Fillable Printable Performance Contract Sample
Fillable Printable Performance Contract Sample
Performance Contract Sample
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
PERFORMANCE CONTRACT
BETWEEN
THE GOVERNMENT OF [ ]
AND
[Power Company]
This PERFORMANCE CONTRACT ("this Contract") is made this [ ] day of [ ]
BETWEEN
THE GOVERNMENT OF [ ] ("Government") represented and acting through its
MINISTRY OF FINANCE ("MOF") AND MINISTRY OF ENERGY ("MOE") of the one part
AND
[ ] ("Power Company") of the other.
WHEREAS
The Government is a shareholder in the Power Company through [ ].
Power Company is a state corporation within the meaning of [LEGISLATION] and as such falls
within the official mandate of MOE.
AND WHEREAS
Government through MOF and MOE has agreed to enter into this contract with Power Company
so as to enable Power Company attain maximum performance consistent with its role and
objectives of generating electricity in [COUNTRY] at cost effective prices for sale to the
[UTILITY].
NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE 1: DEFINITIONS
Wherever used in this Contract, unless the context shall otherwise require the several terms used
herein shall have the following meanings:
1.1 "Government" means [ ]and includes the Ministry of Energy, the Ministry of Finance,
as well as other Ministries, and/or departments, either acting jointly or severally.
1.2 "Power Company" means [ ].
1.3 The "Board of Directors" means the Board of Directors of Power Company as duly
constituted under its registered Articles of Association in accordance with the relevant provisions
of the [COMPANIES LEGISLATION].
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
1.4 The "Management Team", means the Managing Director, Deputy Managing
Director and all heads of divisions of the Power Company.
1.5 The "Corporate Plan" means the Power Company's three year rolling plan for meeting its
managerial, operational and financial objectives.
1.6 The "Capital Structure" means a financial base which incorporates the equity, retained
earnings and loans which would allow Power Company to meet its current and future objectives
as articulated in Article 4 of this Contract.
1.7 "Commercial Product" means any product which Power Company produces at a price
necessary for ensuring financial viability of the company.
1.8 "Performance Targets" means specific numerical indicators of Power Company's
managerial, operational and financial performance expressed and contained under Article 5 of
this Contract.
1.9 "Commercial Freedoms" means those changes to the current regime of decision making
between the Government and the Power Company which allow Power Company to independently
make decisions in its own best commercial interests.
ARTICLE 2: RESPONSIBILITIES OF THE PARTIES TO THIS PERFORMANCE
CONTRACT
2.1 GOVERNMENT
2.1.1 GOVERNMENT recognizes the necessity to exempt Power Company from the
provisions of [LEGISLATION] in order to achieve the purpose and objectives of this Contract.
The exemption presently granted to Power Company from the provisions of [LEGISLATION]
will thus remain in force for the duration of this Contract.
2.1.2 n signing this Contract, the Government hereby grants Power Company certain
commercial freedoms as defined in Article 6 of this Contract.
2.1.3 The MoE
The MOE as a signatory to this Contract shall undertake to honour its obligations wherein they
are specifically detailed in this Contract.
2.1.4 The MoF
The MOF as a signatory to this Contract shall undertake to honour its obligations wherein they
are specifically detailed in this Contract.
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
2.2 The Power Company
The Power Company as a signatory to this Contract shall undertake to honour its obligations as
spelt out in this Contract.
ARTICLE 3: PURPOSE AND DURATION OF THE PERFORMANCE CONTRACT
3.1 Purpose
3.1.1
This Contract is Intended to:
(a) encourage Power Company to attain maximum performance based on sound
commercial principles consistent with its role and objectives as a parastatal
company for generation of electricity in [country] at cost effective prices for sale
to UTILITY.
(b) enable GOVERNMENT to Institute changes in the management of the electric
power generation assets with a view to enabling Power Company to effectively
generate electricity at least cost consistent with the general economic
performance of the domestic economy.
(c) provide a mechanism for Power Company to plan and operate within a suitable
managerial, financial and policy framework and a fair assessment of Power
Company's performance. It is expected that this Contract will help to achieve the
following results:
(i)
establishment of a formal arrangement for the Government, as
the sole shareholder in Power Company, to objectively assess the
operational and financial performance of Power Company
consistent with sound commercial principles;
(ii)
development of an incentive system for Power Company
management based on the achievement of good operational,
economic and financial performance; and,
(iii)
explicit and clear definition of Power Company's mission and
objectives.
