The first step for the Procuring Authority is to understand the nature of the role that it is required to play in managing the relevant PPP contract. The structure and size of the contract management team should depend on the level of involvement the Procuring Authority is required to have in the contract management activities.
The structure and size of the team will depend on several factors that should be considered on a case-by-case basis:
There are two broad approaches to contract management which play a role in determining the size and structure of the Procuring Authority’s contract management team: active contract management and passive contract management. The appropriate approach will depend on the factors outlined above.
Active contract management
Active contract management broadly refers to the circumstance where a Procuring Authority has taken on substantial obligations and risks, and needs to be closely and actively involved in contract management activities to manage those risks.
On large or complex projects, the Procuring Authority may still need to be closely and actively involved in the contract management, even where there has been substantial risk transfer to the Project Company.
There are several aspects of PPPs that are likely to require more active contract management:
Performance monitoring. PPPs are typically based on the principle that the Project Company will be self-monitoring, and will consequently submit a large volume of regular reports to the Procuring Authority for verification and approval. The Procuring Authority must therefore have personnel with the capability and experience to understand and analyse the Project Company’s monitoring reports, and data interpretation may be resource intensive.
Stakeholder management. By their nature, PPP projects involve a vast array of inter-connecting relationships. These exist not only between the Procuring Authority and the Project Company, but also with and between other stakeholders including end users, the public, equity investors, lenders and other government departments. Adequate resourcing needs to be allocated to these relationships. On high-profile projects there is also the element of reputational risk that needs to be managed across these various relationships.
Land acquisition, enabling works and other obligations. The Procuring Authority may be responsible for enabling works, such as utility diversion, regulatory approvals or connection to interface infrastructure. The link between these activities and the Project Company’s activities may present a significant risk. The Procuring Authority may also need to manage the performance of third parties whose projects and/or activities may have a material impact on the PPP contract. For many project types, it is common for the Procuring Authority to be responsible for land acquisition and right-of-way access.
PPP contracts also often require active involvement of the Procuring Authority during the construction period (e.g. sign-off on designs, construction programs, certification of completed milestones). The Procuring Authority needs to respond quickly to avoid being responsible for Project Company delays.
Scope changes and Project Company claims. Any kind of scope change, variation or Project Company claim can have significant financial implications for the Procuring Authority, and robust systems are required to effectively manage them.
Other aspects of PPP projects that require active management by the Procuring Authority team are disputes (the data indicates that 17% of PPPs encounter a dispute in the first four years after financial close), managing renegotiations (the data indicates that 45% of PPPs are renegotiated by their tenth year after financial close) and information management, which is relevant to many other activities.
The other chapters and sections of this reference tool detail the management of the aspects described above: Section 3.1 (Managing transitions), Section 3.2 (Performance monitoring), Section 3.3 (Stakeholder management), Section 3.4 (Information management), Section 3.5 (Claims), Chapter 5 (Disputes), etc.
Passive contract management
Most PPP contracts will require a degree of active contract management.
For some PPP contracts, the Procuring Authority may be able take a more limited role in contract management, if it is exposed to a lower level of risk with less onerous contractual obligations, or if the project is smaller and less complex. For example, in some power purchase agreements (PPAs), a Procuring Authority agrees to purchase energy generated by a Project Company over a certain period of time and provides limited oversight, such as administering performance reports, tariff changes, and performing periodic audits on asset condition and financial performance.
However, even in such cases, the Procuring Authority may also be responsible for the interface with related projects, such as a transmission line for an energy asset. The Procuring Authority would then be exposed to a higher level of risk and more onerous obligations with respect to delivery of the adjoining project. This must be carefully managed and a more active approach is often required.
Example – Passive contract management in in Brazil
The energy regulator in Brazil, the National Electric Energy Agency (ANEEL) has recently signed 10 new hydroelectric plants, which have added 2,607 MW of generating capacity. Design, construction and operational requirements are the responsibility of the Project Company, which takes the energy demand risk, and hence the Procuring Authority focusses on a small number of performance indicators associated with the frequency and duration of failures in supply.
The guidance above describes the need to consider the nature of the role that the Procuring Authority is required to play in managing the relevant PPP contract. These considerations, and the subsequent decision whether to take an active or passive approach to contract management, play a key role in determining the appropriate size of a contract management team.
