4.4. Relationship Management

PPPs, by their very nature, span a very long time frame. They are detailed and complex when it comes to managing relationships between the various parties in the PPP contract. There are many stakeholders within a PPP, including the parties, lenders, SPV shareholders, end-users, regulators, legislative and executive arms of the government, and wider communities. Critically, one risk that cannot be quantified is relationship risk. This risk is more complex than many other risks. Damage to the relationship can be the result of poor or unsatisfactory communication and cooperation, and it usually follows and exacerbates a reduction in mutual trust.

4.4.1. Key Factors in Establishing Good Relationships

The effective management of relationships is essential to achieve long-term success. The key to this is the establishment of a collaborative working relationship, together with systems and communications that actively support and enhance the relationship throughout the life of the project.

When ‘things go wrong’ in a contractual relationship, a typical result would be a reduction in efficiency, which in turn would lead to a reduction in Value for Money. The procedures for rectifying issues and problems should be put in place from the outset of the project, with relationship management being a priority. Only if a mutual consensus cannot be reached should issues and dispute management come into play.

The main attribute to effective relationship management is communication. Poor or unsatisfactory communication and cooperation can lead to a reduction in trust. Sometimes, the lack of communication can lead to misinterpretation of the party’s intentions to do positive things. For example, the procuring authority may perceive that poor reaction times from a private partner are due to cost reduction strategies, when in fact the reaction times originally specified were inappropriate. The private partner might be concerned about a perceived slowness in decision-making by the procuring authority, when in fact the private partner does not understand the procuring authority’s sign-off procedures.

A partnership style of working is a commitment by the parties within a PPP contract to collaborate to achieve mutual goals. These goals are achieved through inter-partner collaboration and joint problem solving. The result is less conflict and improved performance in terms of quality, time, and cost. Over the life of the contract, further benefits accrue as the whole team builds on lessons learned and continually improves. The overall statement of the partnering relationship that describes the principles of a good working relationship should be recorded in a contract management manual (see section 0 above).

Effective relationship management starts with a collaborative, rather than an adversarial attitude. If the either party starts with an adversarial relationship, this can force the other party to adopt the same tactics and compromise the long-term interests of both parties.

An example of one way to establish a collaborative working environment is externally facilitated team-building workshops. These can be undertaken throughout the life of the project to help foster the relationships and the development of a team ‘culture’. This is especially the case in pilot or initial PPP projects in a jurisdiction in which the public and private partners are new to each other. If roles and responsibilities are clearly defined and understood by all individuals within the partnering team, this will help to minimize conflict. This includes defining governance structures and establishing procedures for monitoring and reporting. It also includes understanding risk allocation and who is responsible for managing the risk.

4.4.2. Importance of Stakeholder Management

Project success and failure is related to stakeholders’ perceptions of the value created by the project. This section demonstrates a link between the successful management of the relationships between the project and its stakeholders, and the stakeholders’ assessment of a successful project outcome.

Using a mechanism for assessing the relative influence of a project’s stakeholders and understanding their expectations is a critical element for success, as this will help to define appropriate engagement procedures to influence the key stakeholders’ for the benefit of the project.

The purpose of stakeholder management at the project level is to ensure that the necessary individuals or groups are appropriately lobbied and engaged, thereby ensuring their ongoing support of the project. Key interfaces with internal stakeholder groups include the partnership board, although the project communications strategy should address the majority of the organization in some form. Important external stakeholder groups may include critical suppliers, various governmental bodies, regulatory bodies, community groups, and third party investors. In short, anyone who has a financial, business, or political interest in the outcome of the project should be considered when establishing relationship interfaces.

Even if the private partner has, under the PPP agreement, taken the risk associated with dealing with a particular stakeholder, the contract management team can play a role in informing that stakeholder about the project and ensuring that they do not unnecessarily slow down the project. For example, where the private partner is responsible for obtaining a permit from another government department, the contract management team can ensure that the other government department fully understands the project and the context in which the private party is seeking the permit — provided the contract management team does not provide any assurance to the private partner that the permit will be granted.

Table 7.2 describes the key stakeholder management objectives, activities to achieve these objectives, and typical risks if the activities are not implemented.

The Waghdari-Ribbanpally State Highway-10 toll road PPP in the state of Karnataka, India illustrates the benefits of systematic stakeholder management. All of the stakeholders worked together in a true partnership to ensure the success of the project. According to the agreement, the contractor had a period of two years for the construction period. However, through coherent partnership and stakeholder management, the construction was completed three months ahead of planned schedule.

4.4.3. Relationship with Communities and Broader Stakeholder Groups

There are many projects in which the government itself is not the end-user. In these projects, the government should involve end-users at an early stage because inadequate consultation of stakeholders can lead to delays in the implementation of the project or make contract management challenging. It can lead to certain risks being underestimated. It could also limit the ability of both the government and the private partner to mitigate certain sensitive risks such as: