Partnerships in the Partnerships in the Czech Republic Czech Republic Setting up a proper risk Setting up a proper risk management system at the management system at the project level project level Twinning Project CZ/2005/IB/FI/04 Twinning Project CZ/2005/IB/FI/04 Training event on risk management in PPP projects Training event on risk management in PPP projects Prague, Ministerstvo financí, 26 May 2008 Prague, Ministerstvo financí, 26 May 2008 Rui Sousa Monteiro Rui Sousa Monteiro (Parpública SA, Portugal) (Parpública SA, Portugal)
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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.
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Public-Private Public-Private Partnerships in the Partnerships in the Czech RepublicCzech Republic
Setting up a proper risk Setting up a proper risk management system at the management system at the project levelproject level
Twinning Project CZ/2005/IB/FI/04Twinning Project CZ/2005/IB/FI/04Training event on risk management in PPP projectsTraining event on risk management in PPP projectsPrague, Ministerstvo financí, 26 May 2008Prague, Ministerstvo financí, 26 May 2008
Rui Sousa MonteiroRui Sousa Monteiro(Parpública SA, Portugal)(Parpública SA, Portugal)
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ContentsContents
Risk management during procurement and Risk management during procurement and after contract closeafter contract close
10 recommendations for setting up a proper 10 recommendations for setting up a proper risk management system:risk management system:• On selecting and appointing the contract On selecting and appointing the contract
managermanager
• On budgeting, staffing, and planning for On budgeting, staffing, and planning for contract management activitiescontract management activities
• On methodology and governanceOn methodology and governance
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We know that risk management is We know that risk management is critical for PPP efficiencycritical for PPP efficiency
• Risk allocation should be carefully Risk allocation should be carefully addressed from the outset of the contract addressed from the outset of the contract
the the project leaderproject leader should manage risks should manage risks during procurementduring procurement
• After contract close, risk management is After contract close, risk management is still criticalstill critical
the the contract managercontract manager should address should address risk managementrisk management
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In general terms, risk management is In general terms, risk management is at the core of PPPat the core of PPP procurement procurement
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But PPP But PPP contract management contract management typically does not incorporate typically does not incorporate enough resources and capacity enough resources and capacity for effective risk managementfor effective risk management
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11stst recommendation: recommendation:
Avoid appointing the contract manager Avoid appointing the contract manager just before (or after) contract closejust before (or after) contract close
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From procurement to From procurement to contract managementcontract management
Lack of continuity between procurement Lack of continuity between procurement management and contract management management and contract management creates two problems:creates two problems:
• During procurement, the project manager During procurement, the project manager is typically not sufficiently concerned with is typically not sufficiently concerned with the operational phasethe operational phase
• After contract close, the contract manager After contract close, the contract manager is not well acquainted with the contractis not well acquainted with the contract
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When to appoint theWhen to appoint thecontract manager (1)contract manager (1)
A good practice is to appoint the contract A good practice is to appoint the contract manager prior to the end of the manager prior to the end of the competitive phase of procurement, in competitive phase of procurement, in order to:order to:
a)a) Review the draft contract, addressing Review the draft contract, addressing contract management details and contract management details and reviewing risk allocationreviewing risk allocation
b)b) Set up the contract management Set up the contract management arrangementsarrangements
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When to appoint theWhen to appoint thecontract manager (2)contract manager (2)
In fact, public authorities tend to delay the In fact, public authorities tend to delay the appointment of contract managersappointment of contract managers
• Because of financial and staff Because of financial and staff constraintsconstraints
• Because they fear conflict between the Because they fear conflict between the procurement manager and the contract procurement manager and the contract managermanager
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22ndnd recommendation: recommendation:
Consider carefully the profile of Consider carefully the profile of the contract managerthe contract manager
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Contract manager Contract manager profileprofile
• SenioritySeniority• Adequate skills and experienceAdequate skills and experience• Team leadershipTeam leadership• Openness to change and innovationOpenness to change and innovation• Strong ability to keep the focus on Strong ability to keep the focus on
the provision of service, not getting the provision of service, not getting lost in details and daily routinelost in details and daily routine
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SenioritySeniority
The contract manager must be The contract manager must be perceived (by all stakeholders) as a perceived (by all stakeholders) as a person with a senior status, holding person with a senior status, holding the appropriate ability to engage in the appropriate ability to engage in contacts and negotiations with all contacts and negotiations with all the relevant entitiesthe relevant entities
The project manager should include in The project manager should include in the business case a realistic the business case a realistic estimate of the needs and costs that estimate of the needs and costs that the public authority in charge of the the public authority in charge of the contract will incur for contract contract will incur for contract managementmanagement(including staff, training, consultants)(including staff, training, consultants)
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44thth recommendation: recommendation:
Plan the staffing for contract Plan the staffing for contract management activitiesmanagement activities
The public authority in charge of the The public authority in charge of the contract should plan the hiring and contract should plan the hiring and retaining of staff, looking for:retaining of staff, looking for:
• skills and experienceskills and experience• capacity building and capacity building and
knowledge transferknowledge transfer• continuity of staffcontinuity of staff
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Skills and experienceSkills and experience
Analytical skills and good human relationsAnalytical skills and good human relations
