Contract management is an important activity in PPP programme/project administration. The management process needs to be in place from the outset to ensure timely completion and satisfactory operation of a project. A separate process may also be considered to monitor the PPP programme performance of a sector or for the country as a whole. The contract management process not only helps to fix responsibilities, but also allows timely response to any deviation in project implementation or operation from the provisions in the contract agreements and thus helps to avoid disputes between the parties at later stages. The three key aspects of contract management are:

Why important

• Contract administration

• Service delivery management

• Relationship management

Key aspects of contract

Contract administration involves the establishment of administrative processes to ensure that all the procedures and documentation relating to the contract are effectively managed. The three major activities in contract administration are: variation management, maintaining the integrity of the contract, and financial administration. Clear administrative procedures for these activities help to ensure that all parties to the contract agreement clearly understand their individual responsibilities, time and procedure of action.

Contract administration

Service delivery management has two major elements: risk management and performance management. Risk management involves keeping the exposure of the project to any potential risks at an acceptable level by taking appropriate action in time. Performance management is concerned mainly with ensuring the quantity and quality of service delivery as per the contract, resource utilization, and performance improvement in the future to reflect technological and other new development as appropriate.

Service delivery management

Relationship management between the private provider and the government implementing agency over the long contract tenure of a PPP project is vital for its success. Building an effective relationship that is mutually beneficial does not imply that either party has to compromise its contractual rights and obligations. The key factors to a successful relationship are mutual understanding, open communication and information sharing, and recognition of mutual objectives. Appropriate lines of communication at strategic, business and operational levels between the implementing agency and the private party are necessary to build a successful relationship. The clear lines of communication at the appropriate levels help to ensure a prompt resolution of disputes that may arise.

Relationship management

Usually a team comprising officials from the implementing agency and other concerned departments of the government supported by a range of specialists and technical advisors with varying levels of involvement is required for contract management. The resource requirement of the team is affected by the overall size and complexity of the project and its implementation stage in the overall project cycle. In some cases it may be possible for the contract management function to be carried out by a single individual. But for large projects it would normally require a team work. The contract management team in effect may evolve from the project team in the inception, feasibility and procurement phases, taking on different technical skills and experience as needed throughout the project cycle.

Contract management team

Besides the implementing agency, some other agency/department of the government (for example, the central bank) and the respective sector/industry regulator may also be involved in the contract management process. The main tasks in contract management include:

Tasks

• Formalisation of management responsibilities by organization and at different levels. A critical aspect is to identify and clarify the roles and responsibilities of key individuals involved in the contract management process. Ambiguity about the functions of important individuals in the contract management process could lead to unnecessary delays and disputes.

• Monitoring of project delivery (construction phase).

• Management of variations during project implementation (time schedule, change of design and specification, etc.) and operation.

• Monitoring of operational aspects and service outputs after project implementation.

• Maintaining the integrity of the contract. It involves establishing procedures to ensure that the contract agreement and related documentation are consistent, up- to-date and accessible to all the relevant parties. Contract agreement maintenance also involves taking action to allow all parties to develop a common view of contractual obligations.

• Fiscal obligations of the government (if any).

• Financial matters. Effective financial administration involves the development of systems and procedures to make and receive financial payments according to the provisions in the contract agreement, and to keep records of such transactions.

Separate monitoring frameworks may be developed for the construction and operational phases. A mechanism is also required to gather, collate and analyze the required information on a regular basis for these frameworks, and to feed that information to the relevant authorities according to their requirements. The information requirements for different agencies are generally different. As such, the implementing agency, regulator and the government may also establish separate monitoring frameworks to serve their own specific needs. However, the monitoring frameworks need to be based on performance indicators mentioned in the contract/concession agreement and other requirements of the administrative procedures related to PPPs.

Monitoring framework