Setting up a parallel informal audit to address issues with KPIs which no longer met the Procuring Authority's goals may, in some circumstances, provide a suitable short-term solution.
An informal, parallel audit is conducted on aspects that aren't well covered by the KPIs in the PPP contract. The Procuring Authority introduced the parallel process, which is reported back to the joint board, represented by Project Company and Procuring Authority members. The audit covers aspects which the Procuring Authority consider to be important, but are not covered properly by the KPIs. This is published online, and has encouraged the Project Company and the operations contractor to improve their performance in these areas.
This is a salient point both in terms of the issues with the initial setting of KPIs in a PPP contract at its signing and also outlines an approach to dealing with outdated KPIs.
Co-location of the Procuring Authority and Project Company can help to more efficiently resolves issues at an early stage.
The Procuring Authority and the Project Company are co-located in a single location for the operational management of the PPP contract. Co-location of the offices helps greatly with relationship building on a day-to-day basis, and in particular during challenging times, such as disputes. Face to face interaction between the parties helps to resolve the issues before they are escalated through the formal contractual mechanisms.
Setting up an informal variation procedure may provide a solution if the formal variation procedure proves to be unworkable. It also highlights the need to set appropriate time periods when negotiating the PPP contract.
The parties have introduced an informal variation procedure which they go through before the formal notice stipulated under the PPP contract is issued. This helps both parties familiarise themselves with the change, and allows tweaks to be made before it is introduced formally. Change orders and variations during the operations phase are in many instances driven by changing market needs and any changes in the Procuring Authority's policies or other external factors, which is common in long-term PPP contracts.
This practice, in this case, demonstrates a successful method of addressing the issue of variation procedures in the PPP contract that do not provide the parties with enough time to familiarise themselves with the issues. It also highlights an interesting lesson for the drafting of PPP contracts and the need to set appropriate time frames within the variation procedures to allow the parties to deal with the issues properly.
Setting up a small, closed government industry network can have a very positive impact on a program of PPPs in a particular sector including through the sharing of knowledge.
A small, closed industry network, such as the WIDP in the UK, helps promote best practice and knowledge sharing. The members are comfortable to talk openly to their peers and share lessons learned, and the WIDP has also issued a contract manual which is widely used and considered helpful. This kind of network can provide transactional support and any other contract management advice on specific issues, and helps the members stay abreast of topical issues and challenges faced by fellow members.
To help ensure that legal drafting is pragmatic, lawyers should be well supported by people who are involved after financial close, such as contract managers.
It is important, to minimise areas of ambiguity, that when drafting the PPP contract, both parties agree on terms and processes addressing interfaces and grey areas in the PPP contract before contract signing where possible to mitigate the risk of different interpretations and disputes. Lawyers should be well supported by contract managers and other relevant people involved after financial close to ensure legal drafting is pragmatic.
Assigning employees who have not been involved in the lead-up to the dispute to the negotiations may provide independence required to resolve the dispute more efficiently.
It is natural for people who are involved in a disagreement to have strongly held views. When a dispute escalates, it can be beneficial to involve employees who have not been involved in the lead-up to the dispute and focus more on relationship building and negotiation.
Processes of periodically reviewing KPIs may need to be considered to be included in PPP contracts to keep the project relevant to the needs of the time.
The nature and length of PPP contracts demands some degree of flexibility for reviewing and re-assessing KPIs. The needs of the market and the users will not likely remain the same all the way through to the end of a project as they were during inception. KPIs should be reviewed regularly to assess whether they have become outdated with regard to the current market or public needs. Processes of reviewing, adding, or discarding KPIs may need to be considered to be included in the PPP contract in order to keep the project relevant to the needs of the time.
Setting too stringent KPIs with small payment deductions may not provide enough incentive for the Project Company to achieve them.
There are about 70 KPIs in total contained in the PPP contract. The Project Company is currently meeting the KPIs consistently, and any payment deductions are minor. However, a small number of the KPIs are causing some tension, due to the Project Company viewing them as "draconian" and unachievable and the Procuring Authority seeing them as a continuing incentive for performance. This small number of KPIs have relatively low payment deductions and the Project Company's view is that they don't incentivise performance.