3.1.2 This Contract is not intended to exempt Power Company from any regulatory
requirements imposed by any law, existing from time to time in [country], in respect of the
operations of the electric power sub-sector.
3.2 Duration
3.2.1 This Contract shall remain in force for an initial period of three years (3) from the date of
its signing by all the concerned parties.
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
3.2.2 The GOVERNMENT and Power Company have the option to renew this Contract for a
further period on such terms and conditions as may be mutually agreed upon between them.
ARTICLE 4: Power Company'S MISSION, OBJECTIVES AND SERVICES
4.1 Power Company's Mission
Power Company hereby declares its mission as follows:
"To efficiently generate electricity at least cost; to achieve the highest standards in the production
of electricity; and to ensure its long term technical and financial viability".
The principal determinants of the Power Company's mission are:
quality of service to the UTILITY, being the sole purchaser of electricity generated by
Power Company;
generation of electricity on the basis of sound commercial principles;
effective pricing of electricity based on least cost supply criteria;
technical viability and enhanced operational efficiency;
financial profitability and solvency; and,
high quality and efficient human resources.
4.2 Objectives
Power Company's Objectives are to:
(a)
to enhance operational efficiencies of its various generation plants by reducing
auxiliary or in-house plant electricity consumption, operating and maintenance
expenditures, and fuel consumption by its thermal power plants to acceptable
international standards;
(b)
improve labour productivity by enhancing the ratio of:
installed capacity in megawatts per employee; and,
gross electricity sales per employee;
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
(c)
financially restructure itself to achieve an appropriate balance between fixed and
liquid assets;
(d)
improve financial performance as measured by:
operating costs per MWhr;
debt service (relative to debt obligations) as a percentage (%) of debt obligations; and,
improvement of both current assets to current liabilities and debt to equity ratios,
respectively;
(e)
improve availability and reduce cost of electricity supply to UTILITY by:
reducing power outages to internationally acceptable standards; and,
enhancing capacity availability for hydro, geothermal and petroleum oil based plants
to match internationally acceptable standards.
4.3 Services and Future Generation Capacity Expansion:
4.3.1 With the liberalization of the commercial generation of electricity in the country, Power
Company's market share of electricity production will gradually decline as more and more
independent power producers (IPPs) are licensed to generate electricity for sale to UTILITY
through power purchase agreements (PPAs).
4.3.2 Power Company will have to compete with IPPs for new generation capacity, excluding
future hydro power generation from multipurpose schemes, which will be put to open tender for
development under international competitive bidding procedures (ICBP). No preference will
therefore be given to Power Company in awarding power generation projects which will be
selected for implementation from time to time in the future, on the basis of the least cost criteria.
ARTICLE 5: ASSESSMENT OF POWER COMPANY'S PERFORMANCE
5.1 Performance Targets
The performance of Power Company shall be measured by its success in meeting or surpassing a
set of performance targets, which are set out in Table 1. For the purpose of assessing the overall
performance of Power Company, these targets have been assigned weights and consolidated in
order to give an aggregate weighted indicator.
5.2 Methodology for Assessing Power Company's Performance Indicators
(a) Ratio of debt service as a percentage of debts due:
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
This is the ratio of actual debts repaid to the debts due in any one financial year; and, is measured
by dividing the total amounts of debts repaid by the total amounts of debts due in a given
financial year.
(b) Maintenance and operating costs per megawatt-hour (MWhr) sold:
This is the cost incurred by the company for maintenance and operations per megawatt-hours
sold; and, is measured by dividing Power Company's total recurrent costs (that is the sum of all
administration, management and finance, commercial, generation expenditures) in a given year
by the total electricity sales in megawatt-hours over the same period.
(c) Effective capacity to staff ratio:
This is the ratio of the combined effective capacity of all power plants to the total number of
Power Company's employees.
(d) Plant availability percentage:
This is measured by dividing the number of hours per annum in which a plant is available to
generate electricity, as required, by the total number of hours per annum (ie 8760 hours per
annum).
(e) Operational efficiency:
This is a measure of the conversion efficiency of for example one form of energy (eg petroleum
oil) to electrical energy using known international standards under a defined set of boundary
operating conditions. For example, for an oil based thermal power plant efficiency could be
measured by measuring the amount of fuel, of a given specific gravity, in grammes used to
generate one kilowatt-hour of electricity under defined ambient conditions. Any variation in the
amount of fuel consumed to generate a kilowatt-hour of electricity would then be used to
determine whether efficiency is falling or rising. Similar efficiency measurement criteria could be
developed for both hydro and geothermal power plants,
(f) Generation losses:
This is a measure of the amount of electricity despatched to UTILITY relative to the amount
generated. The amount of electricity used in the station is counted as part of the generation losses.
