Abatements are a reduction in a service payment due to underperformance relative to a specific key performance indicator (KPI). If an abatement issue arises, the contract director should advise the senior responsible owner of any proposal to abate, or not to abate, and the rationale for the decision before processing the payment.
If an abatement has been triggered and is applied to the service payment, the abatement process usually requires the contract director to document and advise the private party in writing. It is good practice to discuss the abatement issue with the private party to understand the issue, and how the private party plans to meet the required service standards in future.
If an abatement has been triggered and is not applied to the service payment, the contract director will need to have a good rationale, consistent with the overarching contract management strategy. This should be documented and communicated to the private party. Before a decision not to abate is reached, consultation should occur with any government party end users or third-party stakeholders directly affected by the service delivery failure.
In economic or user-pays PPP projects, such as toll road projects, the private party will have an in-built incentive to improve its revenue performance. In these projects where the private party receives revenue solely from private users, without a government party service payment, the project deed will usually include contractual service standards that need to be met. If there is no abatement regime for a project, the project deed will usually contain other incentive regimes such as penalties or bonuses to incentivise the private party to meet its service requirements.