There is no set formula for the size and structure of a Procuring Authority contract management team. It can vary from a couple of individuals to more than 50, depending on the complexity of the contract and the project and the level of involvement of the Procuring Authority.
Most commonly, the contract management team will comprise a small number of permanent staff (fewer than 10, and often fewer than five). A well-managed PPP may deploy a small core team, which relies on the professional expertise and support provided by other departments within the Procuring Authority, central PPP unit and/or external advisors.
Projects will rarely exist in isolation, and some broader consideration is required by the Procuring Authority when determining the size of the contract management team. Other relevant considerations are detailed below, including whether there is external support that can assist.
Example – Procuring Authority team structures around the world
In Sao Paulo, Brazil, individual PPP contracts generally require the creation of a dedicated Procuring Authority contract management team. A central PPP taskforce includes PPP professionals, such as lawyers, engineers and economists, as well as administrators with PPP experience who help address key contract management challenges such as renegotiations or rebalancing.
In the Philippines, the PPP Center provides legal, technical, and financial expertise to the Procuring Authority. The PPP Center also helps the Procuring Authority in setting-up and implementing its monitoring regime. This spares the Procuring Authority from having to hire the additional skills needed for setting-up and managing PPP contracts. The Procuring Authority team remains mainly technical.
Example – Procuring Authority team structures around the world
For highway projects in Colombia, the Procuring Authority, the Colombian National Infrastructure Agency (ANI) creates a team to manage a road project which may consist of around nine people, including specialist legal and financial expertise, as well as having access to a more specialized legal team which sits across around 40 projects.
In Scotland, the Scottish Futures Trust, a public company, provides legal and financial expertise in setting-up a project. It remains involved at a higher level during the construction and operations phases to provide any assistance when necessary. The Procuring Authority team is mainly technical with operations phase monitoring performed at a regional level rather than having a team dedicated to each project.
The governance approach adopted by the Procuring Authority should allow its contract management team to reach effective resolutions on day-to-day issues and make timely decisions on strategic matters.
The core expertise required by the team encompasses contract management, project management, risk management and general commercial negotiation expertise. Additional specialised skills that are required include legal, communications, financial, insurance, technical and administrative expertise. A thorough list of competencies required in a contract management team with respect to continuous training is detailed in Section 2.2 (Contract management team training).
The team should be headed by a contract manager, project manager or project director, whose role is to act as the Procuring Authority’s primary representative when dealing with the Project Company. Depending on the nature of the project and resources available to the contract manager (such as external consultants and other government teams), other dedicated performance managers, contract administrators, legal managers, financial managers, communication managers, insurance managers and other technical specialists may also be needed. The team at the contract management level should meet regularly to discuss day-to-day operational management issues.
As this chapter is focused on the contract management team that sits within a Procuring Authority, it does not focus on other governance arrangements, such as the existence of steering or other strategic committees with broader government officials, nor does it focus on any governance arrangement with the Project Company, such as nomination of Project Company board members. Those topics are detailed in Section 3.3 (Stakeholder management).
The contract management team needs to be at least partly in place before financial close to ensure that the transition into the construction phase is smooth and effective. It is also important that both the Project Company and the contractor (and possibly key subcontractors) are required to maintain overlapping staff.
It is advantageous to involve the contract manager in the tender process before financial close. The contract manager should thoroughly understand the contract from an operational point of view, which can be facilitated by understanding the development of the contract structure following negotiations with the Project Company. Involvement of the contract manager before financial close has an ancillary benefit: to have contract management responsibilities and objectives fully considered in the drafting of the PPP contract before it is signed.
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. Handover at this stage, and staff changes during transitions are detailed in Section 3.1 (Transitions).
The driver for centralising resources is to share specialised professional expertise and functions so they are available as needed across several projects (e.g. legal expertise). It also facilitates the sharing of knowledge between projects within a single jurisdiction and provides PPP training and capacity building. The type of support available will have an impact on the size and expertise needed within a contract management team.
In many jurisdictions, one or more central government bodies support the contract management team. This can take the form of a central PPP unit or a specific support team that sits within the Procuring Authority, which is involved in many PPP contracts. There may also be a sector-specific network established to promote PPPs, such as the Waste Infrastructure Delivery Programme in the UK. Centralised resources can play an important role in staff training, which is detailed in Section 2.2 (Contract management team training).