(g) Labour productivity:
This is a ratio of the number of megawatt-hours generated and despatched to UTILITY per
employee of Power Company; and the higher the ratio the higher is the productivity.
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
Table 1 PERFORMANCE INDICATORS FOR POWER COMPANY
Performance Indicator
B a s e
Performance
(Actual)
Target per annum
Achievement of
Target
Weight
Assigned to
Target
1
—
Performance
[1] x [2]
Labour productivity
Installed Capacity to staff
Ratio
(MW per employee)
Thermal plants efficiency:
Plant [A\ (Grammes/KWhr)
Geothermal plant [B]
(Kga/MWhr)
Ratio of debts serviced
to debts due'
1 Maintenance and
operating costs per HWht
cold (in Ksh)
P l a n t availability
(% per annum):
Hydro
Kipevu Gila
Turbine
Geothermal
TOTAL AGGREGATE PERFORMANCE 100%
1
This formula does not apply to debt serviced to debts due ratio, which is computed by multiplying the
achieved ratio by the weight assigned.
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
ARTICLE 6: Power Company COMMERCIAL FREEDOMS
Power Company shall operate as a commercial business concern in accordance with the relevant
Laws of [country]. Power Company shall operate with commercial freedom in the areas
enumerated below.
6.1 Staffing Decisions
Power Company shall be free to employ or terminate, promote or demote such employees as shall
be necessary for the pursuit of its commercial objectives and efficient discharge of its functions as
approved by its Board from time to time, subject to the provisions of the relevant statutes on
employment.
6.2 Staff Remuneration
Power Company shall be free to determine and set levels of compensation and remuneration for
its staff including the payment of performance incentives as provided in this contract and as shall
be approved by its Board from time to time. However, such payments shall have to be consistent
with Power Company's annual budget as approved by Government. Payments of bonuses under
this contract will be made on the basis of an audit report on performance approved by a
committee comprising the MoE and MoF representatives.
6.3 Commercial Contracts other than for Generation of Electricity
Power Company shall be free to award Contracts to suppliers based on a competitive tender
system and with due regard to fair market prices, as shall be necessary for the proper discharge of
its objectives and functions.
6.4 Electric Power Purchase Agreements
Power Company shall be free to negotiate power purchase agreements (PPAs) with UTILITY for
all its power plants, as mutually agreed between the two companies and consistent with sound
commercial principles.
6.5 Short Term Investments
Power Company shall be free to make short term investment decisions in accordance with the
best commercial principles.
6.6 Disposal of Equipment or Assets
Power Company shall have the right to dispose of equipment and assets, which its Board may
deem unproductive, inefficient or uneconomic to maintain.
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
6.7 Borrowing
Power Company shall have the right to borrow from lending institutions, including providing
security interest, Where a Government guarantee is required Power Company will seek the
approval of the MoE and the MoF in that regard.
6.8 Negotiations with the Recognized Trade Union
It shall be a requirement that achievement of performance targets will form part of the Collective
Bargaining Agreement and Power Company shall have the freedom to negotiate with the relevant
trade union on the performance targets, as it may deem fit.
ARTICLE 7: GOVERNMENT OBLIGATIONS
7.1 Capital Structure
It shall be the responsibility of Power Company to sustain a sound debt to equity ratio in order to
keep the financial risks of the company at the minimum, as the Government has no responsibility
regarding the capital structure of Power Company. Any borrowings by Power Company shall be
on the basis of commercial viability of the activities to be funded, taking into account the
generation tariffs provisions in the PPAs.
ARTICLE 8: PERFORMANCE INCENTIVES FOR POWER COMPANY BOARD AND
MANAGEMENT TEAM
8.1 Power Company has already been exempted from the provisions of the State
Corporations Act and is therefore paying its Board members, the Managing Director and its
employees competitive salaries and fringe benefits consistent with the private sector practices in
[COUNTRY]. In addition to these attractive terms and conditions of service, Power Company
shall pay its Board of Directors and its Management Team a Performance Incentive Bonus (PIB)
within four months after receipt of annual audited financial and other reports demonstrating
enhanced performance, based on the performance evaluation criteria enunciated in sub-article 8.2
below. The purpose of the PIB is to reward the Power Company Board and Management Team if
they are able to generate "good" or "excellent" performance. The incentives will provide a system
to motivate and guide the Board and Management Team to act in the interests of the company and
public as a whole and achieve some of the benefits of private sector management, while
remaining a strategic parastatal.
