ENG 5129 LECTURE NOTES HANDOUT
Dr-Eng Ian Nzali Banda FEIZ; MACEZ
TOPIC No1: CONTRACTS and LAW OF CONTRACT
Contract
i. Is a voluntary arrangement between two or more parties that is
enforceable by law as a binding legal agreement. Formation of a contract
generally requires an offer, acceptance, consideration, and a mutual
intent to be bound. Each party to a contract must have CAPACITY to enter
the agreement. Minors, intoxicated persons, and those under a mental affliction
may have insufficient capacity to enter a contract.
ii. Is a voluntary, deliberate, and legally binding agreement between two or
more competent parties. Contracts are usually written but may be spoken or
implied, and generally have to do with employment, service delivery, sale or
lease, or tenancy.
Key Issues
•
•
•
Offer
Acceptance of the Offer and mutual intent
Valid consideration i.e. (should be legal
and
possess
some
value).
Consideration is a promise of something of value given by a promissor
in exchange for something of value given by a promisee; and typically
the thing of value is goods, money, or an act
However, while all parties may expect a fair benefit from the contract (otherwise courts
may set it aside as inequitable) it does not follow that each party will benefit to an
equal extent.
Law(s)
i. is a system of rules that are created and enforced through social or
governmental institutions to regulate behavior
ii. a system of rules made by a government that states how people may and may
not behave in society and in business, and that often orders particular
punishments if they do not obey, or a system of such rules
Law of Contract
Body of law that governs (OVERSEE or ADMINISTER) oral and written agreements
and subjects, such as agency relationships, employment, and business organizations
Employment
Employment is a relationship between two parties, usually based on a contract
where work is paid for, where one party, which may be a corporation, for profit, not1|Page
for-profit organization, co-operative or other entity is the employer and the other is
the employee. Employees work in return for payment, which may be in the form of
an hourly wage, by piecework or an annual salary, depending on the type of work an
employee does or which sector she or he is working in.
Contract
A contract is a voluntary arrangement between two or more parties that is
enforceable by law as a binding legal agreement. Formation of a contract generally
requires an offer, acceptance, consideration, and a mutual intent to be bound.
Each party to a contract must have CAPACITY to enter the agreement. Minors,
intoxicated persons, and those under a mental affliction may have insufficient capacity
to enter a contract.
Agreement vs Contract
The two elements of an agreement are:
i. offer or a proposal; and
ii. an acceptance of that offer or proposal.
Agreement
Offer or Proposal
by A
Acceptance of the
Proposal by B
If the agreement is ENFORCABLE AT LAW then!!!!!
AGREEMENT
CONTRACT
Thus, a contract consists of two KEY elements:
(i) an agreement; and
(ii) legal obligation, i.e., it should be enforceable at law.
CONTRACT
AN AGREEMENT
Agreements NOT enforceable by law are NOT CONTRACTS!!!!
A LEGAL
OBLIGATION
Proposal by B
Essential Elements of A Valid Contract
“All agreements are contracts if they are made by free consent of parties,
competent to contract, for a lawful consideration and with a lawful object
and are not hereby expressly declared to be void.”
1. Agreement
As already mentioned, to constitute a contract there must be an agreement. An
agreement is composed of two elements—offer and acceptance. The party making the
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offer is known as the offeror, the party to whom the offer is made is known as the
offeree. Thus, there are essentially to be two parties to an agreement. They both must
be thinking of the same thing in the same sense.
2. Intention to create legal relationship
As already mentioned there should be an intention on the part of the parties to the
agreement to create a legal relationship. An agreement of a purely social or domestic
nature is not a contract.
Example
A husband agreed to pay K3000 to his wife every month while he was abroad. As he
failed to pay the promised amount, his wife sued him for the recovery of the amount.
Held: She could not recover as it was a social agreement and the parties did not intend
to create any legal relations [Balfour v. Balfour (1919)2 K.B.571].
THERE HAS TO BE INTENTION TO CREATE A LEGAL OBLIGATION BETWEEN
BOTH PARTIES!!!
3. Free and genuine consent
The consent of the parties to the agreement must be free and genuine. The consent of
the parties should not be obtained by misrepresentation, fraud, undue influence,
coercion or mistake. If the consent is obtained by any of these flaws, then the contract
is not valid.
