Infrastructure Implementation Risk Management

1. Infrastructure Implementation Risk Management • Evgeny Smirnov • Associate Director, Policy Advisor • Procurement Policy and Advisory Department • July 2019

2. What is EBRD? European Bank for Reconstruction and Development International financial organisation established in 1991 Capital base – EUR 30 billion Credit rating of AAA by Standard & Poor's, Moody's and Fitch Shareholders of the Bank Two international organisation and 68 countries. Mission The Bank promotes transition to market oriented economies and the promotion of private and entrepreneurial initiative in 38 countries from Central Europe to Central Asia, as well as in the SEMED region. The Bank promotes policy dialogues with regards to investment climate, business environment and policy matter.

3. Where we are Cumulative since inception more than 5,400 Projects for more than 135billion EURO 79%– private sector 21%– public sector

4. EBRD Procurement Policies and Concession Papers

5. EBRD Procurement Policies • Key principles: • economy • efficiency • non-discrimination • transparency and responsibility

6. Bank’s approach in public procurement Procurement – an integral part of project risk management Minimisation of risks – Maximisation of success Coverage of the entire project cycle Procurement – part of project delivery strategy Balanced risk distribution Use of standard tender documents and internationally recognised contract terms and conditions Aim of evaluation – best value for money Evaluation factors usually are expressed in monetary terms The key to success – people Assistance to the clients Care of environmental, social, health and safety issues Prevention and fighting against corruption

7. Investments in infrastructure In 2018 the Bank’s public sector clients signed 311 contracts for EUR 2.731 billion

8. Open tendering procedure milestones • General Procurement Notice publication on EBRD website • Preparation of documents, using standard tender documents and contracts • Prequalification (for large and/or complex contracts)* • Tender notice publication on EBRD website (OJEC, DG Market) • Pre-tender meeting/Site visit • Public tender opening • Evaluation by clients • Winning tenderer and unsuccessful tenderers notified of results • Contract signed, winning tenderer provides performance security • Award details published on EBRD website • Contract implementation starts

9. Two stage tendering procedure milestones • General Procurement Notice publication on EBRD website • Preparation of documents, using standard tender documents and contracts • Prequalification (for large and/or complex contracts)* • Tender notice publication on EBRD website (OJEC, DG Market) • Pre-tender meeting/Site visit • Submission of the first stage proposals (technical proposals, comments on contractual terms and conditions) • Evaluation of the first stage proposals by clients • Individual clarification meetings with each tenderer, if necessary • Invitation of the second stage tenders • Public tender opening • Evaluation by clients • Winning tenderer and unsuccessful tenderers notified of results • Contract signed, winning tenderer provides performance security • Award details published on EBRD website • Contract implementation starts

10. Recommendations • If the Employer does not have the full range of technical, commercial & legal expertise in house - consider engaging a qualified consulting firm • Consider the benefits of a prequalification phase, as appropriate • Use an appropriate and flexible procurement strategy which provides for a dialogue with tenderers prior to the submission of priced tenders • Allow Contractors a sufficient tender preparation period • Let the contractor design • Ensure that the conditions of contract are consistent with the applicable law and national procedures and suitable for the project • Follow the golden rule of risk allocation • Avoid the temptation to introduce provisions from other contract forms (particularly those pertaining to allocation of risk) • Don’t underestimate the importance and the role of the professional ‘Engineer’ in successful implementation

11. Relationship between tendering and contract management Project definition Selection criteria Specifications Contractor selection procedures Contracting arrangements Tender procedures Contract External factors Tender documents

12. Key Factors Quality Cost/Price Time For the success of the contract the parties shall maintain the balance between COST, QUALITY and TIME.

