PPP Contract Management – Why it should be a core focus for governments

With a growing global focus on attracting private sector investment into infrastructure and utilising the public-private partnership (PPP) model, it is crucial that governments focus on the entire duration of a PPP contract. Efforts need to extend beyond ‘achieving financial close’ and beginning construction or ‘cutting the ribbon’ for commencement of services.

The structuring, procurement and delivery of quality PPPs are important to the success of those projects, but equal attention needs to be paid to the delivery of the public service over the asset’s lifecycle. It is not enough for a government to sign a contract and hope for the best. PPP contracts are complex. Without a strong commitment from the government during the construction and operations phases of PPP projects, even the best projects can end badly.

Just like a home builder needs to be monitored to ensure they are not cutting corners with materials or quality, so too does a private sector partner that is delivering millions or billions of dollars of public infrastructure, such as a highway or a hospital.

Government monitoring requirements are amplified when using a PPP model, as the contract is not just for the delivery of an infrastructure asset, but for the delivery of the service over a long period of time.

The World Bank Group’s Senior Infrastructure Finance Specialist, Jeff Delmon, drew an even clearer analogy when talking about the GI Hub’s new work:

The PPP Contract Management Tool is a significant contribution to PPP literature. Too often we are driven primarily by the chalice of financial close and the associated flying champagne corks, and we forget the all-important implementation of the project. It is like celebrating the assembly of the ingredients and then forgetting to bake the cake. The PPP Contract Management Tool brings our project through to fruition, to the eating of the pudding.

Against this backdrop, the GI Hub delivered its PPP Contract Management Tool in July 2018. The tool provides guidance for government officials managing PPP contracts on addressing typical challenges and avoiding common pitfalls during construction and operations. The tool is informed by data from over 250 projects globally on the prevalence of issues during construction and operations, and 25 detailed case studies which highlight how governments have addressed such issues.

We have deliberately taken a broad definition of a PPP to extend beyond what a country’s PPP laws may prescribe. For example, the definition includes projects where demand risk is passed entirely on to the private partner (also known as ‘user-pay’ projects or concessions), and projects that are based on availability payments by government irrespective of demand (also known as ‘availability-based’ projects).

The purpose of this 10-part blog series is to highlight some of the interesting aspects of the tool to facilitate discussion around those issues. PPP models and practices are constantly evolving, and it is important to debate interesting topics to develop better practices and help governments to deliver better, higher quality PPP projects. We welcome comments on this blog series and on the PPP Contract Management Tool itself, which can be submitted in the question and answers section of the tool’s website.

This blog series will be divided into the following topics:

1. Why PPP contract management should be a core focus for governments
2. Setting up the government team for the first transition, between financial close and construction
3. Moving into operations, including managing KPIs and payment deductions
4. Public stakeholder engagement, crucial at all stages of infrastructure delivery
5. The private partner’s perspective, including changes of ownership and refinancing
6. Claims and scope changes are a reality, so they need to be effectively managed
7. Over 40 per cent of PPP projects are renegotiated, so what does that mean for governments?
8. Partnership is at the heart of a PPP, so disagreements should be managed objectively
9. Is termination of a PPP contract dismissed too lightly?
10. Handback of infrastructure assets and ensuring governments receive what they’re expecting

The next blog, PPP contract management – Setting up the government team for the first transition, between financial close and construction, will focus on the aspects to be considered in staffing the contract management team for a project or program of projects, as well as other areas that need to be considered as a project achieves financial close and moves into the construction phase.