4. Parties competent to contract
The parties to a contract should be competent to enter into a contract.
(i) is of the age of majority, (ii) is of sound mind, and (iii) is not disqualified from
contracting by any law to which he is subject.
5. Lawful consideration
The agreement must be supported by consideration on both sides. Each party to the
agreement must give or promise something and receive something or a promise in
return. Consideration is the price for which the promise of the other is sought.
However, this price need not be in terms of money. In case the promise is not
supported by consideration, the promise a bare promise and is not enforceable at law.
Moreover, the consideration must be real and lawful.
6. Lawful object
The object of the agreement must be lawful and not one which the law disapproves.
7. Agreements not declared illegal or void
There are certain agreements which have been expressly declared illegal or void by the
law. In such cases, even if the agreement possesses all the elements of a valid
agreement, the agreement will not be enforceable at law.
8. Certainty of meaning
The meaning of the agreement must be certain or capable of being made certain
otherwise the agreement will not be enforceable at law. For instance, A agrees to sell
10 metres of cloth. There is nothing whatever to show what type of cloth was intended.
The agreement is not enforceable for want of certainty of meaning as the description is
ambiguous.
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9. Possibility of performance
The terms of the agreement should be capable of performance. An agreement to do an
act impossible in itself cannot be enforced. For instance, A agrees with B to discover
treasure by magic. The agreement cannot be enforced.
10. Necessary legal formalities
A contract may be oral or in writing. If, however, a particular type of contract is
required by law to be in writing, it must comply with the necessary formalities as to
writing, registration and attestation, if necessary. If these legal formalities are not
carried out, then the contract is not enforceable at law.
TOPIC No 2: EMPLOYMENT CONTRACT
Employment Code Act No 3 of 2019
An Act to regulate the employment of persons; prohibit discrimination at an
undertaking; constitute the Skills and Labour Advisory Committees and
provide for their functions; provide for the engagement of persons on
contracts of employment and provide for the form and enforcement of the
contracts of employment; provide for employment entitlements and other
benefits; provide for the protection of wages of employees; provide for the
registration of employment agencies; regulate the employment of children
and young persons; provide for the welfare of employees at an undertaking;
provide for employment policies, procedures and codes in an undertaking;
repeal and replace the Employment Act, 1965, the Employment (Special
Provisions) Act,1966, the Employment of Young Persons and Children Act,
1933 and the Minimum Wages and Conditions of Employment Act, 1982; and
provide for matters connected with, or incidental to, the foregoing.
(1) This Act does not apply to—
(a) persons in the Defence Force, except locally engaged civilian employees;
(b) members of the Zambia Police Service;
(c) members of the Zambia Correctional Service; and
(d) persons in the Zambia Security Intelligence Service.
Key Definitions
i) “authorised officer” means the Labour Commissioner or a labour officer;
ii) “basic pay” means the standard rate of pay before additional payments such as
allowances and bonuses for a period not exceeding one month;
iii) “casual employee” means a person employed to perform casual work and
whose terms of engagement provide for payment at an hourly rate, including
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casual loading, payable at the end of each day and is not engaged for a period
exceeding 24 hours at a time;
iv) “casual loading” means the additional hourly pay at a rate of twenty-five
percent of an hourly rate;
v) “casual work” means work that—
(a) is not permanent in nature; or
(b) is capable of being carried out in a period of less than six months.
vi) “collective agreement” has the meaning assigned to the words under the
Industrial and Labour Relations Act;
vii) “contract of employment” means an agreement establishing an employment
relationship between an employer and an employee, whether express or implied,
and if express, whether oral or in writing;
viii)
“employee” means a person who, in return for wages, or commission,
enters into a contract of employment and includes a casual employee and a
person employed under
ix) “part-time” means employment under a contract of employment that stipulates
fewer working hours per week than those stipulated for full-time by an employer;
x) “permanent contract” means a contract of employment, if not terminated in
accordance with this Act, expires on the employee’s attainment of the retirement
age specified under a written law;
xi) “seasonal employment” means employment under contract of employment
where the timing and duration of the contract is influenced by seasonal factors
including climate, agricultural or business peak cycle;
xii) “short-term” means a period not exceeding twelve months;
xiii)
“temporary employment” means employment under a contract of
employment where a person is engaged to do relief work in the absence of a
substantive employee;
xiv)
“employer” means a person who, in return for service enters into a
contract of employment and includes an agent, representative, foreman or
manager of the person, who is placed in authority over the person employed;
xv) “employment agency” means a person providing market services including—
(a) matching offers of, and applications for, employment without the
employment agency becoming a party to the employment relationship which may
arise;
(b) employing persons with a view to making them available to a third party,
who may be a natural or legal person that assigns their tasks and supervises the
execution of these tasks;
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TERMINATION
Some key Provisions in the Act
When a contract of service;
(a) is made for a period of or exceeding six months or for a number of working days
equivalent to six months or more or
(c) is to perform personally some specific work which could not reasonably be expected
to be completed within six months or within a number of working days equivalent to six
months from the start of the work;
the contract shall be made in writing!!
