James Aiello PricewaterhouseCoopers Africa Utility Week 06 International Good Practice in Procurement

Contents – Session 2 PPP procurement practices in South Africa Contract Management Overview Approach by Contracting Party Contract Management Functions Consequences for failure to deliver services Administration, variation, maintenance and financial matters Summary Applicability to private sector tendering practices

Contract Management Overview Contract Management is: Process enabling both parties to meet obligations Involves building good working relationship Enables & assists in anticipating future needs Implemented through the Contract Management Plan

Contract management plan In parallel with the negotiations process, the institution must prepare a contract management plan, in consultation with the preferred bidder Contract management plan contents: Partnership management Service delivery management Risk management Service delivery management Outsourcing agreement administration Variation management Outsourcing agreement maintenance Financial administration

Contract Management Functions Varies from project to project, BUT Has three main functions: Partnership Management Service Delivery Management Contract Administration

Contract Management Framework Addresses four main PPP stages: Procurement Development Delivery Exit

Contract Management – Approach by Institution Institution does not row – it steers Must respect transfer of responsibilities to service provider Focus is on Outcomes Quality assurance Performance monitoring Corrective actions, where required

Institution’s Roles & Responsibilities Primary Institution personnel – Institution’s Project Representative and its Project Officer

Institution’s Project Representative’s Role Appointed as soon as outsourcing identified Signs the outsourcing agreement Is a person of significance Provides continuity throughout entire outsourcing process

Role of Project Officer Accountable to Project Representative Has delegated authority to: Manage project on behalf of institution Ensures continued affordability, value for money & transfer of risk during the outsourcing Ensures both parties meet all contractual obligations Ensures Output Specifications all met Appoints Contract Management Team

Contract Management Team Provides support to Project Officer in managing Contract Composition of Team varies, but may include: Technical Financial Legal Human Resources disciplines

Partnership Management Function Key dimensions: Corporate Governance Communication and information sharing Dispute Resolution

Partnership Management -- Corporate Governance Corporate Governance – structures, systems, policies and mechanisms of accountability within an organisation South Africa has King Code of Corporate Practices & Conduct Broadens financial focus to include environmental and social aspects Applies fairness, accountability, responsibility and transparency to all activities Requires accountability to the organisation and stakeholders

Partnership Management -- Communications Communications can make or break a partnership Failure to communicate causes more problems than failure to perform Information sharing based upon trust and balancing negotiating positions Communications take place between different levels in both organisations

Partnership Management – Dispute Resolution Dispute Resolution processes in outsourcing contract All disputes must follow same route from project liaison personnel on both sides to the institution’s project representative and service provider’s CEO Important to: Record problems as they occur Notify of problems by correct route at correct level Document approaches to resolving problems Escalate only as per contract

Service Delivery Management Two Principal Areas Risk Management – managing project threats Performance Management – ensuring the project continues to be affordable, provide value for money, and that significant risks stay with the service provider

Risk Management Central component of contract management Contract risk allocation reflected in Contract Management Plan Project Officer allocates “ownership” of each risk to member(s) of the Project Management Team Risk measures determined and implemented Assessment of mitigation measures is ongoing

Performance Management Ensures contract anticipated affordability, value for money and risk transfer Level of performance to achieve Outputs Reflects contract provisions

Consequences for Failure to Meet Service Levels Monitoring should provide basis for measuring performance against outputs Failure to meet outputs dealt with per contract Formal warnings Penalty deductions Step-in rights Should be implemented to achieve positive response

Contract Administration Administrative process to manage all documents and processes Contract Administration Plan Systems & procedures for contract maintenance, variation management and financial administration Roles & responsibilities of institution & service provider Institution’s resources needed to implement

Variation Management Few contracts stay the same: changes will occur Establish a system for handling changes “No cost” changes – do as and when necessary Small works variations – approvals required, depending on level of variation Institution-initiated variations – formal notice & mutual agreement process Service provider-instituted variations – formal amendment of outsourcing contract

Contract Maintenance Processes and procedures to ensure Contract & related documents up to date & consistent Accessible to all relevant parties Provides basis for common view of contractual obligations

Financial Administration Systems and procedures to: Make and receive financial payments Keep records of all financial statements, per contract Making Unitary and Incentive payments Administering penalty deductions Calculating inflation Dealing with late payments Receiving financial reports

Summary Contract Management Plan a critical document Contract Management Framework for implementation Partnership approach by institution essential – “rowing” Institution’s Project Representative & Project Officer Contract Management Team & “ownership” of issues/risks Partnership Management Performance Management Contract Administration

Applicability to private sector tendering practices The PPP procurement processes can be of assistance in major, complex private sector outsourcing projects, but without an institutionalized contract management process and plan, the outsourcing is at risk. The contract management plan discipline helps ensure successful implementation of the outsourcing by focusing on: Managing the outsourcing partnership Enabling both parties to meet their obligations Ensuring that risks transferred stay transferred Providing a mechanism for dealing with future needs Managing the project knowledge enabling ongoing performance audits Implementing identified mitigation processes when risks occur Providing an exit mechanism when the outsourcing contract ends

Thank You James Aiello Africa Utility Week 06 International Good Practice in Procurement