Contract Management and Regulation Vickram Cuttaree The World Bank St. Petersburg – May 24, 2008

What is PPP Agreement Management? …is the process that enables both parties to a contract … to meet their respective obligations … in order to deliver the objectives required from the PPP agreement. … is a partnership between the institution and the private party.

What is the objective? Obtain the services specified in the output specifications and ensure ongoing affordability, value for money and appropriate risk transfer

Contract Management begins at inception …with the appointment of project manager and team …with development of projects outputs, benchmarks and risk allocation …with an understanding that things will change down the road Success depends on planning, good monitoring and flexibility from all parties involved

Key PPP Agreement Management Functions Corporate governance Relationship assessment Dispute resolution Risk management Performance management Variation management Contract maintenance Financial administration Partnership Management Service Delivery Management Contract Administration

Partnership Management

Dont go in …. … without an Exit strategy.

Exit strategy needs to be updated regularly What happens after contract expires? –Service continues? –By whom? Transfer of assets –In the case of NADEX: concessionaire will renew rolling-stock and value of total assets at end of concession is not negligible –Is the City prepared to takeover? –Does the City have capacity? Final project assessment –Deliverables and outputs –Employee transfers

Dont go in …. … without an Escape plan.

Pushing the escape button is the last option What happens before contract termination? Decisions should take into consideration the all stakeholders of the Public-Private Partnership –VfM/Affordability for Government/City –Availability/Quality/Affordability of service for users –Profit/return for the private party Win-win situation with no losers –Importance of respecting contracts: attitude towards contract with private partner will have an important impact on perceive risks and attractiveness/cost of subsequent projects –Contract renegotiations: good preparation minimizes risk of re-negotiations but it can be justified and does happen –Dispute resolution mechanism should be put in place and be satisfactory for both the public and private partner

Service Delivery Management

Risk management is an iterative process Expect the unexpected during implementation phase –Who does what? –How? –By when? –Example: what happens if increasing costs means concessionaire is enable to operate NADEX under current agreement? Institutions priorities and relative importance of risks will shift and change –Revisit and reconsider on regular basis –Ensure appropriate risk transfer throughout

Carrot or stick? Each PPP is unique –Construction vs. operations WHSD and Orlovski mainly about construction NADEXs operation is a key determinant of success –Length of contract –Flow of funds between public and private sector (availability payments, concession fees, etc…) All require periodic monitoring –What: level of performance –How: quality control –If: consequences –Who: self, institution, independent party

Contract Administration

Establish Administrative processes to ensure that all the procedures and documentation relating to the PPP Agreement are effectively managed

Systems, processes and procedures Implications on service delivery How variations of PPP agreement are going to be managed? –Who should approve variation in agreement –What type of variation will be considered (change in schedule for NADEX, maintenance program, etc…) –How to assess the impact on users, VfM, affordability… Financial administration –Keep records and accounts Importance of preparing and updating regularly a management plan and manual

Can you see the future?

One word on sector policy and regulation PPP projects can be very much impacted by new laws and regulations governing the sector While it is understood that Government/City must keep control over future policies –Impact on current operators should be assessed (new road, new tariffs for metro, etc…) –Solution might involve compensating the private operator from missing revenue Quality of regulation and clarity of policies will reassure the private sector and ultimately benefit the project, sector and City –Risk that city perceived risk could increase –Future projects will likely attract less interest or will be more expensive for the City

And a last one on Institutional Memory and Resources Issues during operation can often be linked to contract design, and the preparation phase Contract Monitoring and Regulation is complex and time consuming Close Monitoring is essential for the life of the contract (often as long as 30 years) Importance of institutional memory: ensure people and institution involved in preparation and procurement remain involved in monitoring Importance of human & financial resources: ensure that enough financial resources are dedicated to monitoring contracts and that people with the right skills are involved

Contract Management and Regulation THANK YOU !!! Vickram Cuttaree The World Bank