NHS LothianJune 2016 Training Workshop

PAYMENT MECHANISM (Paymech) Training

Presented by

Paul McKenna, Mark Pillans, Peter Chambers17th June 2016

Objectives of the SessionThis session will provide an overview on the key aspects of the purpose of the Payment Mechanism, its construction and how it interacts with the wider elements of the contract(s).

• Understand the main features of the payment mechanism with respect to:• Relationship with other elements of the contract• Key terms and components of the Paymech• How calculations are made • Roles and responsibilities• Common issues that are encountered

• Understand the relationship between Temporary Repairs process, Excusing Causes and the payment mechanism

• Apply knowledge to practical examples

NHS standard form of contract Midlothian Community Hospital - (Focus of training)Findlay HouseEllen's Glen House

Older Style contracts Royal Infirmary of Edinburgh Ferryfield HouseTippethill House Hospital

Future projects hub –Royal Edinburgh Hospital Phase 1NHS Lothian health centre bundle NPD - Edinburgh Sick Children's Hospital, DCN & CAMHS

Scope: These principles can be applied to

all NHS Lothian projects

Project Agreement (PA) main body

Schedule 1 – Definitions

Schedule 14 – Service Level Specification (SLS)/Output Spec.

Schedule 18 – Payment Mechanism

Other important documents include:

Board Construction Requirements (BCRs)

Method Statements

Annual PPM and Lifecycle plans

Monthly reports and helpdesk records.

Change logs

hub –same schedules but with different numbering and some changes

in terminology

Contract Overview: Critical Documents/Schedules

Performance Management Linkages

Project Agreement

HelpdeskReporting

Contractual

requirements

Event recording Performance to

date

Overview

The payment mechanism lies at the heart of the PPP contract. The primary purpose of the payment mechanism is to incentivise the Contractor to provide the services to the required standards.

If these standards are not met the Contractor will incur financial deductions, if they are met the Contractor receives full payment.

The PPP Contract details the deductions which should be applied in the event of Availability and/or Performance Failures occurring. These deductions are integral to the value for money for the public sector and must be enforced in accordance with the terms of the contract.

The Contractor is responsible for reporting any Availability and Performance Failures. The Board needs to have mechanisms in place to be able to verify the completeness and the accuracy of reporting which should include any failures recorded within the monthly performance reports.

The Purpose of the Paymech

Payment ProcessesPA - PART H: PAYMENT AND FINANCIAL MATTERS Clause 35Service PaymentsClause 35.1 Project Co shall not be entitled to receive any Service Payments until the Payment Commencement Date. Subject to the provisions of this Agreement, the Board shall pay Project Co the Service Payments in respect of each Contract Month following the Payment Commencement Date in accordance with the provisions of Part 18 of the Schedule(Payment Mechanism).

The Monthly Invoice shall be accompanied by the Performance Monitoring Report in respect of the immediately preceding Contract Month and sufficient and clear supporting data setting out the derivation and calculation of each of the amounts referred to in this Clause 35.2.1

15 Business Days to resolve any disputed amount – which the Board is entitled to withhold.

Annual Service Payment

MSP = (ASPn/12) - ∑D + PTC + UCA (-GS or + PS)

MSP = the Monthly Service Payment for the Contract Month

ASPn = is the Annual Service Payment for the relevant Contract Year

∑ D = the sum of Deductions in respect of the contract month preceding the relevant

Contract Month in relation to Performance Failures and Unavailability Events PTC= means

any Pass Through Costs payable

UCA= means any Unit Cost Adjustment calculated

-GS = means any Gainshare Adjustment (Paymech Section H: Energy)

+PS= means any Painshare Adjustment (Paymech Section H: Energy)

The Paymech – The formula

ASPn is the Annual Service Payment for the relevant Contract Year

ASPo the Annual Service Payment at the is Base Date

RPln is the value of the Retail Prices Index published or determined with

respect to the month of February which most recently precedes the

relevant Contract Year;

RPlo is the value of the Retail Prices Index published or determined with

respect to the month in which the Base Date falls;

Annual Service Payment and Indexation

Entitlement to Make DeductionsSection C: Deductions from Monthly Service Payments and Service Failure

Points (SFPs)

1.1 If at any time during the Operational Term an Unavailability Event or a

Performance Failure shall occur the Board shall subject to paragraphs 1.2 and

1.3 below, be entitled to make Deductions from the relevant Monthly Service

Payment in respect of that Unavailability Event or Performance Failure.

1.2 The maximum aggregate of all Deductions that the Board can make from a

Monthly Service Payment shall be the Adjusted Service Payment.

1.3 To the extent that an Unavailabilty Event or a Performance Failure is the

result of an Excusing Cause (as defined in clause 8.7 of this Agreement) or an

External Utility Failure the Board shall not be entitled to make Deductions or to

award Service Failure Points.

Event

an incident or state of affairs....

(a) not meeting the Service Requirements; or

(b) not satisfying the Availability Conditions

Logged on Helpdesk and remains an Event unless fails Rectification Time

Repeated Rectification:

Notwithstanding rectification occurs within the Rectification Time:

• there is a Minor Performance failure for

- 3 Relevant Events during a Contract Day; and/or

- the fourth such Event in any consecutive seven day period;

• Relevant Events must be related to the same service standard and

occurring in the same Functional Area; and there is good reason to believe

that the root cause of each Event is the same.

