PPP Performance Reporting

Many governments are turning to public-private partnerships (PPPs) to provide public facilities and services for their citizens. Several OECD countries have used the PPP model to finance, build, and maintain new social infrastructure, such as hospitals, schools, housing, prisons and leisure facilities, while leaving core services within the public sector. With many of the early projects now successfully completed and in operation, 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 PPP projects is maximised when public-private relations are underpinned by a properly designed contract management framework, which outlines the service standards that the authority requires, the PPP performance reporting methods, and the regime under which the payment due to the private partner is determined. The key to successful partnering is to ensure that the legal requirements of the contract are translated into a performance management system which is clear and operationally relevant to all users.

The performance measuring system (PMS) 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. PPP performance reporting 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 designed 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 importance for the authority. Three main approaches to measuring performance are evident:

• The performance scoring system, in which the performance score is derived by grouping services into ‘bundled services’ and weighted in proportion of the total services based on their salience for the public authority;
• The fixed deductions method, which is normally used for specific incidents (such as a power cut in an operating theatre of a hospital) where failures are of fundamental significance for the client and the services it is responsible for; and
• The penalty points method, in which penalty points are agreed for each incident, reflecting the requirements of the authority, with the total points accumulated compared periodically to an agreed baseline to determine payment deduction.

A good performance management system ensures that performance can be measured, checked and signed off. All changes to events, which can be very fluid, must be recorded. An event may start as a broken window but later develop into a broader problem of vandalism. A system must be in place that will record changes or any instructions that relate to them. This also provides an audit trail because these are date/time stamped and logged – and the authority knows it has documentation that it can trust. The public sector client can view this in real time to ensure that things are happening in accordance with the contract. Auditors will also want to see an event and follow this through to the penalty, and they must have a complete record of what has occurred and how this has been resolved through the contract. PPP performance reporting is a key element in all these aspects.

Once the asset delivery phase of a PPP project is completed and the contract is operational, the performance management system must be capable of providing reliable and trusted data on availability, performance, quality and service failures. Due to the auditing requirements of PPPs, performance management software used within contracts is required to deliver consistent, auditable and transparent management of data, ensuring any issues are resolved quickly and encouraging open relationships between partners. Many different users of the facilities expect to have access to the software on a day-to-day basis to log events remotely, run reports, manage assets and close events. It is critical that PPP performance reporting enables the performance of the service provider to be monitored on a real-time basis and in a transparent manner through the use of remote monitoring and running of abatement and performance reports. It is also vital that the system can be audited quickly and easily and that the integrity of the data is maintained at all times. This level of operational capability is simply not achieved by generic spreadsheet software.

The quality of information shared by the partners is of paramount importance to the project’s success. In particular, it is essential that the PPP performance reporting serves to achieve:

• Auditability – so that relevant data is recorded to enable systematic review and evaluation to determine the quality of the services provided; and
• Transparency – so that relevant information about the nature and quality of service provision under the contract is fully available and accessible.

To conclude, value for money in PPP contracts is secured through transferring project delivery risks from the public sector to the private sector, and this requires that the payment to the service provider is conditional on the contracted asset being available and the services delivered to the specified standard. Therefore, the payment mechanism is at the core of the process of risk transfer. It is this mechanism that provides the incentives to ensure that the service provider delivers to a high standard. Good PPP performance reporting will help to achieve a transparent, auditable and successful PPP.