1. Consent of the Employee
(2) Any employee shall indicate his consent to a contract of service
either(a) by signing the same; or (b) by affixing thereto the impression of his thumb or finger
in the
presence of a person other than his employer (witness!!!).
2. Enforceability of the Contract
Subject to the provisions of subsection (3) of section thirty-two, a written contract of
service made under the provisions of this Act shall not be enforceable unless it
bears an attestation under the hand of a proper officer;
to the effect that such contract was read over and explained to the
employee in the presence of such officer and was entered into by the
employee voluntarily and with the full understanding of its meaning:
Attestation is the act of attending the execution of a document and bearing witness
to its authenticity, by signing one's name to it to affirm that it is genuine
Proper officer means the Labour Commissioner or any labour officer
Provided that where the parties to a contract of service which has not been attested in
accordance with the provisions of this section are literate and entered into the contract
in good faith, such contract shall be enforceable as if it had been attested under this
section.
3. Contents of the Employment Contract
The Contract should specify the following as accurately as possible:
(a) the name of the employer and of the employee;
(b) the name of the business or undertaking in which the employee is to be employed
(c) the place of engagement and, where applicable, the place of origin of the employee
and any other particulars necessary for his identification;
(d) the date of commencement and the duration of the contract of service;
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(e) the place at which, or the geographical limits within which, any work under the
contract is to be performed;
(f) the wages to be paid and, if applicable, particulars of any food to be provided under
the contract or of any cash equivalent of any such food;
(g) an undertaking by the employer to pay the wages of the employee monthly or at
shorter period, as the case may be, unless deferment of payment is expressly
sanctioned in terms of section forty-eight;
(h) the nature of the employment, including working hours and tasks where applicable
and practical, and the general operations involved and such additional details as may be
necessary to make it clear to the employee the nature of the work for which he
contracts;
Before attesting the signature of any employee to a written contract of service, a
proper officer shall satisfy himself that(a) the employee has fully understood and freely consented to the contract and that
his consent has not been obtained by coercion or undue influence or as a result of
misinterpretation or mistake; (b) the terms of the contract are not in conflict with the
provisions of this Act or any other written law; (c) where applicable, the provisions
relating to medical examination contained in section thirty-four have been complied
with; (d) the employee declares himself not to be bound by any previous contract of
service; (e) the contract is, in all the circumstances, equitable;
Every employee who enters into a contract of service under the provisions of section
twenty-eight shall be medically examined by a medical officer before such contract is
attested; such examination shall have relation to the fitness of the employee to
undertake the work which he has contracted to do, and a report of the result of such
examination shall be sent by the medical officer to the employer.
4. Termination
(1) A written contract of service shall be terminated(a) by the expiry of the term for which it is expressed to be made; or ( b) by the death
of the employee before such expiry; or (c) in any other manner in which a contract of
service may be lawfully terminated or deemed to be terminated whether under the
provisions of this Act or otherwise. (Company code of conduct!!!)
(2) Where owing to sickness or accident an employee is unable to fulfill a written
contract of service, the contract may be terminated on the report of a registered
medical practitioner.
(3) The contract of service of an employee shall not be terminated unless there is a
valid reason for the termination connected with the capacity, conduct of the employee
or based on the operational requirements of the undertaking.
