Twinning Project CZ/2005/IB/FI/04 Training event on risk management in PPP projects

1. 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)

2. 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

3. We know that risk management is critical for PPP efficiency

4. 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

5. 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

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

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

8. 1st recommendation: Avoid appointing the contract manager just before (or after) contract close

9. 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

10. 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

11. 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

12. 2nd recommendation: Consider carefully the profile of the contract manager

13. 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

14. 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

15. Skills and experience • Project management skills • Analytical skills • Negotiation skills • Communication skills • Financial skills

16. 3rd recommendation: Budget for contract management activities

17. 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)

18. 4th recommendation: Plan the staffing for contract management activities

19. 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

20. 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)

21. 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

22. 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

23. 5th recommendation: Refrain from excessive recourse to external consultants

24. 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

25. Public sector advisers • Use specialist advice from the public authority’s 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

26. 6th recommendation: Identify the initial and ongoing training requirements

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

28. 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

29. 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

30. 7th recommendation: Set up a contract management manual

31. 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

32. 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

33. 8th recommendation: Define the governance structure

34. 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

35. 9th recommendation: Manage variations to the contract

36. 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

37. 10th recommendation: Prepare contingency plans

38. 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

39. 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

40. 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

41. Summary (2) • Refrain from excessive recourse to external consultants • Identify the initial and ongoing training requirements • Set up a contract manag’t manual • Define the governance structure • Manage variations to the contract • Prepare contingency plans

42. Thank you Rui Sousa Monteiro Parpública SA Rua Laura Alves, 4, 8º, 1050-138 Lisboa, Portugal tel: (+351) 217 950507,  (+351) 969 845 042 fax: (+351) 217 817 170 e-mail: rui.monteiro@parpublica.pt