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 projects outputs, benchmarks and risk allocation 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

Partnership Management
Corporate governance Relationship assessment Dispute resolution Risk management Performance management

Service Delivery Management

Variation management Contract maintenance Financial administration

Contract Administration

Partnership Management

Dont go in .

without an Exit strategy.

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

Dont go in .

without an Escape plan.

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 partner

Service Delivery Management

Risk management is an iterative process

Expect the unexpected during implementation phase

Who does what? How? By when? Example: what happens if increasing costs means concessionaire is enable to operate NADEX under current agreement?

Institutions 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 NADEXs operation is a key determinant of success

Length of contract Flow of funds between public and private sector (availability payments, concession fees, etc)

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 managed?
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 Resources

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

THANK YOU !!!

Vickram Cuttaree The World Bank

vcuttaree@worldbank.org