Governance Mechanisms in BSF’s PFI Projects: Incentives and Monitoring
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2.5 Governance Mechanisms in BSF’s PFI Projects: Incentives and Monitoring
The previous section provided a thorough description of BSF development stages. This section will reiterate and highlight key governance mechanisms that the LA can use to incentivise the ProjectCo in pursuing its objectives. Indeed, as Rintala (2004) argue, the public sector client can, in principle, achieve its aim more effectively in PFI procurement than in traditional procurement. This is because it uses different types of mechanisms to govern PFI procurement, thus making the ProjectCo pursues its aim. These mechanisms are:
• Output Specification;
• Risk Transfer; and
• Payment Mechanisms linked to Performance Monitoring Regimes.
2.5.1 Output Specification (OS)
The output specification is one of the vital governance mechanisms in PFI (Rintala, 2004). The LA, together with the schools, sets the overall objectives (that is building a school with specified facilities and operating it to set standards) in a document known as the Output Specification. The Output Specification should offer detailed description of the functions the new accommodation must be capable of performing. Usually split into building functions and service functions. The Output Specification is intended to state only the outputs required of the services, and not the way in which the ProjectCo will achieve it. The LA then invites prospective contractors to bid and price their proposed solutions to those requirements.
According to DfES (2005) because of the long-term strategic partnership nature of the LEP model and the exclusivity this provides over future work subject to meeting required performance levels, the output specification is more outcome focused than the normal PFI o...
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... the background for BSF PFI procurement process. The chapter started by outlining capital investment in UK school buildings and how BSF relate to the overall strategy for schools renewal. The chapter then dealt with BSF as a form of Public Private Partnership (PPP) and PPPs were defined and the motivation for their adoption explained. The next step was to look at the delivery model of BSF projects outlining the key actors and development stages. Finally, the key governance mechanisms in BSF’s PFI Projects that align the objectives of the ProjectCo with those of the LA were identified. We have argued that the LA seeks to make the ProjectCo pursue its aim by using output-based specification, risk transfer, Payment Mechanism and Performance Monitoring. Thus, by using PFI procurement, the LA is able to align the aim of the ProjectCo with its own aims and objectives.