There are a number of barriers to innovation that may stifle introducing service delivery innovations, these include:
• the lack of positive obligations in existing project deeds incentivising the private party to introduce service delivery innovations - this barrier has been addressed in recent projects and the Partnerships Victoria standard project deed; and
• risk averse approaches that may be adopted by both the private party and the government party that can make it difficult to introduce new service delivery innovations, where -
- the contract director is focused on ensuring that the government party receives the contractual outputs, agreed upfront over the project term. As such introducing a new service delivery innovation may be seen as something that is unusual, may be difficult to understand, assess and implement;
- the private party is focused on providing the project outputs as contractually agreed. The private party may not look at any innovative service delivery options given that risk adverse equity investors may want to maintain their known project risk allocation.
Due to the inherent barriers to innovation, it is important for the contract director to encourage (or at least not inhibit) innovation. The contract director may consider using incentives such as cost reimbursements or a benefit sharing mechanism to encourage the private party (via equity, facilities managers or operators) to invest in innovations that can demonstrate value for money benefits for the project.
When considering any proposed service delivery innovations, the contract director will need to evaluate the benefits of the proposed changes along with any incentives offered. If the proposal is still able to demonstrate a value for money outcome, then the government party may use a State-initiated modification (as detailed in Chapter 13) to implement the required changes in conjunction with the private party.