(4) Reasons that are not valid for termination of contracts include—
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(a) union membership or participation in union activities outside working hours or, with
the consent of the employer, within working hours;
(b) seeking office as, acting or having acted in the capacity of, an employee’s
representative;
(c) the filing of a complaint, the participation in proceedings against an employer
involving alleged violation of laws or recourse to administrative authorities;
(d) race, colour, sex, marital status, family responsibilities, pregnancy, religion, political
opinion or affiliation, ethnicity, tribal affiliation or social status of the employee; or
(e) absence from work during leave or a rest period in accordance with a written law.
5. Redress
Whenever an employer or employee neglects or refuses to comply with the terms of
any contract of service, or whenever any question, difference or dispute arises as to the
rights or liabilities of any party to such contract or as to any misconduct, neglect or illtreatment of any such party, or concerning any injury to the person or property of such
party, the party aggrieved may report the matter to a labour officer, who shall
thereupon take such steps as may seem to him to be expedient to effect a settlement
between the parties and, in particular, shall encourage the use of collective bargaining
facilities where applicable.
6. Employment Certificate
Every employer shall, on the termination of a contract of service between such
employer and his employee, give to such employee a certificate of service which shall
contain- testimonials and references
(a) the name of the employer; (b) the name of the employee; (c) the date of
engagement; (d) the date of discharge; (e) the nature of employment; (f) the
employer's account number with the National Pension Scheme Authority
(NAPSA) under which statutory contributions have been or will be remitted to
NAPSA on behalf of the employee;
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PART II
TRADE UNIONS
4. An employee shall cease to be an eligible employee and become a
member of management if the employee(a) is empowered to make management decisions; (b) is entrusted with personnel
management and industrial relations functions; or (c) reports directly to the Chief
executive:
Provided that where there is a disagreement on the point when an eligible employee
becomes a member of management, the matter shall be referred to the Minister for
resolution, subject to appeal to the Court.
5. Notwithstanding anything to the contrary contained in any other written law and
subject only to the provisions of Constitution and this Act every employee shall have the
following rights:
(a) the right to take part in the formation of a trade union; (b) the right to be a
member of a trade union of that employee's choice; (c) the right, at any appropriate
time, to take part in the activities of a trade union including any activities as, or with a
view to becoming, an officer of the trade union, seeking election or accepting
appointment, and if so elected or appointed, to hold office as such officer subject only
7. Rights of employees in respect of trade union membership and its
activities
(d) the right to obtain leave of absence from work in the exercise of the rights
provided for in paragraph (c) and the leave applied for shall not be unreasonably
withheld by the employer;
(e) the right not to be prevented, dismissed, penalised, victimised or discriminated
against or deterred from exercising the rights conferred on the employee under this
Act; (f) the right of any employee not to be a member of a trade union or to be
required to relinquish membership; (g) the right not to be dismissed, victimised or
prejudiced for exercising or for the anticipated exercise of any right recognised by this
Act or any other law relating to employment; or for participating in any proceedings
relating thereto; (h) the right not to do work normally done by an employee who is
lawfully on strike or who is locked out, unless such work constitutes an essential
service, or if on request the employee voluntarily waives the right specified under this
Act;
(l) the right not to be dismissed, penalised or disciplined on the grounds that the
employee(i) has been or is a complainant or witness or has given evidence in any proceedings,
whether instituted against the employer before the Court or any other court;
TOPIC No 3: ALTERNATIVE DISPUTE RESOLUTION
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Definitions
Dispute: Is an argument, or to question truth or validity of…., or to
contest…., to doubt
Dispute Resolution
2 main Types namely
Judicial Dispute Resolution LITIGATION
i.e. one-party files a suit against another
person. The Outcome is decided by an
IMPARTIAL JUDGE
Extrajudicial processes such as Arbitration
and Mediation, used to resolve conflict and
potential conflict between and among
individuals, business entities, governmental
agencies,
Alternative Dispute Resolution
This refers to a variety of techniques for resolving disputes without resorting to
litigation in the courts. It encompasses a wide number of techniques such as
NEGOTIATION, MEDIATION, ARBITRATION, CONCILIATION, MED ARBITRATION etc.
What is Alternative Dispute Resolution (ADR)?
ADR is a term used to describe several different methods of resolving legal disputes
without going to court. The rising cost of litigation is making traditional lawsuits
impractical for many individuals and businesses. At the same time, civil courts face
backlogged dockets, resulting in delays of a year or more for private parties to have
their cases heard by a jury. New types of proceedings have been developed in
response, and they are proving beneficial, saving time and money for everyone
involved. These include arbitration, mediation, and additional kinds of ADR designed for
specific cases and subject matters.