Legal (administrative law , contract law, Legal (administrative law , contract law, public procurement, competition law)public procurement, competition law)
Economics (efficiency in procurement, Economics (efficiency in procurement, project finance, financial modelling, game project finance, financial modelling, game theory, incentive analysis)theory, incentive analysis)
• Initial and ongoing trainingInitial and ongoing training• Knowledge sharing and transfer, between Knowledge sharing and transfer, between
PPP contract management teams, and PPP contract management teams, and between them and PPP knowledge between them and PPP knowledge centrescentres
• Integrate international PPP knowledge Integrate international PPP knowledge networksnetworks
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Continuity of staffContinuity of staff
• Avoid too high turnover of staffAvoid too high turnover of staff• Facilitate reciprocal transfer of staff Facilitate reciprocal transfer of staff
between similar PPP contract between similar PPP contract management teamsmanagement teams
• Care for skill retentionCare for skill retention• Care for information retentionCare for information retention
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55thth recommendation: recommendation:
Refrain from excessive recourse to Refrain from excessive recourse to external consultantsexternal consultants
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External consultantsExternal consultants
• Balance carefully the creation of internal Balance carefully the creation of internal capacity and the use of external advisers capacity and the use of external advisers and consultants, developing and retaining and consultants, developing and retaining skills in houseskills in house
• Act as an intelligent client, avoiding Act as an intelligent client, avoiding excessive use of consultantsexcessive use of consultants
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Public sector advisersPublic sector advisers
• Use specialist advice from the public Use specialist advice from the public authority’s internal departments or authority’s internal departments or advisersadvisers
• Establish protocols with national (or Establish protocols with national (or European) PPP knowledge centres, in European) PPP knowledge centres, in order to share scarce capacityorder to share scarce capacity
• Develop contacts and knowledge sharing Develop contacts and knowledge sharing protocols with similar contract protocols with similar contract management teams in other countriesmanagement teams in other countries
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66thth recommendation: recommendation:
Identify the initial and ongoing Identify the initial and ongoing training requirements training requirements
• Benchmarking and market testingBenchmarking and market testing• CommunicationCommunication• Conflict management and negotiationConflict management and negotiation
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Specific trainingSpecific training
Typically internal training sessions:Typically internal training sessions:
• Testing proceduresTesting procedures• Preparing for persistent defaultPreparing for persistent default• Preparing for changes and variationsPreparing for changes and variations
Consider the possibility of holding inter-Consider the possibility of holding inter-national training eventsnational training events
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PPP knowledge transferPPP knowledge transfer
• Intra-ministerial PPP knowledge transfer Intra-ministerial PPP knowledge transfer (several contract mgt teams)(several contract mgt teams)
• Inter-ministerial PPP knowledge transfer Inter-ministerial PPP knowledge transfer (e.g. through the PPP Centrum)(e.g. through the PPP Centrum)
• Inter-national PPP knowledge transferInter-national PPP knowledge transfer
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77thth recommendation: recommendation:
Set up a contract management Set up a contract management manual manual
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The contract management The contract management manualmanual (1) (1)
Define the governance structure Define the governance structure
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Governance structureGovernance structure
• Define the structure of the contract Define the structure of the contract management teammanagement team
• Clarify roles (accountability, decision Clarify roles (accountability, decision making rules, clear responsibilities with making rules, clear responsibilities with no overlap)no overlap)
• Establish interfaces with the other Establish interfaces with the other stakeholdersstakeholders
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99thth recommendation: recommendation:
Manage variations to the contractManage variations to the contract
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Managing variationsManaging variations
Scrutinise requests for change:Scrutinise requests for change:• construction changesconstruction changes• reviewed output specifications and reviewed output specifications and
performance indicatorsperformance indicators• changes in law that have an impact on changes in law that have an impact on
service provisionservice provision
Evaluate cost implications, challenge the Evaluate cost implications, challenge the information provided by the private information provided by the private partner, and achieve best valuepartner, and achieve best value
Prepare to deal with persistent default Prepare to deal with persistent default by the private partner:by the private partner:• Penalties and increased monitoringPenalties and increased monitoring• Step-in and management of the service Step-in and management of the service
by the public authorityby the public authority• Step-in by the financing partiesStep-in by the financing parties• Eventual termination of the contractEventual termination of the contract
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Contingency plans (2)Contingency plans (2)
Contingency plans should not be overly Contingency plans should not be overly complicated, and should consider:complicated, and should consider:
• Remedies for potential problemsRemedies for potential problems
• How to mobilise staff and resources at How to mobilise staff and resources at short noticeshort notice
• Consents which may be needed and from Consents which may be needed and from whomwhom
• Steps needed to return the project to Steps needed to return the project to normal monitoring after any eventnormal monitoring after any event
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Summary (1)Summary (1)
• Appoint the contract manager at an early Appoint the contract manager at an early stagestage
• Consider carefully the profile of the Consider carefully the profile of the contract managercontract manager
• Budget for contract management activitiesBudget for contract management activities
• Plan the staffing for contract management Plan the staffing for contract management activitiesactivities
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Summary (2)Summary (2)
• Refrain from excessive recourse to Refrain from excessive recourse to external consultantsexternal consultants
• Identify the initial and ongoing training Identify the initial and ongoing training requirementsrequirements
• Set up a contract manag’t manualSet up a contract manag’t manual• Define the governance structureDefine the governance structure• Manage variations to the contract Manage variations to the contract • Prepare contingency plansPrepare contingency plans