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Strategy Delivery and Commissioning

74.1. Governance and Contract Management Team Establishment

From a practical perspective, the Value for Money generated through a PPP depends on the quality of the private partner and the government’s contract management systems and teams. This is especially true for PPP contracts that have some form of risk retention on the part of the government, be it in the form of a minimum revenue guarantee or some other form of contractual undertaking.

The PPP contract will set out the various obligations of the private partner with regard to the management and reporting of its activities and achievements against the project specification. Since the PPP contract may have very limited obligations for the government, it is common for the procuring authority to assume that the PPP contract will be self-regulating and self-reporting[6]. This assumption often results in weak governance and contract management regimes being established by the procuring authority. Often, it can also result in a reduction in the overall benefits of the PPP compared to those estimated in the various ex-ante studies.

In the Chapman’s Peak example provided in appendix A of this chapter, the government was responsible for obtaining environmental approval for a permanent toll plaza. It had to pay a minimum revenue guarantee during the time in which the approval was outstanding. At the end of the project, the amounts paid as a result of a delay in the environmental approval far outweighed the cost that the government would have needed to pay for a specialist contract management unit (which could have been established within the government in order to manage and mitigate the risk of the outstanding approval).

The establishment of a contract management team is an example of good practice for the government. However, the establishment of a contract management team will not, in itself, guarantee that the government will maximize the Value for Money (VfM) of the PPP contract. Table 7.1 describes the characteristics of a contract management team.

TABLE 7.1: Characteristics of a Contract Management Team




The contract management team will have a clear mandate to act on behalf of the government. In this context, the contract management team acts as the representative of the government within the public regulatory environment. In some instances, this is achieved through internal delegations or institutional arrangements within the government, while in others a specific form of legislation may establish and empower the contract management team.

Contractual Standing

The contract management team must be empowered within the terms of the PPP contract to act as the representative of the government and to exercise specific powers or rights under the PPP contract.


The contract management team must have the human and financial resources to fulfil these mandates and contractual rights effectively and efficiently.

The specifics of the mandate, contractual standing, and resources required will differ from sector to sector and even from one project to another. Factors that will influence these functions are as follows.

  • Scale of a project or program of projects: A useful metric is the value of the assets created by the PPP.
  • Administrative complexity of the projects, such as whether they are cross-border or cross-agency in jurisdiction
  • Extent of risk retained by the government in terms of the PPP agreement (which can be determined by considering the financial consequences accruing to the government of a risk materializing).

These factors must be taken into account when designing the contract management team prior to the contract award and Signing Stage, as the contract management team should be involved in the stages that follow (financial close and construction). In some cases, it will be preferable to establish a contract management team for a single project, particularly when the project is very large, complex, or unique. In other cases, it will be preferable to establish a single contract management team for multiple projects, particularly when the projects are smaller, less complex, and in the same or similar sectors.

Figure 7.2 describes the stages and activities of the contract management function in each of the phases of a PPP project. In the Project Identification and Screening Phase, the contract management requirements should be defined and operational, and budgetary requirements should be discussed and agreed. During the Appraisal Phase, the contract management function should be described in detail, and the resource requirements and their function in the Construction, Commissioning and Operational Phases needs to be set out. A budget also needs to be secured in order to be operational for the duration of the PPP contract.

A detailed project plan with activities of the contract management team should be produced, as the requirements and obligations of this function will vary from phase to phase. During the Structuring Phase and the Tender Phase, representatives of the future contract management team should be involved in order to assist and be introduced to the operational requirements and outputs of the project to provide the monitoring tools and manuals for later stages of constructing, commissioning, and operating the asset.

At the end of the Tender Phase, the contract management team should be in place, and the final documentation (including method statements, monitoring arrangements, and quality plans) should be completed and finalized. Development of communications channels and protocols between the government and the private partner must also be completed. Any training required should also be provided for both the government and private partner.

It is common in PPP projects for the majority of the project team for the Tender and Award Stage to leave the project following the award or financial close. Putting the contract management team in place prior to the end of the Tender Phase can therefore be an important means of preventing a loss of knowledge about the project; knowledge can be transferred to the contract management team before key project team members move on. The private partner often faces similar issues, as its bidding team will move on to prepare bids for other projects and can use a similar approach to prevent a loss of project knowledge.

