Transcript Preparation of an Outline Business Case

SESSION 5 – Wednesday 9.00 – 10.30
Output specifications and payment mechanism
Developing the Output
Specification
What is an Output Specification?
• It is what the client needs to achieve from the
facilities and services to be provided
• It helps the bidders to reply properly to the
Invitation to Tender
• It details what needs to be achieved, not how
it is to be achieved
Developing the Output Specification
The following examples illustrate the differences between the two
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“Classrooms must have an adequate power supply to meet
operational requirements” is an output: “Ensure that bedrooms
have at least two pairs of 112V power supply socket outlets
available on each wall” is not an output.
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“Ensure that there are adequate arrangements in place to
maintain the safety of the school and its users ” is an output:
“The school should have a 24-hour security patrol” is not an
output.
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“Ensure that the school is clean enough when in use to provide a
safe, hygienic environment and a positive image” is an output:
“Internal cleaning of the school every morning and evening” is
not an output.
Developing the Output Specification
Why an Output Specification?
• Needed for a robust contract and the successful delivery of
long-term services
• The emphasis is on
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▫ service outcomes and outputs
▫ explicit allocation of risks and
▫ the integration of design and build with the operation of service
facilities
It focuses on strategic needs rather than the detail of current
provision
It should allow new ideas about the design, construction and
operation of facilities to be proposed
It focuses bidders’ attention on project risks
This should lead to better designed and operated facilities in the
longer term
Developing the Output Specification
The range of high-level outputs required in a PPP property project will
typically cover some or all of the following
▫ The provision of serviced accommodation.
▫ Alterations to existing buildings.
▫ Provision of grounds, car park or other external facilities.
▫ Building, installations and asset maintenance.
▫ Grounds maintenance.
▫ Cleaning and waste management.
▫ Furniture and equipment.
▫ Energy management.
▫ Caretaking/site supervisory services.
▫ Security and safety.
▫ Catering.
▫ Information technology.
Developing the Output Specification
A sufficient range and level of services has to be
included in order to:
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optimise the whole-life VFM benefits of
integrating design with operational solutions
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sustain the level of competition for as long as
possible
Developing the Output Specification
A good Output Specification must:
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Reflect the actual requirements of users
Be clear, concise and unambiguous
Give the potential bidders sufficient information
to decide and cost the facilities and services
Comply with legal or other statutory
requirements and policies, and compatibility
requirements
Developing the Output Specification
A good Output Specification must also:
▫ Specify any constraints which are essential to
defining a deliverable project
▫ Allow projects to be evaluated in the
procurement process against defined criteria
▫ Identify those service areas which are critical to
the availability and performance of the facility
▫ Only contain requirements that can be afforded
by the client and are deliverable
Developing the Output Specification
• The Output Specification, by defining outputs,
defines many of the risks that the bidders are
being asked to take on.
• It is for the bidders to assemble the optimum
means of delivering the results required, and
they do this at their own risk of failure.
• If the facilities or services fail in some way, the
client cannot be blamed
Developing the Output Specification
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The Output Specification clearly defines the quality
standards of facility provision and services to be
achieved.
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Otherwise the Output Specification will be open to
misinterpretation
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Also it will be harder to build up the public sector
comparator (PSC) properly
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The PSC must be constructed on the same basis as the
Output Specification.
Developing the Output Specification
The following questions provide a useful framework for determining and
defining outputs:
▫ What are the objectives of the facility and services to be
provided?
▫ How can these objectives contribute to the successful delivery
of the public service?
▫ In the light of these objectives, what is definitely not wanted
What is negotiable?
▫ What is the level and standard of facilities and service that
must be delivered?
▫ What is desirable over that level and standard, if affordable?
Developing the Output Specification
Further questions are:
▫ What service parameters cannot be changed?
▫ How do services and outputs rank in terms of importance?
▫ What is likely to change over the life of the contract? How can
such changes be allowed for in the specification, where
necessary?
▫ Is it possible to translate the specified standards into
performance measures within the payment mechanism?
SESSION
7
Performance
measurement
Performance measurement system
• Concentrate on important measures
• Private sector partner to undertake monitoring
• Partner to provide a point of contact (helpdesk)
• Public sector Client and nominated users able to
report faults
• Partner has permitted rectification period
• Failure may lead to reduction in payment
Performance measurement system
Concentrate on important measures
▫ If too complicated, the mechanism becomes
unwieldy and expensive
▫ The idea is to use the system to incentivise the
partner, not penalise him
Performance measurement system
Partner to undertake monitoring
▫ Partner should provide monitoring equipment
▫ Client can audit system
▫ If not working properly, payment deductions can
be made
Performance measurement system
Partner to provide helpdesk
▫ May be on or off-site
▫ Should be manned as often as necessary to be
able to correct faults
Performance measurement system
Client and nominated users able to report faults
▫ Important to control fault reporting to nominated
users
▫ As soon as report is made, the rectification period
starts
Performance measurement system
Partner has permitted rectification period
▫ Important to allow partner to put right faults before
deducting money
▫ Different periods for different categories of fault
▫ Temporary rectification might be possible
▫ Repeated faults rectified in time might however lead to
payment deduction
Performance measurement system
Failure to rectify in time may lead to reduction in
payment
▫ Deduction points are given for failure to rectify in
time
▫ Repeated failure results in escalating numbers of
points
▫ Points can be awarded for non-availability and
poor performance, but not for the same incident
SESSION
8
The Payment Mechanism
Payment Mechanism
Net Basic Monthly Payment
Equals Gross Basic Monthly Payments
Minus Total Unavailability Monthly Deduction
Minus Service Performance Monthly Deduction
Plus Other adjustments
Plus Indexation
Payment Mechanism
• Unavailability Deduction
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Notice of Unavailability
Helpdesk or Partner’s on site representative
Details of Unavailability
Timing eg:- 5 minutes
Logged Failure Time/Logged Rectification time
Response to Notice
Payment Mechanism
• Commencement/Duration of Unavailability
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Health and Safety Rectification
Temporary Rectification
Permanent Rectification
Inspection of Areas
Payment Mechanism
• Totally Unavailability Deductions
▫ Unavailability Deductions
▫ Unavailability But Used Deductions
eg:- Area Failure Deductions x Deduction Period x [%]
Payment Mechanism
• No Unavailability Deductions if:▫ Client Default
▫ Client Change
▫ Emergency
▫ Planned Maintenance
▫ Acts etc where the Partner has tried to minimise
impact
▫ Client interference through instructions, requests etc
▫ Client Step In
Payment Mechanism
• Alternative Accommodation
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Partner’s Relocation Plan and Relocation Date
Agreement of Alternative Accommodation
Is there a safe and viable means of access?
Sole discretion of Client
Inside/Outside Project Boundary
Alternative Accommodation takes over under the
Payment Mechanism/Performance regime
Payment Mechanism
• Performance Deductions
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Notice of Performance Shortfall
Helpdesk or on site representative
Details of Service performance, shortfall and reasons
Timing eg:- 5 minutes
Logged Failure Time/Logged Rectification Time
Response to Notice
Limitations on Service Performance Deductions
Payment Mechanism
Various Schedules
▫ Basic Payment Schedules
▫ Availability Criteria/Criticality
 Interim areas
 Full areas
Payment Mechanism
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Rectification Periods
Services Priority Spreadsheets
Service Rectification Periods
Core Session tables
Utilities
Consequential Unavailability
Customer Satisfaction Surveys