Effectively designing and tendering a PPP transaction is only the beginning of the long-term process to manage a PPP contract. Monitoring contracts and regulating prices and services are critical to ensuring that the PPP delivers value for money throughout the life-cycle of the PPP. PPPs can fail without sufficient attention to contract management.
Good contract management ensures that:
- Services are delivered continuously and payments are made/penalties levied, in accordance with the contract
- The government's responsibilities and risks managed carefully
- Changes in the external environment – both risks and opportunities – are spotted and acted upon
Contract management structure
Establishing the contract management structures defines responsibilities for contract management within government, and defines how the relationship with the private party will be managed. This includes designating a PPP contract manager (or management team) within the implementing agency, as well as defining the roles of other entities within government in managing the PPP. Key steps are:
Establish the overall structure
The contract management structure should be designed during the project preparation phase to ensure that the required human and financial resources are in place ahead of contract signature. This includes defining the agency in charge of contract monitoring and determining its responsibilities.
- For availability-based PPPs, responsibility for contract monitoring most often falls on the implementing agency directly responsible for performance-based availability payments as set out in the contract.
- For user-fee PPPs, contracts are sometimes overseen by regulatory bodies but often by the responsible government agency.
Designate a PPP contract manager and team
The PPP contract manager needs sufficient resources, appropriate skills and appropriate seniority
Set up systems to retain institutional knowledge
Institutional knowledge must be maintained as the management team changes over the life of the project.
Determine if there is a need for outside counsel
Where government capacity is thin (and is often is, particularly in local governments or fragile states) external advisors may be necessary to support the setup and implementation of the unit and to build capacity.
Several other entities within government can also have roles to play in managing a PPP contract, working with the contracting authority and designated contract management team. These can include:
- Sector regulators, which often have responsibility for monitoring service standards and managing changes in tariffs for PPP companies providing services directly to the
- The ministry of finance is often involved, particularly where any possible changes to the contract could have a fiscal implication.
- Central PPP units or other specialized support units may have a role in supporting the contracting authority’s contract management team.
Other actors within and outside government may also be drawn on to fulfill particular roles. For example, private contractors and end users can play a role in service monitoring. Independent expert advisors or panels are also often used to help deal with change in the PPP contract.
Contract management responsibilities
Key aspects of contract management across the implementation stages—design, construction, implementation, and project close, include:
- Establishing contract management institutions and dedicating the right level of resources
- Defining and establishing the responsibilities and communication mechanisms that will enable an effective relationship between the public and private partners to the contract
- Putting into practice the mechanisms to deal with contract adjustments, dispute resolution, and contract termination, as well as deciding whether, when and how to re-negotiate
- Monitoring contract compliance and service performance by the private party, and ensure penalties or bonuses are paid appropriate
- Monitoring and ensuring compliance by government with its responsibilities under the contract
- Sharing gains during project implementation
- Managing contract expiry and asset handover
Challenges to managing PPP contracts
Managing PPP contracts differs from managing traditional government contracts that can create a number of challenges for contract managers:
- PPP contracts require long-term commitment. Continuity in staffing and staff capacity is central to effective contract monitoring. However, achieving consistent commitment and capacity can be difficult. Without significant investment in capacity transfer and institutional memory, contract monitoring will be complicated and less ineffective.
- PPP contracts are often complex and necessarily incomplete. Key factors such as demand and fiscal and political circumstances will not be known, despite extensive due diligence, until the project is underway.
- Institutional oversight arrangements may cause complications. PPP contracts may be overseen by a different team or a different agency, with differing incentives to the agency that originated the project.