13. Factors of influence Legal Framework Industry practices Development • Legal framework • Market conditions • Ethics EXTERNAL FACTORS CONTRACT INTERNAL FACTORS • Objectives • Requirements • Parameters • In-house expertise/resourcescapability

14. Relationships between parties

15. Risks in construction • imprecise/uncertain scope, requirements, specifications; • large number of interfaces; • technical and/or logistical complexity; • large scale and/or long duration; • weak project management and/or contract administration; BEWARE OF CONTRACTUAL RISKS! • inappropriate contract conditions; • imprecise/inappropriate responsibilities, liabilities, damages; • conflicts of interest, collusion, corrupt practices; • unwillingness, inability to enforce contract conditions; • force majeure/unforeseen factors; • bureaucracy; • imperfection of legal system

16. Contracts our clients use

17. FIDIC Contracts • The International Federation of Consulting Engineers(FIDIC) is an international standards organisation for the construction industry • Fédération Internationale Des Ingénieurs-Conseils • Best known for the FIDIC family of contract templates. • It was established in 1913 • The FIDIC founding member countries were Belgium, France and Switzerland

18. Works Contracts

19. Roles and Responsibilities: the Employer • Owner of the site • The beneficiary of the Works • Responsible for defining the intended purpose of the Works and for setting out the Employer’s Requirements • Enters into a contract agreement with the Contractor • Appoints a Representative/Engineer to oversee the execution of the Works • Has the right to amend the contract • Pay for the Works done • Jointly with the Contractor, appoints a Dispute Adjudication Board (DAB) • Takes over the Works, when completed

20. Roles and Responsibilities: the Contractor • Design, execute and complete the Works and remedy any defects • Undertake all other responsibilities • Manage staff and labour in accordance • Carry out the manufacture of Plant, the production and manufacture of Materials, and all other execution of the Works according to good practice and with properly equipped facilities • Abide by the laws and bylaws, as well as the instructions of the Engineer • Make claims in accordance with the Contract • Complete all the Works within the Time for Completion

21. FIDIC: The importance of the Engineer • Role of Engineer is crucial • The Engineer acts for the Employer in supervising the activities by the Contractor • The Engineer issues all contractual notices to the Contractor • The Engineer determines any variations • The Engineer issues the Interim Payment Certificates • The Engineer under FIDIC is NOT truly independent – he acts for and on behalf of the Employer For this reason care must be taken when reviewing the TOR for the Engineer.

22. The key principles of contract drafting • the terms of the Contract are comprehensive and fair to both contracting Parties. • the legitimate interests of both contracting Parties are appropriately considered and balanced. • the legitimate interests of each party include the right to enjoy the benefits of the contractual relationship • best practice principles of fair and balanced risk/reward allocation between the Employer and the Contractor are put into effect. • no Party shall take undue advantage of its bargaining power. • the Contractor is paid adequately and timely in accordance with the Contract to maintain its cash flow. • the Employer obtains the best value for money. • to the extent possible, co-operation and trust between the contracting Parties is promoted, and adversarial attitudes are discouraged and should be avoided. • the Contract provisions are not unnecessarily onerous on either Party. • the Contract provisions can be practically put into effect. • disputes are avoided to the extent achievable, minimised when they do arise, and resolved efficiently.

23. The FIDIC Golden Principles • The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the project • The Particular Conditions must be drafted clearly and unambiguously • The Particular Conditions must not change the balance of risk/reward allocation provided for in the General Conditions • All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration • Unless there is a conflict with the governing law of the Contract, all formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration

24. Useful links • EBRD website: www.ebrd.com • Information about the countries of operations & Sectors of EBRD: • www.ebrd.com/news/publications/factsheets.html • Project SummaryDocuments, details of the projects signed with EBRD: • www.ebrd.com/work-with-us/project-finance/project-summary-documents.html • Sending your project financing request online: • http://www.ebrd.com/work-with-us/project-finance/funding-adviser.html • Team dedicated for SMEs : • http://www.ebrd.com/work-with-us/advice-for-small-businesses/overview.html • Trade Facilitation Programme: • http://www.ebrd.com/work-with-us/trade-facilitation-programme.html

25. Contacts • Evgeny SmirnovAssociate Director, Policy Department • Procurement Policy and Advisory Department Tel: + 44 020 7338 6807Email: SmirnovE@ebrd.com • EBRD, One Exchange SquareLondon, EC2A 2JN United Kingdom • www.ebrd.com • Find us on social media