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The Advantages of ADR
Most persons do not want to become involved in lawsuits. Litigation can entail lengthy
delays, high costs, unwanted publicity, and ill will. Appeals might be filed, causing
further delay, after a decision has been rendered. Arbitration, on the other hand, is
usually faster and less expensive, and it is also conclusive.
a) Speed: Despite the best efforts of our court systems to improve processing time
of civil disputes, the burdens of criminal cases, tight budgets, and other factors
still create delays of years to bring a case to court in many jurisdictions. Appeals
extend the time required to reach a final result still further.
In ADR there is no "docket" - no line in which to wait for your day in court. The only
elements governing speed are the eagerness of the parties to end the dispute and the
complexity of the cases to be resolved therefore complaints are processed more quickly
and resolved earlier.
b) Creative Solutions: The process leads to more creative solutions and savings
in time for all parties. Creative resolutions are more acceptable to the parties.
c) Choice and Expertise of Impartial Neutrals: Parties who resolve their
disputes through ADR enjoy the assistance of neutrals who are already expert in
the subject matter of their disputes.
For example, parties to a construction industry dispute might select an architect, a
contractor, or a lawyer with a lifelong practice in construction law to serve as their
mediator or arbitrator. The "subject matter expertise" of the neutral reduces the time
typically required to attempt to educate a judge or jury about the technical elements of
a dispute and raises the confidence level of the parties that the result of the process will
be well-informed.
d) Informality and flexibility: Alternative dispute resolution is conducted in a
manner that is more business-like than litigation. Each party tells its side of the
story to the arbitrator in an atmosphere that is less formal than a court
proceeding.
For example, where a court must apply complex rules of evidence, and the decision of
the trial judge can be overturned for admitting evidence that should have been
excluded, arbitrators have a duty under law to admit any evidence which might be
relevant. Arbitrators will of course discount questionable testimony and evidence, such
as obvious hearsay, but the relaxed rules of evidence do allow each side to present
their case in a more informal manner. The parties better understand the process and
feel confident that they had the opportunity to present their whole story.
Arbitration and the law
Arbitration awards are legally binding and enforceable in most jurisdictions. The
Arbitration Act in Zambia provides for enforcement of arbitration agreements and
awards in interstate-commerce and international contracts.
Types of Arbitration
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1. Negotiation
This is a process in which 2 or more parties hold discussions in an attempt to develop
agreement on a matter of mutual concern. The process of communication involves the
give and take of ideas in an effort to find common ground or agreement. It is a process
that forms the basis of every non-adjudicative resolution procedure.
2. Conciliation
This refers to a process that involves bringing a neutral third party to the negotiation
process. A conciliator helps parties reconcile their differences by performing the role of
a go=between. A conciliator communicates each side’s position and settlement options
to the other
3. Mediation
This is negotiation facilitated or assisted by the introduction into the dispute of an
intermediary. Therefore mediation involves a neutral third party called a mediator. The
mediator assists the parties to a dispute in communicating their position on the issues
and in exploring possible solutions or settlement. The mediator DOES NOT GIVE AN
EVALUATION OR OPINION OF THE CASE BUT RATHER FACILITATES THE EXCHANGE
OF INFORMATION, IDEAS AND ALTERNATIVES FOR SETTLEMENT BETWEEN THE
PARTIES.
4. Med-Arb
This is a 2 step dispute resolution process involving both mediation and arbitration.
Here parties try to resolve their difference through mediation, however if mediation fails
to resolve SOME OR ALL OF THE AREAS OF DISPUTE, THE OUTSTANDING ISSUES ARE
AUTOMATICALLY SUBMITTED TO BINDING ARBITRATION. The parties use a neutral
who should MUST BE SKILLED IN BOTH PROCEDURES in order to guide both parties
through the mediation phase, to preside over the arbitration and render a FINAL
BINDING DECISION. The final result in MED-ARB combines any agreements reached in
the mediation phase with the award in the arbitral phase.
5. Arbitration (Ref The Arbitration Act No 19 of 2000)
This is an adjudicative procedure in which a tribunal issues a ruling known as an award.
