Briefing Note 007 –P4R Mechanism
Briefing Note 007 – P4R Mechanism
1. INTRODUCTION
Further to the Briefing Note on DDF Fund Flows and Risks and the subsequent discussion with DFID during the
meeting of 15th August 2013, this note provides further clarification on the Payment For Results (P4R) mechanism and
the associated fiduciary risk mitigation measures proposed.
2. P4R MECHANISM
2.1.
DFID’S APPROACH
DFID’s Approach to Payment by Results defines it as a contracting
form which includes:
 Payments based on pre-agreed results. Paying for
development outcomes, not inputs
 Recipient discretion on how to achieve results.
 Independent verification of results as the trigger for
disbursement.
Benefits of P4R include :




2.2.
Higher focus on achieving programme results
Value for Money considerations taken into account to make the
most optimal programmatic choices.
Only those activities undertaken which have a strong business
case for achieving the desired Results and achieving tangible
benefits.
Improved decision-making due to higher-quality financial
management
RAP3 MECHANISM
Figure 1 overleaf summarises the RAP3 P4R mechanism and fund flows for both the Managed Fund and for
Technical Assistance. This mechanism was presented to DFID during the meeting of 15th August. It is an annual
process that will be repeated for each year of implementation (October to September). The following bullet points
provide a quick summary of the mechanism.
1. Define Programme Results (PR) - this defines the results that RAP3 is expected to deliver, focusing on
output indicators, but with consideration of outcome indicators. This step requires a careful balance of several
interdependent, and often conflicting, factors such as balancing budget constraints against physical targets,
balancing benefits to large numbers of poor people against benefits to the remote poor, which in turn affect
Value for Money indicators.
2. Finalise the Programme LogFrame based on defined PRs – linking component level inputs and outputs to
the overall implementation LogFrame and PRs.
3. Prepare overall work programme and annual budget for each component – this acts as the central
mechanism for monitoring and financial management and control. Once this work programme and annual
budget are finalised, the TA costs (which are fixed for the year) will be calculated as a percentage of the
Annual MF budget.
NOTE – these first three steps are an iterative process to ensure the optimum balance between Programme Results,
Work Programmes and Budgets. Currently RAP3 is held within this iterative process while DFID consider critical
decisions on the Budget and Results Options.
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Briefing Note –P4R Mechanism
Figure 1: Annual Flow Chart of P4R Mechanism for Managed Funds and Technical Assistance.
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Briefing Note –P4R Mechanism
4. Define Disbursement Linked Indicators (DLIs) for all components – these form the key basis for all
payments in the P4R approach. Under a true P4R mechanism, the recipient should pre-finance works and be
reimbursed only against results achieved. However, none of the delivery or implementing partners (DDCs,
Contractors, Consultants, NGOs) have sufficient funds or access to credit to enable them to undertake
significant work without receiving an advance payment. Following such an approach would significantly
hinder the amount of work and results that could be achieved through RAP3. Therefore, RAP3 is proposing a
rolling advance mechanism for works implementation in which an advance of up to 25% of annual budget is
transferred, with top-ups linked to actual progress. Where possible, DLIs will include successful completion of
pre-defined progress results and outputs. The DLIs and their target dates will define the annual DFID
payment schedule for RAP3. The payment schedule will include details of the ‘evidence’ that will be
provided to confirm that each DLI has actually been achieved.
These first 4 steps plus the associated TA cost calculations form the Implementation Plan for each year.
5. Sign agreements with delivery and implementing partners – where feasible, these agreements will also be
based upon the key principles of P4R, linking payments to specific DLIs. These agreements and the budgets
defined in them create a ‘Commitment to Pay’. Commitment Accounting starts at this point, enabling RAP3
to know the true balance available for other initiatives and for monitoring partner progress against these
agreements
6. Execution of planned activities, expenditure incurred and tagged against DLIs – All RAP3 activities are
either directly or indirectly related to the achievement of a DLI. Financial transactions will be recorded at
district and central levels and tagged against a specific DLI, to enable direct traceability of each payment to a
Programme Result. This tagging is the key enabler for P4R Accounting ensuring complete transparency and
accountability in the fund flow system.
7. Reimbursement claims filed with RAP3 office – As the implementing partners submit claims for activities
completed or results achieved, these create a ‘Liability to Pay’. Accrual Accounting is used to record these
expenses as they are submitted, rather than waiting for the actual payment transaction to be completed, more
closely linking them to actual achievement of results rather than just cash transactions which are often
delayed for due diligence checking. This accrual accounting gives better view of the financial position of the
programme at any instant, enabling more accurate financial monitoring and forecasting.
8. RAP3 makes payments upon delivery of results – after having completed appropriate due diligence checks,
including verification of results and payment calculations, RAP3 will make the payment transfers in
accordance with the relevant Agreement requirements and offset these against the accrual accounting. The
time from submission of partner claims for payment and RAP3 payment of them will be within 30 days.
