1. 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 Twinning Project CZ/2005/IB/FI/04
Mikko AJ Ramstedt
Senior Project Adviser
Financial Partnerships Unit

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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.

24. 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.

25. 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.

26. 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.

27. 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.

28. 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.

29. 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.

30. 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

31. 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.

32. 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.

33. 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.

34. Questions? Mikko AJ Ramstedt mikko.ramstedt@scotland.gsi.gov.uk