanism rewards the provision of more user benefits and whether the service specifications were written in functional or output terms that enable the contractor to consider the level of user benefits as a variable.
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8 A shadow charge is a user charge which is not paid by the user, but by the Government on behalf of the user.
9 In the case of toll roads, it appears that governments have found it difficult to design shadow toll regimes that mimic a real toll - all cases of shadow tolls that have come to the attention of the writer have features, such as banding, that substantially reduce the demand risk transfer, effectively negating the incentive effects that a shadow toll might otherwise have.
10 Useful guidance on the development of payment mechanisms may be found in Chapter 7 of HM Treasury's publication, Standardisation of PFI Contracts - http://www.hm-treasury.gov.uk/d/pfi_sopc4pu101_210307.pdf