Contract Management and Regulation Vickram Cuttaree The World Bank

Contract Management
and Regulation
Vickram Cuttaree
The World Bank
St. Petersburg – May 24, 2008
What is PPP Agreement Management?
• …is the process that enables both
parties to a contract
• … to meet their respective obligations
• … in order to deliver the objectives
required from the PPP agreement.
… is a partnership between the
institution and the private party.
What is the objective?
Obtain the services specified in the output
specifications and ensure ongoing affordability,
value for money and appropriate risk transfer
Contract Management begins at inception
• …with the appointment of project
manager and team
• …with development of project’s
outputs, benchmarks and risk
• …with an understanding that things
will change down the road
Success depends on planning, good monitoring and flexibility from all
parties involved
Key PPP Agreement Management Functions
• Corporate governance
•Relationship assessment
• Dispute resolution
• Risk management
• Performance
• Variation management
• Contract maintenance
• Financial administration
Partnership Management
Don’t go in ….
… without an Exit
Exit strategy needs to be updated regularly
• What happens after contract expires?
– Service continues?
– By whom?
• Transfer of assets
– In the case of NADEX: concessionaire will
renew rolling-stock and value of total assets at
end of concession is not negligible
– Is the City prepared to takeover?
– Does the City have capacity?
• Final project assessment
– Deliverables and outputs
– Employee transfers
Don’t go in ….
… without an Escape
Pushing the escape button is the last option
• What happens before contract termination?
• Decisions should take into consideration the all
stakeholders of the Public-Private Partnership
– VfM/Affordability for Government/City
– Availability/Quality/Affordability of service for users
– Profit/return for the private party
• Win-win situation with no losers
– Importance of respecting contracts: attitude towards
contract with private partner will have an important
impact on perceive risks and attractiveness/cost of
subsequent projects
– Contract renegotiations: good preparation minimizes risk
of re-negotiations but it can be justified and does happen
– Dispute resolution mechanism should be put in place
and be satisfactory for both the public and private
Service Delivery Management
Risk management is an iterative process
• Expect the unexpected during
implementation phase
Who does what?
By when?
Example: what happens if increasing costs
means concessionaire is enable to operate
NADEX under current agreement?
• Institution’s priorities and relative
importance of risks will shift and change
– Revisit and reconsider on regular basis
– Ensure appropriate risk transfer throughout
Carrot or stick?
• Each PPP is unique
– Construction vs. operations
• WHSD and Orlovski mainly about construction
• NADEX’s operation is a key determinant of success
– Length of contract
– Flow of funds between public and private
sector (availability payments, concession fees,
• All require periodic monitoring
What: level of performance
How: quality control
If: consequences
Who: self, institution, independent party
Contract Administration
Contract Administration
Establish Administrative processes to ensure that all
the procedures and documentation relating to the
PPP Agreement are effectively managed
Systems, processes and procedures
• Implications on service delivery
• How variations of PPP agreement are going to be
– Who should approve variation in agreement
– What type of variation will be considered (change in
schedule for NADEX, maintenance program, etc…)
– How to assess the impact on users, VfM, affordability…
• Financial administration
– Keep records and accounts
• Importance of preparing and updating regularly a
management plan and manual
Can you see the future?
One word on sector policy and regulation
• PPP projects can be very much impacted by new
laws and regulations governing the sector
• While it is understood that Government/City must
keep control over future policies
– Impact on current operators should be assessed (new
road, new tariffs for metro, etc…)
– Solution might involve compensating the private
operator from missing revenue
• Quality of regulation and clarity of policies will
reassure the private sector and ultimately benefit
the project, sector and City
– Risk that city perceived risk could increase
– Future projects will likely attract less interest or will be
more expensive for the City
And a last one on Institutional Memory and
Issues during operation can often be linked to
contract design, and the preparation phase
Contract Monitoring and Regulation is complex and
time consuming
Close Monitoring is essential for the life of the
contract (often as long as 30 years)
Importance of institutional memory: ensure people
and institution involved in preparation and
procurement remain involved in monitoring
Importance of human & financial resources: ensure
that enough financial resources are dedicated to
monitoring contracts and that people with the right
skills are involved
Contract Management and Regulation
Vickram Cuttaree
The World Bank
[email protected]

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