The routine use of Private Finance Initiatives (PFIs) to deliver new public infrastructure and improve the quality of service delivery is increasing internationally. As many hundreds of PFI projects enter the operational phase, it is becoming clear that most are working well and delivering significant benefits for public authorities and service users alike. It is equally clear that the value created by PFI projects is maximised when public-private relations are underpinned by a properly designed contract management framework, which outlines the service outputs that the authority requires, the methods for measuring and monitoring performance, and the regime under which the payment due to the private partner is determined.
The PFI performance management system allows public authorities to measure and monitor performance and/or quality of service delivered by the private partner against the standards set out in the output specification. PFI performance management deals with what is being measured (in terms of the authority’s requirements) and how it is to be measured. Normally, the object of measurement is a matrix of key performance indicators (KPIs), which are oriented around results rather than processes. The method of measurement is usually based on weighting, where each element of the service delivered is given a weighting based on the level of salience for the authority.
A good PFI performance management system provides a strong incentive for the partner to understand, control and minimize availability and performance risks, enhancing value for money for the public sector client. But proportionality is essential. The payment mechanism must be structured to incentivise good performance but deductions must not be so high that they encourage excessive risk pricing by private partners, or affect the availability of finance. The benefits of a balanced payment mechanism will be maximised if the provider of the PFI performance management software is engaged during the preferred partner negotiations or even during the competitive bidding stage. Having an agreed, and objective, interpretation of the contract is key when dealing with complexities as they arise, and the PFI performance management software can avoid the problems of interpretation and communication – and the adversarial relationships that result.