The transition from financial close to the start of construction marks the stage by which the Procuring Authority’s project specific contract management team needs to be set up and trained. As detailedin Chapter 2 (Contract management team set-up and training),

this is a key task which should be carefully planned and reviewed, as the skillset required post financial close is fundamentally different from the transactional expertise needed to reach financial close.

It is recommended that procurement and contract management staff overlap to some extent before and after financial close, to allow sufficient time for training and knowledge sharing. It is also important that both the Project Company and the contractor (and possibly key subcontractors) are required to maintain overlapping staff from procurement to construction.

The research indicates that Procuring Authorities often change their contract management team completely following financial close. Where this is the case, a carefully managed and comprehensive handover is vital.

Hiring staff can also be a lengthy process, and the process may take even longer in less developed markets where there may not be as many people available with relevant experience.

Example – Training during the transition from financial close to construction

To assist with knowledge transfer on the Barranquilla Airport project in Colombia, workshops were carried out with new staff joining after contract award by representatives from ANI’s (Colombia’s National Infrastructure Agency) central knowledge teams, and the ANI team and consultants that structured the contract. The external consultants involved in the structuring, also worked hand-in-hand with the Procuring Authority for six months after contract signing and provide continued support, as and when necessary.

For more information, see the Barranquilla Airport Case Study.

The Procuring Authority needs to understand and prepare its team for the volume of data and documentation that it will be required to review and sign off during the transition from financial close to construction. It is common for the Procuring Authority to require oversight of detailed design and the quality of materials, and therefore it needs the team and processes in place to support this oversight and to ensure that it can respond within the timelines set in the PPP contract. PPP projects can involve greater discretion for the Project Company to design the project than what would typically be seen in a traditional design and construct contract. This will mean that the design sign-off procedures will be more complex than what they would be if the Procuring Authority had contracted directly with the construction contractor. This additional complexity should be taken into account to ensure that the Procuring Authority complies with its approval obligations in the time required in the PPP contract.

Land acquisition refers to the act of acquiring title in the land required for infrastructure delivery. In addition to requirements of land acquisition, there can be a need to establish right of way without having to purchase land. Relocation and diversion of utilities may also be required before the construction can begin, which will raise similar issues.  

Procuring Authorities should work closely with Project Companies with respect to any delays in land acquistion during this transition phase. Availability of land is integral to the construction schedule, so where land is not available at the time it was contemplated, it will likely cause delays.

There is often political pressure to achieve financial close on a project before all the required land acquisitions have been completed, in order for it to be seen to have started. One way of managing this is through appropriate use of early works agreements to enable some work to begin before financial close.

Where financial close is achieved before all required land acquisitions have occurred, the Procuring Authority should keep the Project Company informed of the acquisition progress so that any delays can be managed from a very early stage by both parties, including agreeing to changes in the construction schedule and compensation where appropriate. Claims are detailed in Section 3.5 (Claims).

Land acquisition is particularly challenging for linear projects with extensive land requirements, such as road and rail projects and transmission lines. Densely populated areas also make land acquisition a difficult issue in most regions. Expropriation of land may involve lengthy negotiations with existing landowners, court proceedings and the need for a detailed resettlement strategy – a process which generally takes longer than anticipated. In some jurisdictions land ownership is very fragmented, making land acquisition more challenging.

Different aspects of land acquisition may also require specific third-party agreements with stakeholders, such as shop owners and utility owners affected by the construction activities or the new infrastructure, which should be managed in a well-planned and consistent manner.  

Example – Delays caused by land acquisition delays

The Gautrain Rapid Rail Link project in South Africa highlights the complexities and consequent delays that can arise due to land acquisition. In that project, pressure to meet the FIFA World Cup deadline meant that work on land acquisition was not completed before construction. It noted that challenges are not only due to non-supportive land owners, but relevant stakeholders will often have concerns over other issues such as environmental impact.

For more information, see the Gautrain Rapid Rail Link Case Study.

Acquiring land or right of way may involve resettlement of local populations and compensation for lost economic uses such as agriculture and other economic and social benefits. Poor resettlement practices have the potential to lead to adverse social outcomes (such as protests) and reputational damage and so need to be managed carefully by the Procuring Authority (irrespective of which party is responsible for the risk of resettlement). Court proceedings, as they relate to poor practices in resettlement, also have the potential to affect access to land.

Resettlement action plans typically require Procuring Authorities to meet both national and lender requirements (such as development bank safeguard requirements). This is a complex topic and the reference tool does not attempt to address the issue in detail.

The Procuring Authority can play an important role in ensuring timely agreement on environmental and other permits required. These permits are generally issued by regulatory stakeholders, with whom the Procuring Authority may have ongoing relationships.

In some urban areas, and in environmentally sensitive areas, the number of permits to be secured for construction works and the associated burden can be high. Therefore it may be appropriate that the parties work together in a coordinated fashion in order to secure approvals and permits in a timely manner.

Example – Environmental permits

The responsibility for acquiring permits in Brazil typically rests with the Project Company, as was the case in the 500kV Tucuruí-Jurupari Transmission Line project in Brazil. Delays in obtaining construction permits in Brazil have previously led to delays in starting construction, and a reduction of the operational period.Contract drafting has evolved in Brazil such that new PPP contracts now define the environmental permitting as a shared risk and allow more time for permitting.

For more information, see the 500kV Tucuruí-Jurupari Transmission Line Case Study. 

Example – Construction permits

One issue that occurred during construction of the Brabo 1 Light Rail project in Belgium was a situation in which the Project Company’s construction permit was revoked because of public objections to the proposed developments. A new permit was, however, issued a few months later. Together with the Project Company, the Procuring Authority worked as a partner to resolve the issue.

For more information, see the Brabo 1 Light Rail Case Study.

Where local authorities have a degree of separation from other relevant government bodies, it is essential that they are involved as early as possible. In some jurisdictions, local authorities can impose taxes on particular projects or can delay projects procured by the national or state government by not issuing, withholding or revoking relevant permits required for construction works. It is important that these stakeholders are involved pre-financial close to make sure any additional requirements are adequately addressed.

For example, In India land management is under the jurisdiction of individual states and a dedicated authority for land acquisition, over which the relevant Procuring Authority often has no control. The National Highways Authority of India has experienced major delays on some highways PPPs as a result of delayed land acquisition. As a result, the Procuring Authority typically enters into state support agreements with the relevant states upfront to facilitate efficient land acquisition. Stakeholder engagement with respect to other government stakeholders is detailed in Section 3.3 (Stakeholder management).