Payment Mechanism Assurance

Brief:

An infrastructure investor was concerned by the increase in performance-related deductions witnessed across the Public Private Partnership (PPP) healthcare sector over the past few years.

Curshaw were appointed by an Australian-based Project Company (‘Project Co’) with a 350-bed acute hospital PPP, with a capital value of AUD $1.4Bn (‘the Project’), to provide independent assurance that the processes and systems being administered by their supply chain in relation to the Payment Mechanism adhere to the obligations set out under the hospital’s PPP Project Agreement.


The objectives were to:

  1. Interpret ambiguous and complex contractual mechanisms that may be causing differences in interpretation regarding how the Payment Mechanism should be applied;

  2. Determine whether Project data could be used to evidence compliance with the reporting requirements in the Project Agreement; and

  3. Implement a targeted action plan for the supply chain to mitigate exposure to reporting-based deductions and Service Failure Points (SFPs).

The Process:

The first stage of the analysis was to examine the relevant contractual documentation and understand Project Co’s reporting obligations and approach required to apply the Payment Mechanism compliantly. We identified any ambiguities or conflicts between the contractual agreements, and how Payment Mechanism obligations could be interpreted differently. We also undertook an assessment of existing method statements and processes used by the supply chain, and identified possible shortcomings compared to what the Project Agreement required.

We then analysed a CAFM data sample from a recent month’s Performance Monitoring Report, and determined where contractual reporting requirements were and were not being applied correctly to the data. This included testing the configuration of supply chain-produced models used to apply the Payment Mechanism, and validated whether the inputs and formulae aligned with the obligations of the Project Agreement. We developed our own Payment Mechanism model, and quantified the value of deductions and Service Failure Points (SFPs) that might be incurred compared to what was being reported.

We then engaged with stakeholders to obtain further information and context on how the Payment Mechanism is applied in practice, using questions from our proprietary  Payment Mechanism assurance toolkit, alongside discussing preliminary findings from our desktop review. These engagements took the form of two separate meetings - one with the Project’s General Manager, and the other with the Hard Facilities Management (FM) Lead, and assessed how aligned the Project’s supply chain was in their management of the contract.

Once the desktop work and stakeholder engagements were completed, we drafted a detailed report which covered: 

  1. the key issues and risks identified; 

  2. an assessment of their potential or current impacts; and 

  3. recommended actions prioritised by an ‘impact-effort’ matrix, ranking the actions by their significance in reducing the exposure to SFPs and deductions, and their ease of implementation across the Project. 

We then presented the report findings to Project Co directors, before presenting to the supply chain with a focus on the required steps to reduce exposure.

The Outcomes:

  • An identified potential exposure to performance-related deductions of approximately $3.5m AUD per month, 25% of the monthly Unitary charge, the majority of which was caused by Quality Failures for insufficient reporting.

  • Shared understanding of the required steps to be taken to reduce the likelihood of material Payment Mechanism related problems for the Project in the future.

  • Commencement of a wider review conducted by the FM provider across the infrastructure investor’s other Projects where they formed part of the supply chain, ensuring any similar issues were identified and addressed.