www.pppinindia.gov.inPPP TOOLKIT
PPP TOOLKIT for Improving PPP
Decision-Making Processes
Welcome
Guest
 

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

Preparation for contract management

Institutional preparation - be ready to manage the contract

The institutional set-up is what enables the Sponsor to implement the monitoring arrangements set out in the Concession Agreement. If the institutional arrangements are inadequate the contract management and monitoring will also be inadequate and the quality of the PPP output is likely to suffer.

Institutional preparation includes:

  • Ensuring a Contract Management Team is in place, led by a Contract Manager
  • Preparing a contract management manual
  • Budgeting for the costs and clearly allocating costs among the contractual partners

These and other issues are discussed below.

Establish the Contract management team

A Contract Management Team should be established within the Sponsoring Authority. If a Contract Management Team is not already in place one should be formed prior to the start of Phase 4.

If the Sponsor already has other PPPs it may be able to expand the Contract Management Team from those projects to take on the new PPP as well. Whether this can be done will depend on how loaded the existing Team already is and the nature and complexity of the new PPP. In any case, the existing institutional arrangements can be replicated or expanded on rather than built from scratch.

The Contract Management Team will need to contain or have access to a range of skills and expertise:

  • Management
  • Design and construction
  • Finance
  • Legal
  • Technical
  • Facilities management
  • Safety and regulation
  • Contract law
  • Procurement processes
  • Risk management and contingency planning
  • Quality assurance and performance measuring
  • Public sector accounting and financial management
  • Supply, demand and cost conditions in the project’s markets
  • Pricing and efficiency analysis

The Team may draw on independent consultants (external advisors) as needed to carry out specific inspections and monitoring tasks.

A fulltime Contract Management Team, or a team of core fulltime staff, might be required where the Sponsoring Authority has a large PPP programme.

However, contract management for a single or even several PPPs does not need to be a fulltime job. The Team may be made up of specified staff members who also have other roles within the Sponsor. In this case it is important that the allocation of their time between PPP management and other roles is clearly indicated and understood. The contract management staff would need to be available for the PPP management and monitoring activities scheduled in the Concession Agreement and contract management manual.

The Contract Manager

A Contract Manager should be given authority and responsibility for managing the contract and the Contract Management Team. There need to be clear lines of reporting from members of the Team and to oversight positions within the Sponsor, in particular finance.

Ideally, the Contract Manager will be involved with the project during the preparation of the key project documents, in particular the Concession Agreement. It may or may not be the same person who was the Project Officer during the PPP development phases.

The Contract Manager should function as the single point of contact for matters relating to the PPP project they are managing. Although it will be impossible to retain the same Contract Manager throughout the lifetime of a PPP project, every effort should be made to ensure continuity, including:

  • The development of a contract management manual
  • Running regular and comprehensive capacity-building programmes in contract management for the Sponsor’s staff who are involved in PPPs
  • Not allocating all PPP projects to the same Contract Manager, allowing departing managers to be replaced by experienced individuals who already hold contract management responsibilities for other projects

The Contract Manager will need to have a thorough understanding of the PPP model and process and of the contract documentation related to the projects that they are managing.

Using external advisors

In some cases,, the PPP contract may require external advisors. Decisions on the requirement for such advisors will depend on the available internal resources and the costs of developing or retaining expertise in-house rather than relying on external advisors.

Where external advisors are appointed, it is best to recruit them under long-term framework contracts rather than under short-term contracts initiated on an ‘as required’ basis. This will provide greater continuity and will help avoid delays in seeking advice when earlier intervention might have prevented disputes escalating.

Independent Engineers

Concession agreements would typically require the appointment of an independent engineer to undertake specific functions described in the concession agreement. These would include:

  1. Review of drawings and documents;
  2. Review, inspection and monitoring of construction works
  3. Conducting tests on completion of construction and issuing Completion/ Provisional Certificate;
  4. Review, inspection and monitoring of O&M;
  5. Review, inspection and monitoring of Divestment Requirements;
  6. Determining the costs of any works or services and/or their reasonableness;
  7. Determining the period or any extension for performing any duty or obligation;
  8. Assisting the Parties in resolution of disputes;

Other details on Independent Engineers may be referred to in the specific schedule on the same in the model concession agreement.

