1. Overview

Foreword

"Structuring, procurement and negotiation of quality PPPs are important to the success of those projects, but without effective management of a contract after financial close, there is significant risk that even the best projects can end badly."

Chris Heathcote, Chief Executive Officer, Global Infrastructure Hub

"This reference tool is designed to help the public sector to realize the value and opportunities created in PPP contracts from financial close and throughout the contract life."

Murray Rowden, Managing Director, Americas & Global Infrastructure, Turner & Townsend

Globally, there is a significant deficit of required infrastructure to meet the needs of countries’ populations, and delivering infrastructure that meets these needs is a high priority of governments in many countries. Governments around the world are looking to draw on the private sector through public private partnerships (PPPs) to help deliver major infrastructure projects, because they recognize that private sector involvement can drive innovation and efficiency and provide additional financing solutions.

A PPP typically involves a long-term contract that may last for more than 20 years after the procurement phase has ended. While attention on PPPs often focuses on the ability to attract financing and achieve the critical milestone of financial close, less attention is usually given to the subsequent management of projects throughout construction and operation.

The PPP Contract Management Tool (referred to herein as the ‘reference tool’) provides public sector officials with practical guidance and case studies, so that those responsible for managing contracts after financial close are better able to ensure project objectives and value for money. The reference tool has been developed based on analysis of contract management experience from more than 250 PPP projects globally and lessons learned from specific project case studies.

The reference tool is designed to be used by a variety of public sector authorities with different levels of expertise and experience in managing PPP projects. While it is aimed at those responsible for managing PPP projects after financial close, it also highlights lessons arising over the lifetime of these projects, which are instructive for those responsible for the procurement of PPPs, as well as policy makers.

The reference tool explores critical issues of contract management, highlighting leading practice and real-life experience, using case studies to provide practical learnings across a range of project types from a variety of jurisdictions. It is not designed to provide a single solution, but a framework for governments around the world to build capability in their public sector officials who are responsible for managing infrastructure projects after financial close.

By using the reference tool, governments will be better able to manage project construction and operation, work more successfully with private sector partners, and continue to secure greater social and economic benefits from quality infrastructure projects.

Introduction

PPP contract management is one of the most important aspects of PPP delivery. If done effectively, it will support the long-term success of the project in line with the agreed contract terms. But, if managed poorly, it can seriously undermine years of project preparation and procurement and can ultimately lead to major cost implications for taxpayers and service disruptions for end users.

In the face of growing investment needs and constrained budgets, many governments are increasingly looking to the private sector to bring expertise and financing to infrastructure delivery; often through the use of PPPs. However, despite the growing trend among governments to consider PPPs as a procurement and financing model for infrastructure projects, the contract management of these projects through their construction and operations phases is one of the more overlooked areas of infrastructure delivery.

Given the long-term nature of these contracts, combined with their size and complexity, there is clear potential for significant impact on the delivery of public services if they are not appropriately managed. Variations, scope changes and other changes after a contract has been negotiated, even if agreed by all parties, will not necessarily maintain the initial value and competition inherent in a project’s procurement.

Contract management is important not just in the context of an individual project, but because no project is undertaken in isolation from other PPP initiatives. The learnings from one project should inform improvements in subsequent projects.

The public sector must therefore recognize the value and opportunities created by effective PPP contract management, and must develop a strategic approach to capitalising on this model throughout the project life cycle, to continuously inform and improve the way we utilize private sector involvement in the delivery of public infrastructure.

Overview of the reference tool

The reference tool is a guide that builds on global research into projects and the lessons that can be learned from their performance throughout construction and operations. It provides practical advice for public officials responsible for the management of PPPs after financial close.

The Global Infrastructure Hub (GI Hub), a G20 initiative, and its consultants, Turner & Townsend, have created the reference tool by collecting and analysing data from 250 PPP projects, supported by in-depth analysis of the contract management practices from a select number of case study projects and a detailed literature review.

