Transcript The importance of risk management in PPP projects

Public-Private Partnerships
in the Czech Republic
Setting 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)
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
2
We know that risk management is
critical for PPP efficiency
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Risk managers
and 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
4
Risk managers
and 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
5
In general terms, risk management is
at the core of PPP procurement
6
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
8
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
9
When to appoint the
contract manager (1)
A good practice is to appoint the contract
manager prior to the end of the
competitive phase of procurement, in
order to:
a)
Review the draft contract, addressing
contract management details and
reviewing risk allocation
b)
Set up the contract management
arrangements
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When to appoint the
contract 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
13
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 for
contract 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 for
contract 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
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
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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 international 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
36
10th recommendation:
Prepare contingency plans
37
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 manag’t 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: (+351) 217 950 507, (+351) 969 845 042
fax: (+351) 217 817 170
e-mail: [email protected]
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