The relationship between the Procuring Authority and the Project Company is key to the success of a PPP. The first step in managing the relationship with the Project Company is to ensure that both parties have a good understanding of one another’s objectives and points of view. This will create a common vision and boost cooperation and also help avoid surprises. Goals and expectations should be made clear as early as possible and discussed openly. While this will often be covered in the procurement phase, they should be revisited at regular intervals, such as during transitions between project phases, when staff are likely to change, as is detailed in Section 3.1 (Transitions).
As PPPs are long-term partnerships, team dynamics and personalities play an important role in defining the primary relationship between the Procuring Authority and the Project Company.
Although the Project Company and the Procuring Authority may have different commercial and non-commercial drivers and incentives, they are ultimately delivering the same project and a collaborative approach is important. The Procuring Authority should seek information on how it is regarded by the Project Company, with a view to improving the relationship over time.
A positive relationship between the Procuring Authority and the Project Company is also a responsibility of the Project Company. Various factors may affect how the Project Company will approach the relationship with the Procuring Authority including its underlying financial situation, its equity investors’ priorities and whether adequate personnel and resources have been allocated to the project.
For example, there may be circumstances where the underlying financial situation of the Project Company will influence its willingness to engage in collaborative behaviours. When the Project Company is making a healthy profit, it may be more likely to be more flexible and cooperative in achieving shared wins, even if those changes do not have an obvious financial benefit. On the other hand, if the underlying economics of the Project Company’s role in the project are not as positive as expected, there is likely to be pressure on the Project Company to cut costs, which may have an impact on the relationship. This situation highlights the importance of maintaining good communication between the parties, so the Procuring Authority knows what is happening and how it may be able to best work with the Project Company.
Example – Advantages of a strong relationship
The Intercity Express Programme project in the UK was forced to make changes to the train design due to delays in external infrastructure works, and the close working relationship between the Procuring Authority and Project Company allowed them to mitigate the delay.
For more information, see the Intercity Express Programme Case Study.
Successful projects generally recognise the importance of timely resolution of day-to-day operational issues through the involvement of relevant representatives from the Procuring Authority and Project Company, and high-level effective decision-making on strategic matters which determine the future of the project. The latter is required less frequently but must include all relevant stakeholders from the public and private sector side, and not just the respective Project Company and Procuring Authority representatives.
It is common for the Procuring Authority and Project Company to discuss operational issues at regular meetings, though the frequency may vary depending on the project from weekly to quarterly.
The relationship between parties may also operate at different levels. Parties from both sides involved in the day-to-day running of the PPP contract should communicate frequently on operational matters, in both a formal and informal context.
Conversely, senior management may limit communication to strategic questions and other major issues and may communicate in a more formal way. There should be a clear hierarchy regarding the importance of issues dealt with by the Procuring Authority contract management team. It needs to distinguish between everyday operational management issues (ordinary issues which are monitored on a regular basis), and strategic issues with material commercial implications, which are discussed periodically or as the need arises.
Specific circumstances may warrant more frequent meetings, or meetings attended by specific additional representatives (e.g. to settle disputes). Disputes are detailed in Chapter 5 (Disputes).
Examples – Frequency of meetings for different projects
In the Gautrain Rapid Rail Link project in South Africa, important issues could be raised during weekly meetings between key representatives. In the Port of Miami Tunnel project in the USA, weekly meetings were held, which included the Procuring Authority, the Project Company and the construction contractor, as well as representatives from city and county governments. In other projects, meetings take place on a monthly basis, and in the Brabo I Light Rail project in Belgium, meetings were held quarterly. The Procuring Authority for energy projects in Brazil has recently introduced quarterly contract management meetings for all its projects.
Example – Frequency meeting to settle disputes
One case study in a developed market identified the use of a ‘chairmen’s meeting’, which included representatives from the Procuring Authority, the Project Company, the construction contractor and the operations contractor during a time of ongoing disputes. These meetings took place for six months on a fortnightly basis and successfully enabled the resolution of many issues.