The reference tool is intended to be user-friendly and interactive, providing guidance to public sector teams around the world responsible for contract management of PPPs from financial close to handback. It is designed to supplement other resources currently available to help with oversight and governance of PPP projects. It is also designed to help drive enhancements to structural arrangements in the pre-financial close stages of a project, by highlighting some of the most common challenges and issues faced by projects.

The reference tool covers critical issues of contract management, including the establishment of the contract management team; routine contract management issues; as well as non-routine issues that can have major implications for a project – for example, instances of dispute, contract renegotiation, insolvency or termination. The case studies demonstrate leading practices from successful projects and highlight the lessons learned.

The reference tool also gives insights into the circumstances that may result in disagreements between the Procuring Authority and the Project Company, and provides leading practice guidance on managing such issues. Importantly, the reference tool also addresses matters that are not typically addressed in a PPP contract, but are important for the Procuring Authority in managing the delivery of a project, for example public stakeholder engagement.

While the reference tool is not a prescriptive PPP management manual, it is a guide that provides insight into the potential issues inherent in PPPs, and provides leading practice recommendations on how to resolve them during the implementation phase (including design, construction and delivery of the project assets) and operations phase (including operation and maintenance during service delivery). It is not a route to a single solution. The reference tool should enable the user to gain an overview of typical pitfalls and an insight into critical issues in terms of underlying causes, potential impacts on the PPP contract and possible approaches to proactively manage risk.

It is not a replacement for any existing guidance document, but rather a supplemental resource focused on leading practice contract management post-financial close which is informed by systematic research and analysis, and real case study examples. Finally, it is not a model to provide a rating of the maturity of a Procuring Authority’s capabilities or to identify where gaps exist. However, the reference tool may highlight organisational issues that require improvement to ensure more effective contract management.

Definitions and sector coverage

The reference tool can be used by public officials in any country in either common or civil law jurisdictions. It provides guidance on projects delivered not only under a jurisdiction’s specific PPP laws, but also projects that are delivered under concession laws or other laws that fall within the broad definition of a public private partnership.

For the purposes of the reference tool, a PPP contract is taken to mean a long-term contract between a Procuring Authority (government or other public agency), and a Project Company (private partner or commercial partner) for the development and/or management of a public asset or service, where the Project Company bears significant risk and management responsibility throughout the life of the contract, and where remuneration is significantly linked to performance and/or the demand or use of the asset or service. It covers both greenfield and brownfield projects.

This definition is deliberately broad. It includes projects where demand risk is passed entirely on to the private partner (also known as ‘user-pay’ projects or concessions), and projects that are based on availability payments by government irrespective of demand (availability-based projects). It also includes, for example, power purchase agreements where a government entity is the purchaser of the power.

Although the data collection and case study elements of the research are focused solely on economic infrastructure projects across transport, energy, water and waste, many of the broader principles of contract management are applicable to other projects, including social infrastructure projects, such as school and hospital projects.

Summary of methodology for developing the reference tool

The reference tool has been created using systematic research into the data and actual examples of the practices used during the construction and operations phases of PPPs. The steps in the data collection that helped to inform the reference tool are set out below. In addition, the detailed methodology is described in the Methodology section of the reference tool.

1) A master global database was first developed to include all economic infrastructure PPPs that reached financial close between 2005 and 2015 (inclusive). The master database was built up using multiple online sources and was categorized by region and sector. The master database comprised 3,736 projects across 137 countries.

2) A random group of 250 projects was then selected from the master database, in such a way that the regional and sectoral breakdown of the sample was similar to that of the master database. This was done by selecting a random sample from the master database and comparing the breakdown to that of the master database, repeating this process many times, and finally selecting the sample where the breakdowns best matched.

3) Data was then collected on these projects using a combination of desktop research and interviews with key stakeholders. The information collected covered details of major events (termination, force majeure etc.), renegotiations (number, outcome, etc.), disputes (number, outcome, etc.), as well as basic project information such as contract term, capital value, financing and contractors. The prevalence of issues informed the development of the relevant topics of the reference tool. The limitations to this data collection are detailed in the Methodology and the results are reflected in Appendix A (Data analysis).