Arbitration is a private alternative to LITIGATION. In an arbitral process, the parties
are often represented by lawyers who argue their clients cases before a TRIBUNAL
WHICH MAY COMPRISE a SINGLE arbitrator or a panel of arbitrator usually THREE.
CONTRACT EXTRACT
H. SETTLEMENT OF DISPUTES
44. Amicable
Settlement
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44.1 The Parties shall seek to resolve any dispute amicably by mutual consultation.
44.2 If either Party objects to any action or inaction of the other Party, the objecting
Party may file a written Notice of Dispute to the other Party providing in detail the basis
of the dispute. The Party receiving the Notice of Dispute will consider it and respond in
writing within fourteen (14) days after receipt. If that Party fails to respond within
fourteen (14) days, or the dispute cannot be amicably settled within fourteen (14) days
following the response of that Party, Clause GCC 49.1 shall apply.
45. Dispute Resolution 45.1 Any dispute between the Parties arising under or related
to
this Contract that cannot be settled amicably may be referred to by either Party to the
adjudication/arbitration in accordance with the provisions specified in the SCC.
Arbitration is submission of a dispute to one or more impartial persons for a final and
binding decision. The arbitrators may be attorneys or business persons with expertise in
a particular field. The parties control the range of issues to be resolved by arbitration,
the scope of the relief to be awarded, and many of the procedural aspects of the
process. Arbitration is less formal than a court trial. The hearing is private. Few awards
are reviewed by the courts because the parties have agreed to be bound by the
decision of their arbitrator. In some cases, it is prearranged that the award will only be
advisory.
Note:
If the first requirement of a valid arbitration agreement is that it is writing the second is
that it is effective to submit the parties’ disputes to arbitration. An arbitration will not be
properly commenced unless there is an enforceable agreement to refer disputes to
arbitration. Factors which may prevent the arbitration agreement being effective
include:
(a) Lack of capacity of one of the parties to enter into an arbitration agreement
(b) The disputes (existing or contemplated) are not arbitration under the law
applicable to the arbitration agreement, the law of the seat (the state in which
the arbitration proceedings are to, or are deemed to, take place) or the law of
the stat in which enforcement is required; and or
(c) Lack of authority of the representative of a party to enter into the arbitration
agreement.
The agreement should be clear, widely drawn and provides mandatory submission of
disputes to arbitration.
Qualifications of an Arbitrator
1. The qualifications imposed by the parties to the agreement e.g. a lawyer, an
experienced engineer, accountant etc. No appointment is valid unless the
candidate meets the qualifications stipulated by both parties
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2. Independence i.e. should have no direct professional relationship with one of the
parties and no financial interest in the outcome of the arbitration
3. Impartiality i.e. should not be biased in favour of one of the parties or in relation
to the issues in the dispute
Additional Qualities include;
• Experience and Outlook – an open mind with wide commercial and social
exposure and experience
• Education and Training – Must be experienced in the law and practice of
arbitration
TOPIC No 4: PUBLIC PRIVATE PARTNERSHIPS
KEY CONCEPTS
Public Sector Organisation: Is an organisation that is owned and operated by the
government and exists principally to provide or deliver services for the general
population e.g. Electricity, Water, Sanitation, Waste Management, Public Highways,
Healthcare, Education, Police, Prison etc.
Key Attribute – These are not for profit organisations!!
Private Sector Organisation: Is an organisation that is owned and operated by
individuals or groups that principally seek to generate and return back a profit to the
owners
Key Attribute – These organisations are FREE from Government control and
ownership, and may choose to PARTNER with a government body to JOINTLY
deliver a particular service to the community
e.g. Electricity, Water, Sanitation, Waste Management, Public Highways etc.
•
•
•
A mutually beneficial business arrangement between the public and private
sectors, formed for the principal purpose of enhancing public service delivery
The combination of a public need with private capability and resources to
create a market opportunity through which the public need is met and a profit is
made (Helmut and Johnson: 1992)
A contractual agreement between a public agency and a private sector entity”
whereby through this agreement “the skills and assets of each sector (public and
private) are shared in delivering a service or facility for the use of the
general public and also that “each party shares in the risks and rewards
potential in the delivery of the service and or the facility” (NCPPP, 2009)
Zambian Government Definition
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A contractual arrangement between a public entity and a private party for the provision
of assets or services. In return the private entity receives a benefit or financial
remuneration according to predefined performance criteria which may be derived
entirely from service tariffs or user charges, entirely from government budgets or a
combination of both.
