Thomson FM has noticed an significantly increasing level of scrutiny in respect of PFI payment mechanism deduction calculations by Authorities over recent years, potentially linked to the cost-saving pressures being placed on all public sector organisations. Whilst our view remains very much that payment mechanisms were never intended to be a potential source of ‘savings’ for an Authority, it must be accepted that it is likely that Authorities will continue to seek to apply the full extent of their contractual entitlement in order to minimise their costs (through maximising deduction calculations) using the interpretation of the payment mechanism drafting that best suits their objectives; ‘interpretation’ is where the problems tend to occur.
It is accepted that payment mechanisms are notoriously difficult to draft so that they are 100% clear and to avoid any need for interpretation of the standards to be achieved or the implications of failure to achieve those standards, including the specific calculation mechanisms to determine deductions to be taken from the SPV’s Monthly Unitary Charge.
Thomson FM has supported many organisations in the detailed review of PFI payment mechanisms and associated documentation in order to determine the most appropriate interpretation of the drafting and to evaluate whether the application of the payment mechanism is aligned to the contractual interpretation.
If you are suffering from headaches associated with differences of opinion in respect of payment mechanism interpretation and application then please get in touch (email : firstname.lastname@example.org) as we would be pleased to offer our independent advice to help resolve those differences of opinion that may ultimately lead to a serious deterioration of relationships between the parties.