8.2 Criteria
8.2.1 Performance shall be measured by the achievement of the annual aggregate Indicator as
specified in Article 5 of this Contract.
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
8.2.2 In this Contract, "Poor" performance shall be defined as an achievement of an aggregate
indicator value of any number less than 50%. "Poor" performance shall result in a formal review
of the effectiveness of the job performance of the current office holders of the Board of Directors
and management team. Subject to recommendations made in this review, a disciplinary action
shall be taken against the Board and management team as detailed in sub-article 8.5.
8.2.3 In this contract "fair" performance shall be defined as an achievement of an aggregate
indicator value of any number between 50% and 69%. No performance related bonus shall be
awarded for achievement of a fair performance. However, salaries and allowances including other
fringe benefits shall not be increased, until "good" or "excellent" performance, as defined in sub-
articles 8.2.4 and 8.2.5 below is achieved.
8.2.4 In this Contract, "good" performance shall be defined as an achievement of an aggregate
indicator value of any number between 70% and 85%. "Good" performance shall result in the
award of an incentive bonus as specified in sub-article 8.3 of this contract.
8.2.5 In this Contract, "excellent" performance shall be defined as an achievement of an
aggregate Indicator value of any number greater than 85%. "Excellent" performance shall result
in the award of an incentive bonus as specified in sub-article 8.3 of this Contract.
8.3 Performance Incentive Bonus
Payment of Performance Incentive Bonus shall be a function of the achievement of the annual
aggregate Indicator as specified in sub-articles 8.2.3 and 8.2.4, respectively. In the event "good"
performance is achieved by Power Company, the amount of the bonus to be paid shall be equal to
5% of after tax profits of the company. "Excellent" performance shall qualify for bonus payment
equal to 7.5% of after tax profits of Power Company. The bonus shall be distributed to the
qualifying employees at the discretion of the Power Company Board.
8.4 Employees for Performance Bonus
All eligible employees who were employed by Power Company during the year under review and
who were still in good standing with the company at the time that the performance related
incentive bonus is payable, shall be eligible for payment of such bonus.
8.5 Disciplinary Actions and Penalties for Poor Performance
If upon a formal review of the effectiveness of the job performance of the current Power
Company's office holders in the Board of Directors and of the management team, it is concluded
that poor performance was due to general, collective or individual laxity and or lack of
commitment to Power Company's business, the Government shall take punitive measures as set
out below, against the Board and affected members of the management team.
This document has been prepared for the purposes of the
PPP IN INFRASTRUCTURE RESOURCE CENTER FOR CONTRACTS, LAWS AND REGULATIONS (PPPIRC)
website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model".
The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved,
endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine
whether a particular legal document is appropriate for any given project, and how the specific terms of the document
should be adapted to fit the circumstances of that project
(a)
Board Members (for aggregate indicator performance of 39% and
below):
Board to be replaced.
(b)
Board Members (for aggregate indicator performance between 40 and 69%):
Sitting allowances shall not be increased.
(c)
Management Team (for aggregate indicator performance of 39% and below):
Replace management team, as appropriate.
(d)
Management Team (for aggregate indicator performance between 40
and 69%):
Salaries and fringe benefits shall not be increased.
ARTICLE 9: AMENDMENTS AND REPORTS
9.1 Amendments
This Contract or any part thereof may at any time be modified or amended to in writing by mutual
agreement of Power Company and Government.
9.2 Reports
Reporting on this Contract will be conducted during and at the end of each financial year that the
Contract has been in force, as specified below.
9.2.1 Quarterly progress reports will be prepared by Power Company and submitted to the
Government.
9.2.2 Four months after the end of the financial year under review, Power Company will
submit a report to the MoE:
(a)
containing specific details on its operational achievements relative to performance
indicators in accordance with the provisions of Article 5 of this Contract;
(b)
incorporating the results of a special audit report on the public service obligations
including the rural electrification projects undertaken by Power Company which shall
record all bills submitted to the Government and the expenditures on behalf of the
Government for settlement. In addition to the aforementioned, the audit report shall
comment on the performance of the Government in settling outstanding bills
appertaining to services rendered by Power Company on its behalf during the year
under review and Power Company's performance in delivering public services;
(c)
commenting on the performance of the Government in meeting its obligations under
the Contract, including but not limited to:
