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Strategy Delivery and Commissioning

74.2. Roles and Responsibilities of the Government and the Private Partner within Contract Management

4.2.1. The Role and Responsibilities of the Private Partner

To enable the government to effectively manage the contract, certain roles and responsibilities must be required of the private partner through the contract. It is very important that the reporting system of the private partner complies with the government’s requirements. In this context, the government will have clear policies and procedures with respect to private partner reporting. These requirements must have been communicated in the Tender Phase to ensure that the private partner has been given the opportunity to design and implement a reporting process, and to allow for time to ensure that information management systems are compliant with the needs of the government.

As part of this process, the private partner should set up a Quality Management System (QMS) (see section 7.5 below) through which the process and procedure of documentation issuing, and monitoring of service and performance is recorded. It is equally important to keep the communication channels between the government and private partner continuously open and to raise issues when anticipated, as the risks might affect the project. However, one of the most vital points is that the government not get involved in the actual decision-making and execution, as the risk transfer will be affected.

A Management Information Systems (MIS) will form a great part of the QMS (see section 4.3.4 below). The importance of the MIS is to aid the reporting and monitoring of the private partner by the government, reduce time and costs in providing necessary documentation, and use for record keeping and safety. The MIS also assists in the management of the documentation version controls, and aids in reporting back to the end-user if necessary. The aim is to ensure that performance can be measured and monitored using the information technology (IT) tools, and that these IT tools generate reliable and accurate data on a regular basis which will be part of the complete QMS.

The government, however, should be careful not to prescribe to the private partner how it should structure itself. This is because of the discipline imposed by the project finance structure. In particular, the lenders and shareholders to the private partner generally need to ensure that good practice is applied in terms of corporate governance.

There are, however, some areas in which the government should be prescriptive in setting out either explicit contractual obligations or requirements of formal approvals related to the structure of the private partner and its governance arrangements. These include:

· Changes in shareholding;

· The ability of the private partner to perform its obligations with suitable experienced and qualified personnel;

· Changes in the financial structure of the private partner, such as distributions made by the private partner and refinancing; and

· Reporting requirements in terms of timing and contents of such reports.

 

4.2.2. Contract Management by the Government

The government will have a number of roles, possibly at different levels, in managing the contract. It will have a strategic commercial contract management role in sharing policy and other strategic developments with the private partner. It will also have a role in monitoring:

· The contract to ensure that the obligations therein are being met and remain with the party contracted to fulfil these

· The performance of the private partner so that services are delivered to the required standard and the actions for non-performance set out in the contract are adhered to.

From the outset of the project, the government should follow the steps listed below:

· Clearly define roles and responsibilities of its contract management team;

· Monitor the project delivery;

· Manage changes permitted under the PPP contract;

· Manage changes not provided for in the PPP contract; and

· Provide for dispute resolution.

In essence, the project’s success will greatly depend on the monitoring and management of the project by the government.

After the PPP contract has been signed, responsibility for contract management will normally be transferred to a contract management team established by the government. The responsible person for driving the contract management team on a daily basis will be the contract director. It is good practice to include the proposed contract director in the government’s project management team at an early stage of the procurement process. The continuity as well as experience of a good contract director can be beneficial for the formulation of a sound PPP contract. This early involvement will also provide the contract director with a good understanding of the project and its inherent risks to enable him/her to devise an appropriate contract management strategy.

There is no simple formula when structuring the contract management team; it will greatly depend on the type of project, complexity, duration, and interface with the government and private partner as well as the end users. It is extremely important that the government has understood and reviewed the resource requirements for the various stages of the Construction and Operations Phases. The government should also think carefully about the skills that will be needed, as well as how it will secure those resources. Larger and more complex projects may require a contract director (see chapter 5.2.2.2 for detail), contract manager, contract administrator, and a knowledge and training staff member.

Specialist skills in some areas can be obtained as and when needed (see section 7.1.3 below) provided it is not necessary to go through lengthy procurement processes in order to mobilize them.

If the government does not identify and appoint appropriately skilled staff with the right attributes and appropriate levels of empowerment to carry out contract management duties, this will inevitably lead to under-resourcing in the Operations Phase, particularly in the early stages which are intensive and will lead to variable quality of management of the contract.

Since PPPs are long-term projects (often enduring for 20 years or more), it is highly unlikely that the same team that started the project will see it through to the end. Therefore, it is extremely important to ensure that there is continuity and transfer of knowledge within government. Two elements that ensure that continuity and transfer of knowledge are succession planning and putting in place contract management policies, procedures, and manuals.

4.2.2.1. Roles of the Contract Management Team

The contract management team has a number of primary and secondary roles within the government domain. The primary roles relate to the PPP contract itself and the oversight exercised over the private partner in the achievement of the project objectives and VfM. The secondary roles relate to a broader role in fulfilling public policy and communicating across a range of stakeholders to whom the private partner is not accountable.

Primary roles include:

· To act as the contractual representative of the government (to protect governmental interests) in performing obligations and enforcing the rights of the government in the PPP contract.

· To monitor the performance of the private partner in providing the services specified in the PPP contract, and to enforce the payment or penalty mechanism associated with the performance monitoring.

· To liaise with the private partner in achieving the project objectives.

· To ensure that financial instruments such as securities and insurances are properly maintained.

· To manage any disputes that arises under the PPP contract.

· To manage the changes (variations and amendments) to the PPP contract in accordance with public policy and law, so as to achieve VfM through such changes.

· To oversee the management of the project assets and to ensure that these are correctly maintained, accounted for, and reported on.

· To ensure that user charges are amended in accordance with the PPP contract and public policy and law (if relevant).

· To report on the financial performance of the project in accordance with generally accepted accounting practices applicable in the jurisdiction.

· To report on the contingent fiscal obligations accruing to the government from the project and any changes thereto.

.  To monitor, evaluate and report on the progress of the project, and identify lessons learned for the project and for future PPPs.

Secondary roles include:

· To liaise with and promote cooperation between governmental structures in all spheres of government in relation to the project.

· To monitor the policy and legislative environment of the project.

· To enhance the integration of the project with other public services, programs, and projects.

The roles and responsibilities of individual functions need to be included in the formal mandate of the contract management team. They must also be well aligned with the PPP contract by incorporating reporting obligations on performance and assets (for example) that allow the contract management team to fulfil its role. The contract management team mandate must also be reflected in the dispute resolution process in the PPP contract, as a misalignment will diminish the ability of the contract management team to avoid costly disputes.

4.2.2.2. Contract Director Roles and Responsibilities

The individual appointed as contract director and leader of the contract management team is critical to the effective functioning of the team and the PPP itself. Such an individual has significant delegated authority from the government party to manage the PPP contract and represents the government. The contract director also has to lead the contract management team and make it a well-functioning unit. That person has to have adequate authority and seniority to liaise with the private partner and other government entities in a manner that enhances decision-making and expedites action.

The contract director should always be accountable for all decisions made and for ensuring that appropriate consultation and compliance with legal requirements takes place on major decisions (such as dispute resolution or amendment of the PPP contract).

A good contract director acts within existing delegated authority to make decisions in the day-to-day management of the PPP contract so that the PPP is implemented efficiently. A high performance contract director is able to elevate extraordinary decisions with cost or risk implications, to appropriate levels in government.

The contract director should be given the following tasks.

· Responsibility for the development of a contract management plan that accords with the activities and reporting of the private partner under the PPP contract;

· Developing and leading of the contract management team in accordance with that plan;

· Developing annual plans for areas of specific oversight, including audits and reports on key risk areas;

· Communication and liaison with the private partner in a structured manner about performance, financial, and dispute related matters; and

· Monitoring of risks and fiscal obligations that arise from the PPP contract.

The contract director plays a key role in developing relationships with the private partner and monitoring the private party’s performance, and therefore it is a critical appointment. As such, the appointment is likely to be full-time and will take the risk and complexity of the project into account.

 

4.2.2.3. Contract Manager Roles and Responsibilities

The contract manager will, in essence, be the “right hand” of the contract director and his/her skills need to reflect strong interpersonal skills which will provide direction, clear communication, strong problem solving, and be able to deal effectively with people without having authority. The contract manager should also have basic technical expertise relevant to the type of PPP project. Technical knowledge gives the contract manager the creditability to provide leadership for a technically-based project, the ability to understand important aspects of the project, and the ability to communicate in appropriate technical language. The contract manager should also possess good administrative skills, which would include planning, organizing, and managing/overseeing/coordinating the work.[7]

The contract manager will perform duties that the contract director assigns. This might include the following duties:[8]

  • Providing an appropriate contract management methodology and risk register;
  • Putting in place an appropriate performance monitoring and audit system;
  • Overseeing and ensuring the service provider mobilizes effectively and in keeping with the program;
  • Keeping the output specification and method statements up-to-date;
  • Forming a good, long-term, sustainable relationship with the service provider;
  • Ensuring that service standards are provided and maintained, and have day-to-day links with the service provider;
  • Monitoring the service provider’s ongoing performance and service delivery, and identifying key trends in the service delivery and the service provider’s performance;
  • Ensuring remedial measures for improving service delivery are implemented when required, and monitoring the service provider’s approach to rectifying non-compliance;
  • Managing changes in legislation within the contract;
  • Managing variations, benchmarking, market testing, and change; and
  • Monitoring and managing risks.

 

4.2.2.4. Contract Administrator Roles and Responsibilities

The contract administrator must have good organizational skills, an eye for detail, and be at hand to assist the contract manager on administrative matters. Some of the responsibilities include:

  • Organization of file and documentation management;
  • Operational execution of financial management;
  • Keeping records of risks and possible impacts thereof; and 
  • Managing the contract manual, processes, and procedures in relation to claims, organizing meetings, communication, and ensuring that all issues are resolved or brought to the attention of the relevant parties.

 

4.2.2.5. Training for the Contract Management Team

When recruiting and mobilizing for the government contract management team, staff training might be needed depending on the past PPP experience of the individual and the knowledge obtained within the field. Therefore, the knowledge and training specialist will have an ongoing function with responsibility to identify initial and ongoing training requirements.

Generally, two types of training are available: firstly where an overall introduction into PPPs and the project life cycle and key features are explained, and secondly where specific training (such as contract and project management, payment mechanism, risk analysis, and so on) is presented.

General training in contract management would describe the basic contract management principles, some project management skills, negotiating skills, general commercial skills, and basic principles of effective communication.

Training specifically for PPP/private finance initiative (PFI) projects involves stages in mobilization and handover, change management, the payment mechanism and its application, help desk function and performance monitoring, the application of the contract, contractual change and variation management, and benchmarking and market testing.

 

[7] Amado, M., Ashton, K., Ashton, S., Bostwick, J., Clements, G., Drysdale, J., Francis, J., Harrison, B., Nan, V., Nisse, A., Randall, D., Rino, J., Robinson, J., Snyder, A., Wiley, D., and Anonymous. (2012). Project Management for Instructional Designers. Retrieved from http://pm4id.org/. Licensed under a Creative Commons Attribution NonCommercial ShareAlike (BY-NC-SA) license.

[8] 4ps in collaboration with Mott MacDonald, Public Private Partnerships Programme (2007), A Guide to Contract Management for PFI and PPP Projects.

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