Mikko AJ Ramstedt Senior Project Adviser Financial Partnerships Unit Setting up an adequate institutional framework to manage risks in PPP projects Training event on risk management in PPP projects 26 May 2008 Twinning Project CZ/2005/IB/FI/04 Mikko AJ Ramstedt Senior Project Adviser Financial Partnerships Unit

Introduction Background context for risk management Building a sound foundation Developing a governance framework Stage Gate approach Managing public stakeholders Working with commercial advisers Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Risk in the context of Central / Local Government 1 Benefit realisation Project objectives / outcomes = benefits over costs Socio-economic improvements PPP = Value for Money Financial benefit Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Risk in the context of Central / Local Government 2 Affordability Deliverability Market Response Reputation Stakeholder expectations Political environment Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Building a sound foundation 1 Role of the Project Team Identify, quantify, prioritise and manage risks Create awareness of risks among stakeholders Develop a formal risk management strategy Source necessary expertise Install a culture of risk ownership and individual accountability among team members Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Building a sound foundation 2 Analytical scrutiny: Multi-disciplinary approach Expertise Technical, planning, building control, finance, legal etc Accountability Clear input specification & delegation responsibilities Key Risk Stakeholders Involvement Management Team needs to be supported by appropriate governance arrangements! Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Building a Team Project Manager Internal Finance Internal Technical Internal Legal Administrative Commercial Technical Commercial Finance Commercial Legal Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context. Planning Technical Services HR Communications

Developing a governance framework 1 Consider institutional protocols / requirements – who are exposed to project risks? Senior reporting / accountability Financial management Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Developing a governance framework 2 Identify stakeholders – who are able to influence risks? Project interface matrix Direct & indirect stakeholders Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Developing a governance framework 3 Constitute steering arrangements Effective arrangements involve Senior accountable officers Project Sponsor Key stakeholder representatives Technical specialists Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Developing a governance framework 4 Set up a risk management protocol Risk register Risk management strategy Clarity over individual roles Delegation of powers and accountability Risk monitoring / review process Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Developing a governance framework 5 Establish lines/forms of communication Reporting requirements Process Protocol Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Governance Framework Steering Group Chief Executive Senior Responsible Officer Project Sponsor Project Manager Senior Finance Senior Legal Senior Technical Services Senior Communications Senior Planning Senior Technical Services User Reps Union Reps Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context. Project Team Internal Resource Pool

Stage-Gate approach Risk management as a continuous process Purpose: Audit projects at key stages Maintain local accountability Quality assurance tool Market reassurance: minimum standards Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Stages: Outline Business Case Pre-OJEU notice Pre-Invitation To Participate in Dialogue Pre-Invitation to submit Final Tenders Pre-Preferred Bidder appointment Pre-Financial Close Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Outline Business Case: Scope, VfM, Affordability, Deliverability (statutory powers, resources, governance, experience / advisers, market, consultations, land, planning, transferability of risks) – policy sign off. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Pre-OJEU notice: Market sounding, procurement strategy, PQQ, IM, evaluation criteria, market management strategy, affordability management strategy. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Pre-Invitation To Participate in Dialogue: Market / bidder robustness, specification, contractual documentation (CD protocol, specification, project agreement, payment mechanism). Most commonly problems arise over unresolved land, planning and site issues (environmental, geo-technical, topographical, archaeological). Lack of clarity over scope. Inconsistency in ITPD documentation (typically service spec and Room Data Sheets). Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Pre-Invitation to submit Final Tenders: Pricing strategy, design, land and planning development, lender due diligence, authority consents & sign offs, timetable for FC, construction management, stakeholder consultation, affordability, VfM check, calibration of payment mechanism, contract derogations. Most commonly problems arise over affordability on receipt of bids. Commonly pressure from political climate and original timetable can suggest illogical decisions. Unresolved commercial matters can only lead to upward price movement. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Pre-Preferred Bidder appointment: Provisional sums, O/S risks / exposure, land assembly, enabling works. PB appointment letter must be as comprehensive as possible. Affordability problems commonly arise due to programme slippage, scope change and unresolved commercial issues. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Pre-Financial Close: Contract management & governance, stakeholder liaison, staff transfers, decant strategy, change mechanism, snagging management, appointment of independent certifier. Continuity and understanding of authority obligations. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Stage-Gate approach Process - at each review: Submission Clarifications & Independent review against set criteria Independent recommendations Essential vs. desirable Response / action to recommendations Central Government review of actions taken No action –> HOLD / STOP Positive action –> GO Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Managing public Stakeholders 1 Includes for example authorities responsible for planning, transport, environmental, health & safety, fire, building control etc, and statutory consultees (Audit Scotland, Scottish National Heritage, Historic Scotland, SEPA etc). Each body will have a defined remit and powers that project sponsors will need to satisfy. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Managing public Stakeholders 2 Project team will need to agree: what information is needed, when, in what format, what is the timetable for approval, and who should be involved. Each stakeholder should develop and publish standard approval criteria and engagement protocol. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Managing public Stakeholders 3 Managing risks through a communication & consultation strategy Creates clarity & consistency of message Maximises impact Identifies appropriate channels of communication Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Managing public Stakeholders 4 Communication & consultation strategy Needs to cover: project development procurement process construction phase operational phase Should be signed off by Steering Group! Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Managing public Stakeholders 5 Managing stakeholder expectations - Defining key stake-holders Procuring Authority - - - > Users Policy Transport, Justice, Education, Health, etc PFI/PPP policy Procurement policy MoF Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Managing public Stakeholders 6 Risk mitigation through involvement What are the key public sector controlled risks? Risk identification Who controls the key risks? Risk allocation How to mitigate against these risks? Involvement Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Waverley Transport Partnership Scottish Borders Council Scottish Government Passenger Focus Transport Scotland Waverley Transport Partnership Scottish Borders Council Midlothian Council Office of the Rail Regulator City of Edinburgh Council Scot Rail Franchise Network Rail

Working with commercial advisers Benefits: Necessary source of expertise Wider access to critical information Developing an ‘Intelligent Client’ Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Working with commercial advisers Risks: Project ownership Knowledge transfer Accountability Authority Affordability Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Summary Project governance arrangements need to be able to support efficient day-to-day management of risks. A standardised review process helps to create risk awareness and provide assurance over risk management and mitigation across projects. Fostering ownership, accountability and involvement are key to good project governance and should also guide engagement with external advisers. Greetings Outline summary of what presentation will cover. Key focus is on the three-way relationship between procuring public authority, contract and contractor. Why do we need to manage contracts? Is having to manage contracts not just a sign that the contractor isn’t willing or capable to do the job? Although appropriate to think about contract management, first need to set the context.

Questions? Mikko AJ Ramstedt mikko.ramstedt@scotland.gsi.gov.uk 0131 244 4940