Legal Provision for PPPs in Zambia is through the Public Private Partnership
Act No 14 of 2009
A Contract is a voluntary arrangement between two or more parties that is
enforceable by law as a binding legal agreement. Formation of a contract generally
requires an offer, acceptance, consideration, and a mutual intent to be bound. Each
party to a contract must have CAPACITY to enter the agreement.
Risk refers to the possibility or real prospect of incurring a loss or failure
Reward refers to:
Payments received for services provided or profit generation (Private Sector)
Enhancement or fulfillment of the service delivery mandate or social obligations(Public
Sector)
The relationship that exists between the public sector and private sector in a PPP can
be illustrated using the Venn diagram. Venn diagrams are illustrations used in a branch
of mathematics known as set theory introduced by John Venn, a British philosopher
and mathematician in 1881. The Venn diagram shows circular areas that each
represent groups of items, features or attributes.
Any items or features that are
common to both areas in the circles are shown in the intersection segment of the
circles. The regulatory authority is included as an external entity not in any way a part
of the partnership but, as a necessary element that ensures that there is proper
performance and adherence to the set obligations, fair play and protection for the
customers where the PPP is for public service delivery.
The shaded area shown represents the features that are common to both the private
and public entities in a PPP transaction formed to render public services. The features
that are contained in the common shaded area for PPPs include aspects such as,
improved public service delivery, operational efficiency, full coverage of operational
costs and revenue generation at a profit.
WHAT ARE THE KEY EMERGENT ISSUES:
❑ Public Service Delivery
❑ Public Need
❑ Market Opportunity (Through a Business Arrangement)
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❑
❑
❑
❑
❑
Skills (Private Sector??)
Assets (Public Sector ??)
Contractual Arrangement
Shared Risks
Shared Rewards
1.
Types of Public Private Partnerships
There are several different types of PPP arrangements that can be adopted. At the
lower entry level i.e. (service contracts), the state retains full responsibility for
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operations, maintenance, capital investment, financing and commercial risk whilst at the
higher end (full divestiture) the state’s involvement is minimal (mainly plays a
regulatory role only) since the private sector takes on full responsibility for operations,
maintenance and investment. The table below gives the most common types of PPP
available and the allocation of key responsibilities and average durations of each option
when adopted.
Table: Allocation of key responsibilities under the main PPP options
Option
Service
contract
Management
contract
Lease
Concession
BOT/BOO
Divestiture
Asset
ownership
Public
Public
Operation and
maintenance
Public
and
private
Private
Public
Private
Public
Private
Private and Private
public
Private
or Private
private and
public
Capital
investment
Public
Commercial
risk
Public
Duration
Public
Public
3-5 years
Public
Private
Private
Shared
Private
Private
8-15 years
25-30 years
20-30 years
Private
Private
Indefinite
(may
be
limited
by
license)
1-2 years
Source: World Bank (1997b) – Tool kit, “Selecting an option for PSP”
This table is illustrated further in the Figure below which shows the level of
responsibility amongst the various contract type arrangements;
Fig: Level of Responsibility amongst various PPP options
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Private
Investment 100%
Divestiture
Concessions
Increasing Level of
Responsibility and
Risk
Lease Contracts
Management
Public
Investment 100%
Service Contracts
Source: World Bank (1997b), Tool kit-Selecting an option for PSP
1.1 Service Contract
This is the simplest form of PPPs is whereby the State Owned Enterprises (SOE), retains
overall responsibility for operations, maintenance and capital investments required for
the network except during the execution of single function contracts, which focus on
“specific services” only. The private sector participates through execution of the
specific assignment over an agreed duration usually not longer than 2 years. The SOE
bears the entire commercial risk as well as overall responsibility for financing the works.
The main benefit to the SOE is that they take advantage of the experience and
expertise inherent in the private contractor and learn different aspects pertaining to the
works from them, which sometimes results in improvement in the operating techniques
and efficiency. These contracts are awarded usually after a rigorous competitive
bidding process, which ensures that the best bidder executes the contract.
