Every project must have a clear output specification which forms the basis of the mandatory minimum service requirements. This output specification may be only a few pages long, while the services specification which forms a schedule to the project deed will be much more detailed. A draft of the services specification should be provided with the RFP, but bidders will likely amend this services specification in accordance with their proposed solution. The services specification proposed by each bidder must be compliant with the principles in the mandatory output specification.
If the asset is to be provided by the private sector (for example, rolling stock) and operated by Government, the output specification, mandatory minimum service level requirements, and any specific technical requirements need to be approved by the operator prior to issue.
The following principles should be followed when setting the payment mechanism KPIs for the project:
• KPI and performance regimes should be output based
• only set KPIs which are required to drive the desired performance, with a small number of critical service obligations to be measured
• KPIs should relate to performance only. Issues related to availability of the facility should be dealt with in determining the availability payments. There should be a clear separation between which elements of the services specification relate to availability issues and which relate to performance issues
• KPI definitions should be tested to ensure they:
- relate to events within the Project Company's control and they do not encourage perverse provider behaviour; and
- avoid duplication where other mechanisms, such as an element of demand risk or the default regime, exist to drive desired behaviour.
• detailed testing should be undertaken to ensure the calibration of the KPIs and payment mechanism results in appropriate abatements (commensurate with importance) for the specified performance issue; and
• KPIs should be clearly defined in the project agreement so as to mitigate against any ambiguity in the interpretation of the KPIs during delivery and operations.