The extent of involvement of centralised professional expertise in PPP contract management responsibilities on induvial projects can vary. For example, Colombia’s Agencia Nacional de Infraestructura (ANI) provides extensive support. In many other jurisdictions, PPP units are not as big as ANI and provide only ad hoc or intermittent ongoing support to the Procuring Authority’s day-to-day contract management team in terms of specialised expert advice (e.g. legal), PPP training and development, and other contract management support.
Example – the Waste Infrastructure Delivery Programme in the UK
The Waste Infrastructure Delivery Programme (WIDP) in the UK helps promote best practice and knowledge sharing. The members are encouraged within a closed network to talk openly with peers and shar lessons learned. The WIDP has issued a contract manual that is widely used and considered helpful. This network can provide transactional support and any other contract management advice on specific issues, and helps members stay abreast of topical issues and challenges faced by fellow members.
Example – Agencia Nacional de Infraestructura in Colombia
The Colombian National Infrastructure Agency (ANI), a government agency responsible for PPPs, was set up in 2011 as part of the Ministry for Transport. It has about 700 people leading infrastructure development of around 40 highway PPP projects worth approximately US$25 billion. As well as the structuring and implementation of PPP contracts, ANI is also responsible for contract management.
Some areas of expertise are best suited to the use of external advisors, such as specialised legal, financial, insurance and technical expertise. However, external advisors can be expensive and it will sometimes be more cost effective to hire permanent staff for those roles. The key to deciding between permanent staff or consultants is how regularly the relevant expertise will be used.
If legal advice is likely to be needed only for a renegotiation or a one-off dispute, then appointing external advisors to fulfil that function may be the appropriate approach. Where a payment mechanism is complicated, involving financial models that need to be understood by the Procuring Authority frequently, it will likely be more cost effective to hire permanent financial resources. Engagement of an independent certifier is common practice to assist the Procuring Authority to monitor the performance of the Project Company. The role of independent certifiers is detailed in Section 3.2 (Performance monitoring).
Continuity of external advisors avoids loss of knowledge and also minimises the administrative effort involved in any change. However, retaining external advisors on a long-term basis can also become an issue for ensuring competitiveness and demonstrating value for money in the procurement of such services. External advisors can provide some continuity of knowledge over the long term, particularly where government policies require public officers to move to different positions after a few years.
Value for money is more achievable when there is adequate competition among potential advisors. Government policies in several countries specify that advisory contracts must be re-tendered on a regular basis. Where this is not the case, the potential costs saving in competitively tendering external services should be balanced against the efficiency losses caused in the transferring of services from one external advisor to another.
Where the Procuring Authority is required to transition between advisors, continuity of knowledge is vital, and the contract management team should manage the advisors involved in a transition to ensure this process is efficient and that knowledge is effectively transferred from an outgoing advisor to the incoming advisor. This is best achieved when there is good understanding within the contract management team of the service being delivered by the advisors, so the appointments and transitions can be effectively managed.
Example – A disadvantage of changing advisors
The Intercity Express Programme project in the UK highlights the importance of retaining key staff and advisors for a long period of time whenever possible. In this project, the Procuring Authority was required by central government policies to re-tender its advisory contracts, which resulted in a change of some of its advisors, creating inefficiencies as documents and knowledge had to be transferred.
For more information, see the Intercity Express Programme Case Study.
It is important to recognise the changing nature of the contract management workload throughout the life of a project. The changing responsibilities of the Procuring Authority are detailed in Section 3.1 (Transitions). The effect of this is that a contract management team needs to periodically re-assess the scope of the work required and whether it has adequate staff to fulfil the required tasks. Two key factors that change over time are risk and the frequency of issues arising.
For example, where a Procuring Authority is responsible for land acquisition for a highway project, which is completed over the course of the construction period. The risk and responsibility associated with this activity decrease over time, while others continue throughout the life of a project.
The frequency of issues is also relevant. Some activities are performed on a day-to-day basis, some on a periodic basis and others, while performed rarely and on an ad hoc basis, may have major implications on the PPP contract and require extensive resources from the contract management team (e.g. dealing with a large dispute or claim or a renegotiation).
