PPP Contract

Management
 Agenda

1. What is Contract Management?

2. Stages of Contract Management (Project

Whole Life)

3. Managing Performance – Tools Available

(Paymech, Change Control)

4. Lessons Learned

5. Summary

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 Strategic Context – PPP in the UK
(as at 31st March 2016 data
verification)

• Approximately 716 PPP Projects.

• 686 Operational Projects

• Circa £59.4 billion capital value

• Approximately £209 billion of future (long term)

Unitary
Charge payments
• Over 120 projects will have been signed for more
than 10
years – changes in requirements are inevitable
• Central, coordinated support to drive best value
from long term commitments in changing
3
environment
Contract
Management essential
UNCLASSIFIED
 What is Contract Management?
What does it mean to different organisations, departments and individuals?

What does it mean to you?

Value for money is a key concept. It means securing the best mix of
quality and
effectiveness for the least outlay over the period of use of the goods or
services bought.
It is not about minimising up front prices.

It can be summarized as the process of systematically and efficiently managing contract

creation, execution, operations, close down and analysis for the purpose of maximizing
financial and operational performance with minimal risk to meet your expectations.

In PPP Contracts, contract management is basically making sure that you

get what you have paid for at the agreed price, at the right
quality; all the time!

How does PPP Contract Management differ from any other contract
management
requirement?

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 Four components of contract
management
setting up
the contract
management
team

contract managing
managing
service
relationships management performance

contract
administration

5
 Why is Contract Management important?
“A great contract at signing can be the worst six months later, unless
someone is carefully managing its operation”
Head of Procurement, University College London

“There is strong evidence to suggest that the existence of a dedicated

team and frequent meetings between the two sides to review
performance levels helps improve service levels”
H.M. Treasury: PFI: Strengthening Long-term Partnerships March 2006

“The government will not achieve value for money from its contracts
until it pays much more attention to contract management”
House of Commons Committee of Public Accounts (PAC) February 2016

Failure to adequately manage a PPP Contract will inevitably erode its value-for-
money
and may ultimately undermine its objectives

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 Stages of Contract Management in PPP Projects

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Management
 When does Contract Management happen?

At all stages of the contract management

lifecycle:

Service
Plannin Implementati Hand-
Deliver
g on back
y

“The foundations for successful contract management are laid

down in the stages before contract award, including the
procurement process”

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Management
 Planning Phase

Covers all activities from the initial concept of a project, through the
strategic and outline business cases and procurement up to the
point of contract award

Key objectives:

Ensure Adequate Appropriate

contract provisions Risks and staff identified
management and issues and placed to
considered procedures considered take
from start built into responsibility
contract

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 Implementation Phase

Covers all activities after the award of the contract up to the

point of full service commencement

Key objectives:

Carry out
Build on Arrangements
practical
preparatory in place to
procedures re.
work manage
contractual
from planning change
rights &
stage
obligations

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 Service Delivery/Operations Phase

Covers all Contract Management activities from the point

service/operations commencement to the end of the of
contract

Key objectives:

Benefits are
Non
Service to being realised &
conformance
conform to payments only
dealt with
contract made for
as per
valid service
contract

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 Hand-back Phase

Covers all activities in the lead up to the expiry of the contract,

including consideration of and planning for what happens upon
termination

Key objectives:

Succession Transition to
Lessons
arrangements new
learned taken
developed arrangements
into account
re:- commercial; as smooth
organisational; as possible
operational

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 How can you accommodate the
PPP whole-life contract
management requirements?

Just to make it more complex – It’s not a flat or straight line project.

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Management
 Theoretical Public Sector Resource Requirement
The diagram below is an example of the theoretical public sector resource requirement model to
meet the long term requirements of a PPP project. The diagram emphasise the ‘step-change’
nature of resources requirement (capacity and capability) that is required during the project if the
initial assumptions were correct.

Construction Operational Phase (25 - 30 Years)

Phase

Mobilisatio Perio
Handback
Public Sector n d
Period
Resource
requirement
profile

Cyclic Activity: Market Testing, Benchmarking, Major

Lifecycle works
Planned Resource
Level Services
Handback
Commencement
to Public
Project steady-state
Sector
public sector resource
requirement

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 Managing Performance

1 Contract
5 Management
 Establishing a contract management team

Ask yourself the following questions: (there

are lots more)

• When will I design, recruit and set up the team?

• What team structure will I adopt and what size of team?
• What competencies and skills do I need?
• Should I use external specialist resources and are they
available?
• How will I flex the team to follow the PPP model?
• How can I attract the right candidates and keep the
candidates on board?
• What will be the mix of my multidisciplinary team(s)?
Technical, Legal,
Financial, Communications, Insurance, Administrative?
The team must be matched to the characteristics and environment of
the project.

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6 Framework
 PPP Contract Manager(s)
• Skills, Attitude and Experience
• Knowledge
• Specialist Skills
• Project management, commercial expertise and
negotiation.
• User training - simplified contract guides and user
manuals.
• Advantageous if a contract manager has been
involved in the
procurement phase of a project.
• If not, formal handover procedures are important.

Know the contract!

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7 Framework
 Overview of Tools and Techniques

• The actual management and monitoring

procedures can be tailored to those most
relevant to a particular contract.

• The list of relevant contract management

activities should be devised jointly with the
contractor.

• Activities should be developed to reflect

optimum frequency of the routine measures
and prioritisation.

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 Contractor should have in place:

• Performance monitoring procedures

• Quality management and management information systems
• Procedures for the management of its sub-contractors
• Systems for recording contract information
• A reporting mechanism
• A robust audit trail supporting its assessment of performance
• The Authority should ensure that the Contractor’s process ties in
to the local authority meeting and payment processes.