Prepare a contract management manual

The rules and procedures governing the contract management process should be spelt out in a contract management manual or similar document.

This will provide the Contract Manager with a clear understanding of the process and will also assist in ensuring continuity when there are staff changes in the Contract Management Team —although personnel may change, the processes set out in the manual will remain.

It will also provide the concessionaire with clear guidance on the details of what it needs to do for its part of contract management and monitoring.

The manual should describe, among other areas, the:

  • Allocation of administrative and management responsibilities between and within the contract partners, including the powers of individual representatives.
  • Performance monitoring system, including how information is collected, verified and used, and schedules or timings for collections.
  • Responsibility for paying the costs of different contract management and monitoring tasks
  • Reporting requirements, including content, format
  • Records to be kept by the differing parties, including content, format, period of retention and disclosure requirements.
  • Dispute resolution process, including arrangements to communicate disputes and for their escalation.
  • Change management process, for requesting and making changes to the outputs, performance, prices or other contract elements once the contract is operating.
  • Contingency plans that will be implemented in the event of:
    • Interruptions to service delivery that do not involve a default by the private concessionaire (for example, Acts of God)
    • Interruptions to service delivery that result from a default by the private concessionaire (for example, a failure to deliver required services due to inadequate maintenance of the project)
    • Defaults by the private concessionaire that do not involve an interruption to service delivery (for example, the bankruptcy of the private concessionaire)
  • Process for review and updating of the manual over the lifetime of the contract.
Budget for and allocate the cost of contract management

The institutions and processes for contract management and monitoring should be planned in advance and should be designed to minimise the cost to the public sector and the burden to the private sector.

The Sponsor should budget for the cost of contract management as part of its PPP programme. This will include the cost of the time of the contract management team as well as costs for external advisors and experts that may be needed to carry out specific monitoring roles. Where there is a PPP law, budgetary provisions may be built in by way of administrative orders issued under the provisions of the law. 

The need for ongoing involvement imposes a cost on the public sector. This is part of the transaction cost of running a PPP. In a successful PPP these costs will be outweighed by the efficiencies gained by using the private sector. However, it is clearly important to keep these costs down.

Contract management and monitoring also creates costs for the private partner, who is required to provide information to facilitate the monitoring activities (for example, by providing site access). The information requirements only need to be enough to allow the Sponsor to monitor performance. Imposing requirements in excess of this is unnecessary and places an undue burden on the private partner.

The allocation of contract management costs should be specified in the Concession Agreement. In general, the Sponsor and the private partner should bear their own costs. It is essential that all the contractual parties clearly understand the cost allocations and agree to carry their financial liabilities.

Involvement of the PPP Cell

The PPP Cell or similar Agency will not have a direct role in contract management. It would be expected to provide general guidance and capacity-building on contract management, among other aspects of its work, for example by issuing of guidelines documents, model contract management manuals and reporting templates and disseminating best practice and experiences across sectors.

The PPP Cell or similar Agency may be interested in the information gathered through the monitoring process. The PPP Cell is a natural location for a database of PPP experiences (see for example the database of the PPP Cell at the Centre). In particular, such a database can collect financial information on the costs, benefits and performance of PPPs. This can be very useful for the evaluation of future PPPs, for example with regard to value for money assessments.

The PPP Cell (or other agency) might also provide contract management support to the Sponsor. This can be of particular value for smaller Sponsors, such as those at the municipal level, where resources and experience with PPP contract management are more limited.

Other issues

In some cases certain aspects of infrastructure projects will fall within the jurisdiction of a regulatory agency. This will most commonly affect tariff setting and revision. Responsibility for managing those aspects of the contract would then be with the regulatory agency, rather than with the Sponsor.

For example, the Tariff Authority for Major Ports (TAMP) has the authority to regulate all tariffs, both vessel related and cargo related, and rates for lease of properties in respect of Major Port Trusts and the private operators located therein.

Another example is the Punjab Infrastructure Regulatory Authority which has been established as an overarching legislation to provide the necessary legal and policy framework to facilitate private investment in infrastructure projects in Punjab.

 

 

  Next Page: Readiness Check 4
   
www.eca-uk.comwww.crisil.com