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Sector: State Highway  |  Module 2: Work through the PPP process

Monitoring performance

The purpose of monitoring is to ensure that the concessionaire meets the agreed level of performance. Most of the monitoring roles will be carried out by the Sponsor, either by the Contract Management Team or by an Independent Engineer. However, it is important to remember that the private partner will also be monitoring the Sponsor’s performance to be sure it also upholds its end of the agreement.

The performance requirements will reflect the agreed risk allocations. Part of the purpose of monitoring performance against these standards is to ensure that risk is actually shouldered by the party who the risk was allocated to. These allocations will be different for different projects. Accordingly, performance requirements, criteria and monitoring roles will also vary.

The table below shows some examples of common performance requirements, criteria for measuring performance, monitoring arrangements, and examples of penalties for underperformance.

Example performance and monitoring matrix

Pre-operative stage
Performance requirements Performance criteria Monitoring arrangements Example Penalties
Achieving financial close Relevant financial documents are effective and finance is available Reporting by the concessionaire (“Reporting”) Financial penalty for delay
Carrying out technical planning and design Specifications and standards Reporting, evaluation by the Sponsor  
Environmental and social management assessments and planning Assessments made and plans in place Reporting, evaluation by the Sponsor  
Obtaining permits / approvals Required permits are obtained
May include Sponsor obligations
Reporting  
Land acquisition Rights to land acquired – obligation typically on the Sponsor Sponsor reporting, providing legal entitlement Financial penalty for delay
Project management arrangements Project management plan, systems and staff in place Reporting  
Construction stage
Performance requirements Performance criteria Monitoring arrangements Example Penalties
Site-related obligations Access, site condition, safety, utilities etc
May include obligations on the Sponsor, such as granting access
Testing, inspections Concessionaire required to remedy any failings.
Sponsor to pay compensation in case of access delays.
Meeting the design specification, construction quality Specifications and standards Testing, inspections Concessionaire required to remedy any failings. May also incur delay penalties.
Meeting construction schedule and timelines Construction milestones – including dates; Reporting requirements (progress reports, including frequency – eg, monthly) Reporting Concessionaire pays time-based damages during period of delay
Implementing environmental and social safeguards   Reporting, consultations with affected parties, environmental testing Concessionaire required to remedy any failings.
May include compensation and damages payments.

Notes:
The Concession Agreement will specify the testing requirements, including who is responsible for carrying out the tests, schedule for testing, and who will bear the cost.

Also to be clearly specified, with measurable performance criteria, are the requirements and standards to be met before the construction can be declared complete.

Operation stage
Performance requirements Performance criteria Monitoring arrangements Example Penalties
Quality of services Specifications and standards: Traffic flows, speed, pavement condition and condition of signs and lighting; availability of toll booths; length of closure times in case of accident, repair etc Tests, inspections, user complaints procedure  
Maintenance Schedules, including dates; Specifications and standards Tests, inspections, reporting  
Financial reporting Schedules, including dates; Accounting standards Reporting, audits  

Notes:
The Concession Agreement will specify the testing requirements, including who is responsible for carrying out the tests and who will bear the cost.

Contract closure and asset transfer stage
Performance requirements Performance criteria Monitoring arrangements Example Penalties
Asset quality at handover Specifications and standards Tests, inspections Concessionaire required to remedy any failings.
Withholding of Termination Payment
Documentation, records, titles Completeness, timeliness Reporting and auditing  

Notes:
The Concession Agreement will specify the testing requirements, including who is responsible for carrying out the tests and who will bear the cost.

Also specified will be measurable requirements for declaration of contract closure and release of termination payment.

 

 

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