• Once over the threshold within the relevant period, there is a Minor

Performance Failure for every Event.

Events

Performance Failures

an incident not meeting the Service Requirements; which has not been rectified within the relevant Rectification Time, if applicable

If not rectified within Rectification Period then Additional Period(s) run and further PFs can accrue

if no Rectification Time then there is an immediate Performance Failure (PF) and if not remedied within Remedial Periods further PFs accrue will still apply

Indexed amount applies per PF depending on category Tolerances for Minor and Medium Performance Failures

PerformanceFailures

Availability Condition

• To remain Available, each area must continue to meet all of the Availability requirements:

Accessibility Condition Safety Condition Use Condition and Prescribed Health Function Condition or, as appropriate, the Prescribed Operational Function Condition• Use Parameters and relevance of Room Data sheets • The area does not need to be unusable or unused-

continued use impacts on the amount of deductions• Annual review of weightings

Availability Condition

Availability Deductions

Formula:

D = (ASPn/(Ny x 3)) x AW x UW x DP

• D means the amount (in pounds sterling) of the Deduction in respect of theUnavailability Event

• ASPn means the Annual Service Payment at the time the relevant UnavailabilityEvent occurs

• Ny means the number of days in the Contract Year (being the year in which therelevant Unavailabilty Event occurs);

• AW means the Area Weighting Percentage attributable to the Functional Area inwhich the Unavailability Event occurs;

• UW means the Unit Weighting Percentage attributable to the Functional Unit inwhich the Unavailability Event occurs; and

• DP is 50% and shall apply only where the relevant Functional Part is Unavailable butthe Board continues to use it.

Availability Deductions

Availability Deductions

Availability Deductions

Minimum deduction will apply, including where the weighting for a unit is 0% - £25 index linked

May be grouping of some units in the weighting table (AW and UW)

Deductions are calculated only if the issue is not remedied within a Rectification Time (subject to repeated Rectification deductions)

Deductions are on a per Session basis and there is a new Unavailability Event each Session until the issue is rectified

Re-commissioning

Potential for temporary alternative accommodation - must not be part of the Facilities for which the Board is already paying

Availability Deductions

Example 1: Performance Failure

Availability Deductions

Example 2 : Availability Event

Temporary Repairs

Detailed procedure is in para 9 of Section C

PCo would need to inform the Board of proposal

Test : need for specialised materials or personnel that are not, and cannot reasonably be expected to be, immediately available at the Facilities

the Temporary Repair must

• satisfy the Minimum Agreed Availability Conditions and

• substantially make good the relevant Event

The Board can object if the use of the area will not be in accordance with generally accepted clinical practices or Good Industry Practice;

A deadline for the Permanent Repair must be made shall be agreed with the Permanent Repair

The Temporary Repair must be completed within the Rectification Time and the Permanent Repair within the agreed deadline for deductions to be avoided

Temporary Repairs

Failure to Report

Failure to monitor or accurately to report :

• an Event, a Performance Failure, an Unavailability Event or an Ad-Hoc Service Request

• leads to an additional Medium Performance Failure or, in some circumstances an Major Performance Failure, for each failure

• the original deduction also applies

Failure to Report

Rectification Time

The Rectification Time is stated in the Service Requirements

In some cases there is none and hence immediate deduction applies

The period commences

• Logged Event Time (notification to helpdesk)

• is extended if the Board denies access to the area and in so doing prevents Rectification of that Event

Protocol for denying access is helpful

Rectification Time

Excusing Causes

Events listed in clause 8.7

Includes Board breaches or deliberate act or omission (subject to important caveats) and planned preventative maintenance in accordance with the Schedule of Programmed Maintenance

Provides relief from deductions and Service Failure Points

Process in Clause 8.6:

• must be claimed within 10 Business Days

• reasonable mitigation steps to be taken

Excusing Causes

Service Failure Points

Awarded for actual and deemed Performance Failures and Unavailability Events or Performance Failures subject to Relief Events and Force Majeure

Consequences:

• Warning Notices (clause 29.4)

• Increased monitoring (clause 29.5)

• Exercise of remedial rights (clause 29.6)

• Replacement of a non performing Sub Contractor (clause 44.6(b)(1))

• ProjectCo Event of Default (which can lead to termination) (see clause 44.1 (i))

AMOUNT OF DEDUCTIONS FOR PERFORMNCE FAILURES

Performance Failure shall be as follows:

3.1.1 in the case of a Minor Performance Failure, the sum of £15.00, index-linked;

3.1.2 in the case of a Medium Performance Failure, the sum of £30, index-linked; and

3.1.3 in the case of a Major Performance Failure, the sum of £100, index-linked.

Key Issues

Linkage to Services Specification and range of Performance Parameters

Helpdesk Usage Snaggings and Construction Defects Correct categorisation of incidents is critical Implications for monitoring and reporting PMS report review, including verifying deductions calculations Helpdesk access and event filtering Trend analysis and link to lifecycle plan Temporary Repairs protocol Delay in access protocol Knowledge management and training of clinical and other users Availability champion/officer

Boards’ Key Issues

Discussion