The Procuring Authority should also scrutinise how well the Project Company’s self-monitoring is working and alter its internal procedures accordingly. Where the Procuring Authority is not satisfied with the quality of the service being provided by the Project Company, it may be appropriate to increase its own level of monitoring. Some PPP contracts also give the Procuring Authority the right to increase its monitoring at the cost of the Project Company. Performance monitoring is detailed in Section 3.2 (Performance monitoring).
Example – Increased responsibilities during design and construction
The I-495 Express Lanes project in the USA highlights the need to commit additional resources during peak production periods to meet contract management obligations. In that project, the Procuring Authority needed to commit appropriate resources throughout various phases of project delivery and increased resources during peak production periods (both design and construction). This helped to expedite progress and assisted in schedule recovery, resulting in opening the project 45 days ahead of schedule.
For more information, see the I-495 Express Lanes Case Study.
The composition of the contract management team is likely to change over the life of a project, which can be more than 30 years. Continuity of knowledge is a challenge for all major projects, especially those with long life spans such as PPPs. The team therefore needs to be managed in such a way that performance does not suffer over time. It is important to have procedures in place to ensure knowledge is retained and passed on when staff leave.
Teams generally change between stages of a project, with distinct skills required during procurement, construction and operations, detailed in Section 3.1 (Transitions). This carries the risk of loss of knowledge with departing team members.
The research highlighted the important role a Procuring Authority’s leaders can play in the overall success of a project. In some instances the Procuring Authority recruits these leaders on a long-term contract basis, as recognised leaders within the industry, who are capable of taking charge of the overall success of the project.
Examples – Continuity of key staff
A range of projects highlighted the benefits of the continuity of key staff through the different stages of a project.
On a waste project in the UK, the majority of Procuring Authority staff were involved in the procurement process, and hence had a good knowledge of the contract.
The Segarra Garrigues Irrigation System project in Spain highlighted the benefit of having continuation of staff between the construction and operations phases.
For more information, see the Segarra Garrigues Irrigation System Case Study.
The Procuring Authority should, however, avoid the situation where it is too reliant on any single individual. One way of doing this is by having adequate succession plans in place. In some jurisdictions there are restrictions around public sector employees staying in a particular post for more than a few years, which presents an added challenge for contract management of long-term projects such as PPPs.
Training new employees is important to the continuity of knowledge; they must be brought up to speed on the project through the handover process. Information management is also important in this respect, and the Procuring Authority needs to ensure that information is recorded effectively and comprehensively, so new employees can access the full details of the project in a systematic manner. Training requirements are detailed in Section 2.2 (Contract management team training) and information management is detailed in Section 3.4 (Information management).
Challenges may arise with a new central or regional government due to newly elected politicians that may not be familiar with the project, having a different approach to the project or having a mandate to change the approach to PPPs. One way of managing this is to set up a dedicated team to manage the PPP project, and in such a way to mitigate, to the extent possible, the risk of external political changes having an adverse impact on the project, to the extent possible.
Changes can also be managed by deploying specialised legal or other expertise. For example, where a change requires a renegotiation, or a change in law or material adverse government action claim, which are detailed in Section 3.5 (Claims) and Chapter 4 (Renegotiation). Guidance on managing a transition between governments is detailed in Section 3.1 (Transitions).
Example – Setting up a dedicated Project Management Unit
The Project Management Unit (PMU), established by the Jordanian Ministry of Transport on the Queen Alia International Airport Expansion project in Jordan, played a key role in managing the risk of political and institutional changes that were not related to the project itself. The airport expansion was a high-profile, high-value project, which meant setting up a dedicated unit was the most effective solution. The PMU team had sufficient authority and remained the same throughout a variety of political changes, ensuring continuity of knowledge and contract management.
For more information, see the Queen Alia International Airport Expansion Case Study.
Example – Setting up a dedicated management agency
The Procuring Authority for the Gautrain Rapid Rail Link project in South Africa began as the Department for Roads and Transport in the Gauteng Province. Given the size and complexity of the project, a specialised agency, the Gautrain Management Agency, was set up to monitor and manage the project. This allowed the team to focus entirely on the project and its challenges, although it still relied on external consultants.
For more information, see the Gautrain Rapid Rail Link Case Study.
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