4) The existing literature on contract management of PPPs was examined to develop an understanding of what guidance was currently available, including where there were gaps.

5) Once the data collection had progressed significantly, 25 projects were identified as case studies to further investigate particular challenges faced by Procuring Authorities on PPPs after financial close and examples of leading practices and lessons to be learned. The majority of the 25 PPPs were selected from the 250 randomly selected projects, with some others added to ensure a wide range of projects across various regions and covering all relevant issues. Interviews were carried out with the Procuring Authority and Project Company for each case study, as well as with lenders and lawyers where appropriate, to form a comprehensive view of the successes and challenges affecting the PPPs studied, as well as the practices adopted. Further non-project specific interviews were also conducted with experts in the field who have experience in the contract management of PPPs in their relevant capacities as lawyers, lenders, advisors and consultants. Norton Rose Fulbright, a global law firm with staff in 33 countries, also led a substantial legal review of a draft version of the reference tool; inputs from that review have been incorporated into this version.

6) Once a substantial number of case studies had been completed and a draft version of the reference tool had been developed, three regional workshops were held, to share the preliminary findings and to gain further insight from PPP practitioners into their challenges during PPP contract management. The first workshop was in Bogota, Colombia; the second in Singapore; and the third in Rome, Italy, with attendees from regional Procuring Authorities, private sector organisations as well as multilateral development banks. Feedback and additional lessons learned from the workshops were then incorporated into the final reference tool.

The reference tool is therefore based on real experiences on live projects around the world, with support and feedback from the Procuring Authorities as well as other stakeholders including Project Companies, equity investors, lenders and contractors. The reference tool has been structured such that it addresses the prevailing challenges and issues in the contract management of PPPs.

The majority of the 25 Case Studies are shared in Appendix B (Case Studies). Because of the sensitivities of ongoing projects (e.g. some may be experiencing disputes), not all Case Studies are currently available for publishing in full detail. For this reason, a selection of the Case Studies has been anonymised or omitted entirely. However, the fundamental lessons learned from all 25 Case Studies have been incorporated into the reference tool.    

Because of the timeline selected for projects to be studied – that being projects which reached financial close between 2005 and 2015 inclusive – the implication was that very few of the projects investigated had reached handback. Guidance is still provided for this process, as it is an important aspect of the management of a PPP; however, the sections covering final handback are not informed by specific case studies.

Acknowledgements

The GI Hub has developed the reference tool under one of its key mandate areas which is to develop and promote leading practices for delivering quality infrastructure.

The GI Hub engaged Turner & Townsend, an independent professional services firm which plays a leading role in the global PPP market, to lead the preparation of the reference tool, with close engagement with the GI Hub team led by Morag Baird and Jack Handford.

The reference tool also incorporates contributions from various governments and private sector organisations, including sponsors, equity investors, lenders (e.g. Aviva Investors), contractors and advisors (e.g. Clyde & Co, Foster & Partners), who took the time to assist the project team in collecting data, preparing case studies and providing commentary on the general issues in the management of PPP contracts. Law firms Norton Rose Fulbright and Felsberg Advogados provided support through a substantial legal review of the reference tool.

The primary data gathering was supported by a full literature review of existing leading practice on the topic of contract management of PPPs, notably including the EPEC document Managing PPPs during their Contract life [1], and the Government of India’s toolkit on Post Award Contract Management Toolkit for PPP Concessions [2] as well unpublished guidance provided to the GI Hub by PPP Canada.

Support and contributions from other international and bilateral organisations have also informed the development of the reference tool, most notably from the European Investment Bank’s European PPP Expertise Centre (including Edward Farquharson), the Inter-American Development Bank and the World Bank.

A series of consultation workshops were held on the reference tool while it was in draft format, and the contributions from government officials from the almost 30 countries who attended have helped to inform the final development of the reference tool.

[1] Available at www.eib.org/infocentre/publications/all/epec-managing-ppps-during-their-contract-life.htm. 

[2] Available at www.pppinindia.gov.in/post-award-contract-management-toolkit.