4.3.5 Contract management

Following financial close, a typical PPP has several distinct stages:

• construction stage. From the time construction (or implementation) starts through the commissioning process to the start of payments when delivery of the services required by the output specification begins;

• service delivery (operational) stage. Covers the provision and use of the contracted services during the remaining life of the contract; and

• Contract expiry or termination stage. The period leading up to and after contract expiry or termination.

Effective contract risk management requires the dedication of appropriate financial resources and experienced personnel to the establishment of a contract risk management strategy during the procurement phase of the project and the maintenance of that strategy throughout the project lifecycle.

Key contract management principles commonly applied in PPP arrangements include:

• planning, information collection and analysis. This includes planning the contract management strategies that will be used for the project to assist in determining the information that will be required to implement those strategies. The information collected and analysed will help refine the contract management plan and help government to identify, understand and manage project risks;

• contract administration. Contract administration requires an understanding of the legal documentation for the project and also:

the technical ability to manage the contractual requirements;

the commercial intent of the parties;

the operating, industry and community issues associated with service provision; and

the legislative and regulatory context in which the project operates.

• performance reporting and monitoring. PPP projects, by their nature, experience high levels of change. In a well-managed PPP project, government can sensibly control this dynamic situation because it has access to adequate information on which to base 'control' actions;

• relationship management, dispute resolution and issue management. Given the long duration of PPP projects, it is imperative to maintain a strong relationship between government and the private party;

• governance, probity and compliance. Proper management of a PPP project by government involves not only managing the contract and relationship with the private party, but also ensuring appropriate governance, probity and compliance practices are established within government and in its interactions with the private party and any other government stakeholders;

• knowledge and information management. The government's ability to successfully manage a contract can depend upon the contract director having an effective knowledge and information management strategy tailored to the project's needs;

• change management. During the lifecycle of a PPP project, it is likely that a number of changes will occur, requiring proper management;

• contingency planning. Contingency planning for government is vital to a PPP project because it may not be possible to transfer fully responsibility for the risk of service delivery failure to the private party, and may be compelled to continue the supply of affected services; and

• ongoing review. Contract management processes must change and adapt throughout the lifecycle of a PPP contract, and therefore should be reviewed on an ongoing basis to ensure that management is sufficiently informed of current and emerging risks and issues.

Further information on contract management is provided in the Practitioners' Guide.