PublicPrivate Partnerships in the Czech Republic Setting up a proper risk management system at the p

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Public-Private Partnerships in the Czech
RepublicSetting up a proper risk management
system at the project level

• Twinning Project CZ/2005/IB/FI/04
• Training event on risk management in PPP projects
• Prague, Ministerstvo financí, 26 May 2008
• Rui Sousa Monteiro
• (Parpública SA, Portugal)

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Contents

• Risk management during procurement and after
  contract close
• 10 recommendations for setting up a proper risk
  management system
• On selecting and appointing the contract manager
• On budgeting, staffing, and planning for contract
  management activities
• On methodology and governance

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• We know that risk management is critical for PPP
  efficiency

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Risk managersand PPP projects (1)

• Both theory and experience tell us
• that appropriate risk allocation is essencial for
  PPP efficiency,
• that risk allocation clauses are critical during
  procurement, and
• that risk must be properly managed during the
  whole life of the contract

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Risk managersand PPP projects (2)

• Risk allocation should be carefully addressed
  from the outset of the contract
• ? the project leader should manage risks during
  procurement
• After contract close, risk management is still
  critical
• ? the contract manager should address risk
  management

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• In general terms, risk management is at the core
  of PPP procurement

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• But PPP contract management typically does not
  incorporate enough resources and capacity for
  effective risk management

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• 1st recommendation
• Avoid appointing the contract manager just before
  (or after) contract close

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From procurement to contract management

• Lack of continuity between procurement management
  and contract management creates two problems
• During procurement, the project manager is
  typically not sufficiently concerned with the
  operational phase
• After contract close, the contract manager is not
  well acquainted with the contract

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When to appoint thecontract manager (1)

• A good practice is to appoint the contract
  manager prior to the end of the competitive phase
  of procurement, in order to
• Review the draft contract, addressing contract
  management details and reviewing risk allocation
• Set up the contract management arrangements

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When to appoint thecontract manager (2)

• In fact, public authorities tend to delay the
  appointment of contract managers
• Because of financial and staff constraints
• Because they fear conflict between the
  procurement manager and the contract manager

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• 2nd recommendation
• Consider carefully the profile of the contract
  manager

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Contract manager profile

• Seniority
• Adequate skills and experience
• Team leadership
• Openness to change and innovation
• Strong ability to keep the focus on the provision
  of service, not getting lost in details and daily
  routine

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Seniority

• The contract manager must be perceived (by all
  stakeholders) as a person with a senior status,
  holding the appropriate ability to engage in
  contacts and negotiations with all the relevant
  entities

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Skills and experience

• Project management skills
• Analytical skills
• Negotiation skills
• Communication skills
• Financial skills

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• 3rd recommendation
• Budget for contract management activities

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Budgeting forcontract management

• The project manager should include in the
  business case a realistic estimate of the needs
  and costs that the public authority in charge of
  the contract will incur for contract management
• (including staff, training, consultants)

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• 4th recommendation
• Plan the staffing for contract management
  activities

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Staffing forcontract management

• The public authority in charge of the contract
  should plan the hiring and retaining of staff,
  looking for
• skills and experience
• capacity building and knowledge transfer
• continuity of staff

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Skills and experience

• Analytical skills and good human relations
• Legal (administrative law , contract law, public
  procurement, competition law)
• Economics (efficiency in procurement, project
  finance, financial modelling, game theory,
  incentive analysis)
• Management (risk management, performance
  monitoring, auditing, benchmarking, market
  testing)

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Capacity building

• Initial and ongoing training
• Knowledge sharing and transfer, between PPP
  contract management teams, and between them and
  PPP knowledge centres
• Integrate international PPP knowledge networks

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Continuity of staff

• Avoid too high turnover of staff
• Facilitate reciprocal transfer of staff between
  similar PPP contract management teams
• Care for skill retention
• Care for information retention

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• 5th recommendation
• Refrain from excessive recourse to external
  consultants

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External consultants

• Balance carefully the creation of internal
  capacity and the use of external advisers and
  consultants, developing and retaining skills in
  house
• Act as an intelligent client, avoiding excessive
  use of consultants

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Public sector advisers

• Use specialist advice from the public authoritys
  internal departments or advisers
• Establish protocols with national (or European)
  PPP knowledge centres, in order to share scarce
  capacity
• Develop contacts and knowledge sharing protocols
  with similar contract management teams in other
  countries

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• 6th recommendation
• Identify the initial and ongoing training
  requirements

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Standard training

• Contract management
• Risk management
• Performance monitoring
• Efficiency auditing (value-for-money)
• Benchmarking and market testing
• Communication
• Conflict management and negotiation

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Specific training

• Typically internal training sessions
• Testing procedures
• Preparing for persistent default
• Preparing for changes and variations
• Consider the possibility of holding
  inter-national training events

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PPP knowledge transfer

• Intra-ministerial PPP knowledge transfer (several
  contract mgt teams)
• Inter-ministerial PPP knowledge transfer (e.g.
  through the PPP Centrum)
• Inter-national PPP knowledge transfer

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• 7th recommendation
• Set up a contract management manual

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The contract management manual (1)

• Basic methodological items
• Risk register and risk management
• Performance monitoring
• Communication strategy and plan
• Partnership protocols and behaviour
• Managing conflict
• Managing change and variations
• Contingency plans

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The contract management manual (2)

• Other items addressed in the Manual
• Information interchange protocols
• Institutional contacts directory
• Institutional reporting
• Rules for interface with stakeholders
• Invoice validation and payments
• Contract management portfolio

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• 8th recommendation
• Define the governance structure

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Governance structure

• Define the structure of the contract management
  team
• Clarify roles (accountability, decision making
  rules, clear responsibilities with no overlap)
• Define reporting requirements
• Establish interfaces with the other stakeholders

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• 9th recommendation
• Manage variations to the contract

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Managing variations

• Scrutinise requests for change
• construction changes
• reviewed output specifications and performance
  indicators
• changes in law that have an impact on service
  provision
• Evaluate cost implications, challenge the
  information provided by the private partner, and
  achieve best value

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• 10th recommendation
• Prepare contingency plans

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Contingency plans (1)

• Prepare to deal with persistent default by the
  private partner
• Penalties and increased monitoring
• Step-in and management of the service by the
  public authority
• Step-in by the financing parties
• Eventual termination of the contract

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Contingency plans (2)

• Contingency plans should not be overly
  complicated, and should consider
• Remedies for potential problems
• How to mobilise staff and resources at short
  notice
• Consents which may be needed and from whom
• Steps needed to return the project to normal
  monitoring after any event

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Summary (1)

• Appoint the contract manager at an early stage
• Consider carefully the profile of the contract
  manager
• Budget for contract management activities
• Plan the staffing for contract management
  activities

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Summary (2)

• Refrain from excessive recourse to external
  consultants
• Identify the initial and ongoing training
  requirements
• Set up a contract managt manual
• Define the governance structure
• Manage variations to the contract
• Prepare contingency plans

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Thank you

• Rui Sousa Monteiro
• Parpública SA
• Rua Laura Alves, 4, 8º, 1050-138 Lisboa, Portugal
• tel [phone],  (351) 969 845 042
• fax [phone]
• e-mail rui.monteiro_at_parpublica.pt