RAP3 will also make all relevant staff and expenses payments from the TA element of the programme.
9. RAP3 invoices DFID based on pre-agreed DLIs – RAP3 will invoice DFID at the end of each calendar month,
stating which DLI’s have been achieved during the month. The invoice amount will be a sum of the total DLI
payments plus the 1.99% administration and management fee plus the pre-agreed percentage cost for the TA
costs.
10. DFID pays RAP3 – within a pre-agreed timeframe (30 days) from submission of a valid invoice.
11. Annual Review – the annual review will be held before the final payment is made at the end of each
Implementation year (September). Ideally the review will take place in August alongside the main RAP3
annual reviews with our GON partners. It will include a review of progress and results achieved against the
programme LogFrame, Work Programme and Annual Budget. It will also review the variations between the
Commitment Accounting, P4R Accounting and Accrual Accounting. Where significant variations against plans
and between accounts are found, RAP3 and DFID will decide jointly whether an adjustment needs to be made
in the end of year invoice or in the next year’s annual plans and budgets.
RAP3’s Performance Management and Verification (PMV) component and our Integrated Decision Support System
(IDSS) should mean that any such variations are highlighted as soon as they occur and appropriate adjustments
agreed with DFID sooner rather than later. There should be ‘no surprises’ at the time of the annual review. Interim
reviews can be held at any time during the implementation year should the IDSS identify actual or potential delays in
achieving DLIs or results targets.
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Briefing Note –P4R Mechanism
3. RISK MITIGATION MEASURES
Ref
Risk
1.
RAP3 funds are not used
for their earmarked
purpose
2.
3.
4.
Budget priorities not
based on actual needs of
the intended
beneficiaries
Lack of multi-year
perspective in budgeting
causes delays in
procurement and fund
disbursement
Lack of transparency of
plans, budgets and fund
use at local levels
Mitigation Measure
Minimise funds
available for misuse at
any point in time.
Audit accounts and
fund flows
LRN budgets based
on GON approved
planning processes
Work programme and
Budget based on
agreed Programme
Results and LogFrame
Use DTMP for
advance planning and
procurement
Public disclosure of all
RAP3 plans, budgets,
fund use
5.
Inaccurate budget, fund
flow and progress
forecasting
Implement
commitment, P4R and
Accrual Accounting
Systems
6.
Inaccurate reporting of
progress and results
Independent
verification
7.
Rent seeking and
corruption
Follow Anti-corruption
procedures
8.
Weak capacity of GON
delays progress and
disbursement
Provide technical
assistance
Tools used
Close financial monitoring and adjust % Rolling advance
according to the MCPM risk rating of districts1. 25% for normal
risk districts, 10% for high risk districts.
Through internal auditing procedures for all RAP3 funds plus
through GON Office of the Auditor General audits of RAP3 funds
channelled through DDF (RAP funds are included in both GONs
Red Book and White Book)
LRN priorities are defined in the District Transport Master Plans
(DTMPs) and Annual Asset Management Plans (AAMPs), which
in turn prioritise works based on socio-economic and traffic data.
All other components are linked to the LRN programme. These
will be approved by District Councils in their annual meetings
(December)
The overall and annual RAP3 budget priorities are established
as part of an iterative process that balances Programme Results
with physical output targets and associated budgets. This
process includes defining who the intended beneficiaries and
their needs are.
The condition survey conducted for DTMP preparation plus
subsequent annual post monsoon survey data can be used to
prepare AAMPs in time for inclusion in GON Annual Budgets.
Carry-over of RAP3 funds allows for early procurement of
specific maintenance contracts.
Through RAP3 website and open data approach, plus
information boards at all RAP3 offices and work sites.
The RAP3 financial management system, which is integrated
with the M&E system through an Integrated Decision Support
System (IDSS) allows for Commitment accounting in addition to
P4R and Accrual accounting to support improved forecasting.
The IDSS will also support a ‘dashboard’ facility to keep track of
actual against planned fund flows and progress. Risks will be
built in to the work programme and DLI / payment schedule.
The DLI / payment schedule includes details of the evidence to
be submitted to confirm that each DLI has been achieved. In
addition, triangulation of M&E data from various sources will be
used for verification - planned and spot check internal audits,
public audits, beneficiary verification and feedback mechanism,
MEL consultant verification.
Including internal audit, tracking of elapsed time between
eligibility for payment and actual payment received, tagging
expenditure transactions to specific DLIs to measure true costs
and cost data analysis and comparisons across teams,
components and districts.
Our TA team, including DTLs, will be fully responsible for
working closely with GON and other implementing partners,
providing technical and management assistance as necessary
through the annual support plans, to ensure progress and
results are delivered to pre-agreed plans, where possible. See
the risk matrix for further details.
1
We have searched the LGCDP website and although can access the report on MCPM assessment results, cannot
find a list of the non-conforming district or a risk rating of districts.
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