Some Procuring Authorities adopt a more formal approach, with official letters used as the primary form of communication. This is a requirement of the Brazilian administrative system, and therefore is the approach taken by Procuring Authorities there. This approach is also common in India.
The PPP contract will usually identify formal points of contact and formal means of reporting and communication. However, several other less formal contact points and means of communication will generally also be beneficial. Channels of communication must be properly managed to ensure that they are efficient.
Some governments require an equity interest in Project Companies, with an accompanying right for the Procuring Authority to appoint a director to the Project Company’s board.
There are several benefits of this, including sharing in the profits of good performance, enhancing the relationship and communications, assisting to raise issues at a strategic level, increasing the level of transparency and information management.
There are also negative aspects including sharing of losses, blurring the line between the public and private sector interests and creation of conflicts of interest. It is typically not a preferred structure for other private sector investors (including equity investors and lenders), who will require strict controls around what rights the directors who are appointed by the Procuring Authority have at the board level. Additional challenges will arise in the case of financial difficulty or insolvency of the Project Company, as detailed in Chapter 6 (Insolvency).
Examples – Procuring Authority appointed directors
In the Qiaoxi District Central Heating project in China, the Project Company governance structure includes a board of directors and a supervisory committee. At least one of the five members of the board and at least one of the three members of the committee must be from the government of the Qiaoxi district in China. This allows the Procuring Authority to monitor the performance of the project on an ongoing basis.
In several PPPs in Scotland, the Procuring Authority has an observer who sits in on the board meetings of the Project Company (other than during shareholder-related commercial discussions).
For more information, see the Qiaoxi District Central Heating Case Study.
Co-location of office space with the Project Company can also be beneficial in many circumstances. While this may only be feasible in certain situations, it has obvious advantages, such as the ability to have more regular informal conversations in addition to formal meetings.
Where the Procuring Authority and Project Company choose to co-locate, there are risks regarding confidentiality and independence which must be managed.
Example – decision to co-locate
The operational team for the Central Berkshire Waste project in the UK are co-located, and this was seen as beneficial in keeping the relationship between the Procuring Authority and Project Company amicable, even during an ongoing dispute.
For more information, see the Central Berkshire Waste Case Study.
Example – decision not to co-locate
This team for the InterCity Express Programme project, also in the UK, highlights that some parties deliberately decided not to co-locate their offices to maintain a degree of separation and independence, which was felt to be more appropriate under the circumstances.
For more information, see the InterCity Express Programme Case Study.
The Procuring Authority should not unfairly use contractual mechanisms to address relationship issues or resolve issues that it may have outside of the project.
For example, the contractual entitlement to deduct payments should not be perceived as a means to generate savings for the Procuring Authority, and unnecessarily penalise the Project Company. Performance monitoring and application of payment deductions is detailed in Section 3.2 (Performance monitoring). The relationship between the parties can be improved only through communication and collaboration, while contractual mechanisms are there to help the Procuring Authority enforce its contractual rights.
As discussed above, the relationship with the Project Company may be impacted by its financial situation. Pressure on costs can also come from the Procuring Authority side, due to budgetary pressures and changing priorities from broader government policies. This can put contract managers from the Procuring Authority into a difficult situation, however they must be aware that, even when under budgetary pressure, the relationship with the Project Company continues to be extremely important.
During disputes, it is important that the underlying principles of communication outlined above continue to be followed, despite the challenges raised during the process of resolving a disagreement.
Major changes, such as unforeseen events and other major challenges, may also call for a change in the personnel dealing with the challenge from the Procuring Authority’s team. If the Procuring Authority is facing a major dispute or claim, then people with strong relationship-building skills might help improve the existing relationship, which could be tense. Disputes are detailed in Chapter 5 (Disputes).
Example – treatment of disputes
Several projects have highlighted how the relationships between the Procuring Authority and Project Company remained positive throughout all commercial disagreements and formal disputes. This was achieved by separating disputes from day-to-day operational matters, and in the Central Berkshire Waste project in the UK, the fact that the offices were co-located was also helpful.
For more information, see the Central Berkshire Waste Case Study.