A recurrent pattern of long term PPP contract is the output based specification of the private sector performances. An output specification defines the performance standards to be achieved by the delivery of the service. The provision of output based specifications has mainly three effects. It allows the private party to determine the innovative cost-effective solutions for delivering the service according to the output. It frees the public sector from design and construction risk. It also put the user of the service at the center of the performance delivered by the private party.
The output specification is important not only for control and monitoring but also to design an incentive-oriented payment mechanism. Well-defined performance standards allow to reward the private partner for meeting them and to penalize it for failing to do it, i.e. to establish a system of carrots and sticks. A results-based payment mechanism has the advantages of targeting directly the project's outcomes the public-sector party wishes to achieve while giving freedom to the private-sector party to select the process systems and equipment. In other words, this payment mechanism turns the private partner's creativity and know-how instrumental to the pursuit of the public sector's aims.
The difficulty of drafting output specifications in some sector as well as the call for ensuring that a specific need is met may require the use of some input-based specifications.19 For the purpose of control and monitoring the service provision, the performance standards should be clearly defined, measurable in quantitative and qualitative terms, and verifiable by third parties like courts or arbitrators.20
Introduction of output base specification [Chile, Proyecto de Ley que modifica la Ley de Concesiones de Obras Publicas y otras normas.] En primer lugar, siguiendo las tendencias mundiales, el proyecto propone establecer explícitamente, como principio rector de todo el sistema de concesiones de obras públicas, la obligación que asume el concesionario de mantener, durante toda la duración de la concesión, los niveles de servicio y estándares técnicos determinados en las bases de licitación y en el respectivo contrato. Con lo anterior se pretende asegurar el efectivo cumplimiento de los fines públicos que fundamentan la inversión en infraestructura, más allá de la ejecución de especificaciones técnicas que, por si solas, no dan cuenta suficiente de las necesidades ciudadanas que el sistema de concesiones de obras públicas está llamado a satisfacer. |
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19 HONG KONG GOVERNMENT EFFICIENCY UNIT, An introductory guide to Public-Private Partnerships, 2008, available at www.eu.gov.hk, pp. 40
20 For example, in the water sector, an output specification could be the frequency of water testing and threshold values of water purity, preferably a third party implementing the tests; in the transport sector, an output specification may include a certain level of lighting, signage, and road surface maintenance.