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9 Framework
 Managing Contracts: Key Activities

• User satisfaction surveys

• Complaint logs/help desk
• Physical inspections
• Spot checks and testing
• Sign off/certification
• Adherence to monitoring plans
• Agreeing and reflecting change
control/variations
• Reporting and review of reports

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 Managing Contracts: Key Activities

• Use of contractual remedies

• Self-assessment
• Operational audits
• Measurement of and updating of
KPIs
• Benefits measurement
• Financial reviews

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 Resource Planning (quick rule of thumb – operational phase)

Project Size Contract Manager Service Performance Communications Administration Total

Manager Manager

Availability based Small 50% 0% 0% 100% 1.5 people

contract + Hard FM
Large 100% 100% 50% 200% 4.5 people

Availability based Small 100% 100% 0% 100% 3.0 people

contract + Hard and
Soft FM Large 100% 200% 100% 200% 6.0 people

Small defined as <=1 PFI Site: and/or GIA <

30,000m2 Large defined as >=1 PFI Site:
and/or GIA >30,000m2

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2 Framework
 The Payment Mechanism

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 Key Elements of Payment Mechanisms
Structur
e for
Payment
s
Other
Availabili
Feature ty
s
Key
Element
s

Terminatio Performanc
n e

Indexatio
n

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Framework
 Why is the Payment Mechanism Important?

The Payment Mechanism:

• Is Central to the Contract - Core Schedule

• Reflects the financial effect of the allocation of risk
• Determines the payments that the Authority will make to the
Contractor
• Sets out indexation arrangements
• Addresses Contractor incentives to deliver the Services
• Sets out the Service Credit or Deduction regime

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Framework
 Structure for Payments

• Payments linked to availability, performance and / or usage.

• Availability usually attracts highest proportion of payment
and likewise risks the highest deductions.
• Payments at risk for poor performance, unavailability,
repeated failures, reporting failures and poor satisfaction.
• Deductions can accelerate where poor performance is
persistent, or there
are multiple instances of unavailability in a defined period.

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Framework
 Payment Mechanisms in Practice

Common Issues

Deciding
Demonstrati Agreeing whether or
ng responsibili not to apply
unavailabilit ty for deductions
y failures

Keeping
Self- standard Recor
monitoring s up-to- d
& reporting date & keepin
relevant g

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 Dealing with Change: Overview

• Plan in procurement stage

• Principles set out in the Project Agreement

• Contracts usually have provisions to deal with

change

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8 Framework
 Changes

Can cause more problems than anything else:

• Need to understand what constitutes a change

• Workable protocol for changes needed

• Small changes to be treated differently to major

capital
works

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 Benchmarking and Market Testing – Objective

• A key requirement of all Contracts is to obtain Value for Money

for Public Sector Authorities throughout the life of the Contract,
and not to erode Value for Money already obtained during the
procurement process
• Value for Money can be achieved through benchmarking,
market testing, savings and efficiencies, service improvements,
refinancing and profit sharing.

Benchmarking and Market Testing are tools to

ensure VfM. Collectively they are referred to as
Value Testing
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 What benchmarking is for

Benchmarking is intended to protect both parties to a PFI

contract:
• It is meant to protect the Contractor from unforeseeable cost
pressures over the life of the contract due to:
– particular sector-related influences on costs;
– geographical influences on costs; or
– operational cost consequences of changes in law.
Which may lead to cost increases significantly above the
rate of any inflation indexation in the Contract.

• The Authority is protected by ensuring that continued value for

money is achieved from the PFI contract by comparing it with
prices in the current marketplace.
Benchmarking - not to protect Contractors from general
inflationary cost increases or to recompense an
inefficient service provider.
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 Contract Management
Lessons Learned in the UK

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 What have we learned?

“To evaluate the effectiveness of public sector contract

management teams responsible for operational PFI project to
ensure whole life VfM can be achieved from the PFI portfolio”

• 12 major issues that are placing maintaining whole life

VfM at risk.

• 8 solutions identified to mitigate the 12 major issues.

• 5 challenges that have to be addressed to enable the

solutions
to be activated.

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 12 Major Issues
• Lack of understanding about PPP/PFI principles and risk
transfer.
• Lack of knowledge of the contract its clauses and obligations.
• Over-reliance on self-monitoring provisions.
• Lack of understanding of private sector commercial drivers.
• Poorly applied value testing.
• Lack of senior management support.
• Poorly resourced teams (capacity and capability).
• Lack of access to specialist skills.
• A poor understanding of the payment mechanism.
• Poorly drafted change mechanisms and poorly drafted contract
clauses.
• A lack of awareness of central support and guidance.
• Lack of investment and engagement by SPVs.
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 8 Potential Solutions
• Improve the core skills of public sector managers by the provision
of targeted specialist operational PPP training.
• Provide targeted specific operational PPP training to senior managers
(CFO’s, CE, Op’s Directors etc) to ensure whole life VfM and risk transfer
is understood by senior managers.
• Explore in detail different operational contract models such as
consolidation of teams, regional centres of excellence etc
• Improve support and guidance from central government.

• Encourage departments, regionally collocated projects, or sector specific

projects to have regular networking events and lessons learned
seminars.
•
Gain wide acknowledgement that operational contract management of
PPP projects is a ‘specialism’ and adjust recruitment and payment
• policies accordingly.
Develop a ‘specialist’ PPP operational contract management
community across government with a ‘Head of’ post that has day to
• day responsibility for operational improvement.
Regularly formally engage with private sector stakeholders to
encourage best practice across the PPP industry.
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 5 Challenges
• Budgets.

• Corporate knowledge and

records.

• Quality and Retention.

• Partnership.

• Isolation.
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Framework
 Thank you for
Listening

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Framework
 [email protected]

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