KPIs as drafted in the PPP contract may be unrealistic, ambiguous, difficult to implement in practice or no longer relevant. Procuring Authorities should not take advantage of unclear KPIs to the detriment of the Project Company and the Procuring Authority's relationship with the Project Company. Instead, the intended application of the KPIs should be clarified between the parties.
KPIs are generally defined in the PPP contract at financial close. For projects that can run for 20 to 30 years, this means that the indicators can become out of date due to external factors. For example, contracts that were drafted in 2005 are unlikely to have greenhouse gas emissions targets, yet a Procuring Authority may be more likely to have emissions targets defined in its current policies. Similarly, an airport may need additional capacity earlier in the contractual period, with the focus shifting to improved customer service later in the period.
Different approaches to dealing with this have included creating KPIs that are flexible to circumstances, such as factoring in specified review points on the original KPIs.
EXAMPLE Outdated KPIs The Central Berkshire Waste project in the UK was signed in 2006, at a time when the primary objective was to direct waste away from landfill. The Project Company was given the autonomy to achieve this however it saw fit (e.g. through incineration of waste). Current policy is now more focused on recycling and KPIs therefore do not correspond well to the new goals of the Procuring Authority. At the time of writing, the Procuring Authority is considering how to address this challenge. In addition, the Procuring Authority realised that there were certain aspects of reporting that weren't covered clearly in the contract, however were still of interest. It therefore developed an informal audit. Conducted with the Project Company, it covers issues that may be more subjective and are not as clearly defined. For more information, see the Central Berkshire Waste Case Study. |