FIGURE 7.2: Stages of Contract Management Activities throughout the PPP Life Cycle


The establishment of governance and contract management functions by the government during the early stage of a project will unlock numerous benefits. Some examples are listed below.

  • It will help build in-depth knowledge of the project from the inception, and therefore a strong negotiating position when the project is in procurement.
  • It will ease co-ordination and integration of all the stakeholders and works once in the Construction Phase.
  • It will help build familiarity with proposed service measurement targets and preparation for the monitoring of the same.

The governance and contract management functions should also reduce the chance of possible pitfalls such as those listed below.

· A lack of knowledge and understanding of what the private partner’s intentions were when devising their solution, as well as what has been incorporated into the contract, resulting in conflict and affecting the establishment of the partnering relationship;

· Poorly monitored and executed financial management because the contract management function is not involved in the design of the payment mechanisms at the Structuring Phase;

· A lack of opportunity to influence the implementation of services. A lack of awareness of problems and the implementation of the solutions can be avoided if the contract management function is involved from the inception of the project; and

· A lack of knowledge of the signed contract, obligations, and roles and responsibilities arising from the late appointment of the contract management function may delay the project, bring indecision and in certain circumstances, and shake the relationship between the government and private partner.


4.1.1. PPP Governance Structure

Good practice for PPP contract governance structures requires various layers of interaction between the two parties. An example of this is the use of a partnership board, a contract management board, and an operational management board, which will liaise directly with the contract management team. Figure 7.3 below represents a typical PPP structure with the members of each board and organ, as well as their communication lines. This will represent a typical structure in light of overall PPP delivery.

It should be noted that these structures and the best practice requirements for good, collaborative relationships between the parties do not detract from the contractual obligations of the two parties. In addition, the government should adopt the structure that best suits internal existing structures and governance arrangements. It also needs to be adapted to the complexity of the project so that the resources and structures used are appropriate given the size and complexity of the project.

The partnership board’s role is to ensure that the project runs smoothly and that the partnership relationship is successfully executed. The communication with all of the stakeholders is channelled through the partnership board, and any issues that need to be resolved would be addressed at this forum. As a rule, the board should meet quarterly, however should the need arise, it is advisable that the board meet on an ‘ad hoc’ basis.

FIGURE 7.3: Project Governance for PPP Contracts


Source: 4PS (2007).

Note: SPV= special purpose vehicle.

The primary objectives and functions of the partnership board are as follows:

· Strategically lead the project and provide guidance to ensure that long-term issues are properly considered and resolved;

· Ensure effective communication is taking place at all levels;

· Ensure that the objectives of the contract are met over the full term of the contract;

· Ensure that an ethos of working in partnership is developed and maintained;

· Ensure that the project is aligned with both parties’ business or service plans;

· Consider and report on any changes in legislation;

· Agree on proposed efficiencies and changes;

· Set year-on-year improvement targets if appropriate; and

· Promote best value through the management of whole project life costing through innovation and service improvements.

The contract management board is responsible for monitoring service delivery against service levels and key performance indicators, as well as ensuring that daily contractual matters are dealt with as efficiently as possible. The contract management board usually meets once a month. The primary objectives and functions of the contract management board are as follows.

· Review, discuss and agree on issues arising from the monthly monitoring report;

· Review the payment report and agree on payments due;

.  Review the past and future financial performance of the project;

· Resolve issues with regard to production of information;

· Take a forward view of the project;

· Identify efficiencies and necessary changes;

· Record/discuss issues affecting the contract, for example compensation events, delays and extensions of time;

· Review areas of conflict;

· Ensure the partnership board is briefed and actions taken; and

· Promote partnership working process.

The function of the operational management board is to monitor and discuss performance, and manage contractual obligations as well as any changes driven by the contract or outside the contractual limits that would affect the project. The operational management board meets with the contract management team on a regular basis, and as a good practice this is recommended at least bi-monthly.

The main objectives for operational engagement are as follows:

· Provide early identification of issues;

· Produce or review monitoring reports and payment reports (where these are produced by the private partner);

.  Review financial performance of the project and the parties;

· Discuss and, whenever possible, resolve minor operational issues;

· Ensure that all parties are clear as to the level of service required;

· Promote partnership working; and

· Implement changes when necessary and report back on the same.


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