One of the key benefits of procuring a project under a Public Private Partnership (PPP) approach is the ability for Government to transfer considered elements of design, construction and operational risk to the private sector where it provides demonstrable value for money (VfM).

To achieve this during operations, Governments’ should develop performance management systems and performance management regimes within operational contracts that have tangible VfM outcomes and deliver the operational objectives and standards set out in the contracts. Performance regimes should include weighted Key Performance Indicators (KPI) that measure the quality and importance of service delivery performance at an activity level. It is the responsibility of the private sector to develop the methodologies to deliver services to the required contractual standards.

As the current PPP project market only has a limited number of projects that have reached operational maturity in Australia and worldwide, it is difficult to measure how successful early performance regimes have been, and whether they have provided VfM. Despite this, on many PPP contracts, performance regimes have been renegotiated, and continuously updated and improved, to reflect changing commercial conditions and the maturity of the market through lessons learned via a continuous improvement approach.

Governments need to develop and implement KPI’s that are flexible, and reviewed regularly by both contract parties, to ensure they remain valid and appropriate. Any adjustment to the risk profile over time should be quantified using pre-agreed metrics.

Performance measures are requisite elements of a successful performance based management system. Governments should consider the following as a minimum, in the development of performance measures:

  • (1) Early involvement of industry experts;
  • (2) Availability of performance data from comparable projects;
  • (3) Implement KPI’s that are:

clearly measurable;
accurately weighted;
flexible and accurate; and
able to be successfully (VfM) monitored without undue governance and process

  • (4) Optimize and calibrate KPIs to measure the important services;
  • (5) A balanced scorecard payment mechanism;
  • (6) Regular review process mechanism;
  • Continuous improvement practices that are adopted and maintained; and
  • Technological advancements that impact quality control and performance

Items 4 and 5 (as examples) are discussed below in further detail:

Opportunity 1 – Optimising KPI’s Service Weightings:

KPI’s which measure services that have a high operational impact should be given a higher weighting in terms of financial incentive in order for the Contractor to deliver the required standards. Generally, KPI’s related to asset management services (which measure asset and building performance and availability) should be developed to measure and prioritize critical and essential plant and equipment operation. Similarly, hospital projects and higher-tech facilities which have redundant systems and high-reliability requirements should include KPIs that are more punitive in the event of asset failure when compared to more conventional facilities, such as schools and roads projects. In addition, the asset duty should also drive levels of maintenance activity and response/rectification needs. For a non-essential asset, such as building finishes and FF&E, KPI weightings could be lower, as their impact on operations is likely to be less.

Opportunity 2 – Developing a Balanced Scorecard Payment Mechanism

In the majority of PPP’s, a service provider is penalized for underperformance or noncompliance, but not rewarded with any financial incentives in excess of fixed fees, for exceeding performance requirement. In preparing payment mechanism, Government should introduce financial incentives in excess to contractual fixed fees, where service providers exceed the performance requirements. This would create opportunities for the service provider to invest in technological innovation and improvement in current workplace practices (eg. Helpdesk Services).

Original Article produced by Ankit Shah, Senior Advisor (Sydney Office)