December 7, 2001—The service industry is in favor of measuring output as opposed to input in service level agreements.
This, despite public criticism of the proposed output specifications for the Tube PPP. However, the general view is that performance measures have to be kept simple and sensible.
In reports published earlier this month, the London Underground PPP will be based on a 2,800-page document, detailing 3,000 performance measurements. To further complicate the process, the measurements have to be calculated using complex formulas which require a number of inputs each month.
Commissioner of Transport for London Bob Kiley, criticised the methods, saying that relying on the formulas would be a dangerous game . “It is reckless to experiment with implementing such an untested scheme, and to bind London to this experiment for 30 years,” he said.
Moreover, the private consortia will only stop receiving bonuses if the service is 5% worse than at present, which means they could receive a 90m bonus even if the services don t improve.
The meticulously detailed performance measures proposed for the Tube have raised the question of whether output or input should be used as a basis of a contract. Should contractors be told how to carry out a job or should they be paid according to the outcome?
Bernard Williams, principle of BWA, commented: “To use an output specification as a basis of the contract, it has to be measured properly and sensibly. Never mix up input and output. If you can measure it—use output, if not—make input contractual.”
Certain areas of performance can be difficult to measure, such as cleaning. Williams says: “If cleanliness is measured by square meters then it s ridiculous, and it would be wrong to have that as a contract.”
Operations director FMS Europe, Alan Bradford believes his company, Johnson Controls, solves this problem by using a mixture of both input and output. This means the company demands that certain areas such as toilets are cleaned every day (input) and that other areas are measured according to the British Institute of Cleaning Science standard stating what s acceptable and what s unacceptable (output). “Make it simple, practical and measurable,” he advises.
So as not to confuse matters, Williams suggests companies should write down the description of output: “There is no harm in letting the contractor know what your thoughts are.”
Paul Moonan, director of Romec, agrees, saying companies should have ad hoc comments about performance in the initial meetings with the client. Romec uses output to put the supplier in a situation where improvements can be made.
To keep the SLA simple, Moonan believes key elements of the contract should be included with a few, simple key performance measures. BWA for example uses the benchmarking tool ERrisk to measure performance on PFIs.
The Tube PPP will undoubtedly have to consider whether the mathematical formulas it suggests should be used, really will improve the services and whether it s practical.
Commenting on the future of the London Underground, Kiley said: “Transport and PFI experts overwhelmingly agree that the PPP is destined to fail. Like Railtrack, it will end up having to be completely renegotiated and restructured, with any solution far more complicated and vastly more expensive than if it had been set right at the outset.”
—Jessica Jarlvi
Reprinted with permission; copyright 2001 i-FM