1.2 Management Contract
In the “Management Contract” type of option, the publicly owned authority transfers
the responsibility of operation and maintenance of the system to the private sector.
The overall responsibility for capital investment and working capital provision remains
with the public authority (Government) implying that all the commercial risk is
still vested in the government. Payments to the private operator may take any of the
following forms;• Payment of a fixed fee for performing pre-agreed managerial tasks devoid of overall
control on functions that affect productivity and or quality.
• Payment based on the achievement of set out, clearly defined performance targets.
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However the management contract option is regarded as a cardinal first step for
increased levels of partnerships in the future. This is so because this arrangement
poses to be an ideal situation where information on various aspects of the utility
pertaining to the socio-economic, political, environmental and engineering related
issues can be accurately gathered. The information should specifically focus on the
following issues;
• Accounting records
• Consumer records i.e. payment trends, supply demand levels, population, income
levels and affordability of set tariffs
• Condition of the network infrastructure
• Human resource levels and the corresponding training needs
• The overall political environment
A management contract might be chosen where the following factors are at play;
• Tariffs are too low to support a commercial operation, and the government needs
time to increase tariffs or develop a system of public subsidies compatible with
public-private partnerships
• The regulatory framework has defects that need to be remedied before a long term
private sector can be secured
• The country lacks a good track record in public-private partnerships
• The government faces difficulties in getting key stakeholders to agree on the longterm involvement of the private sector
1.3 Lease Contract
In this arrangement a private operator leases or rents out the assets of a public
authority. The private operator assumes full responsibility of management, operation
and maintenance of the entire system whilst the public authority retains responsibility
for planning and financing for new investments and major refurbishment of the physical
infrastructure. Leases are most suitable in scenarios where the infrastructure is in a
relatively sound condition and needs very little capital investment the major need being
a big improvement in the overall operating efficiency.
The payment formula to the private operator is usually performance based and could be
derived from the difference between the revenues generated (collected) and the
operating costs. This provides an incentive to the private operator to provide a high
quality level of service coupled with good billing and collection practices.
1.4 Concession
In a Concession contract arrangement, the private operator assumes responsibility for
operation, management, maintenance and capital investment for the whole utility. This
contract type has an average duration of 25 years and the assets are transferred back
to the public authority after the expiry of the contract duration. This arrangement is
most suitable where the state needs not only enhanced operational efficiency, but also
capital investment.
1.5 Build Operate Own Transfer (BOOT)
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In the “BOOT” type contract the private operator assumes responsibility for financing,
building, operation and management of the facility. The assets are transferred to the
public authority after an agreed duration, (normally after capital costs and reasonable
return on investment are realized).
1.6 Build Operate Transfer (BOT)/ Rehabilitate Operate Transfer (ROT)
In this arrangement type, the public authority invites the private sector to participate in
the operations of a particular segment of the network, which is problematic and needs
special attention in order to enhance operating efficiency. Examples are if a utility has
problems with bulk water supply, electricity generation or storage of treated water then
a private operator may undertake the construction and or rehabilitation of a specific
component of the network, operate it for an agreed specific period and thereafter
relinquish all rights to the state at the end of the contract period.
1.7 Build Operate Own (BOO)
The market is de-monopolized in whole or in part. The private sector (after identifying
gaps in the existing service arrangement), enter the market foray at their own risk.
This can be side by side with the existing service provision arrangements rendered by
the state. There are however unique challenges with this approach. The incumbent
service provider (state owned) continues to provide services but will now have to
substantially improve on operating efficiency and quality of service to avert rapid loss of
customers to the new entrant. The other main challenge is that of creation of a “level
playing field” between the state owned and privately owned utilities in order to
eradicate distortions. In this arrangement the asset ownership remains indefinitely with
the private operator.
1.8 Divestiture (not a PPP!!!)
In this arrangement the private operator assumes responsibility for operations,
management, maintenance and capital investment. The ownership of the assets is
transferred to the private operator by the state through;
• The sale of assets
• A management buyout
• Sale of shares
2.
Benefits Associated with PPPs
There are many benefits that can be derived by local communities and the Nation as a
whole through invitation of the private sector to participate in service delivery through
PSP arrangements. The rationale behind this school of thought stems from the widely
held notion that, the private sector will enhance operational efficiency and overall
quality of service.
The ten principle objectives of privatization are as follows;
• Lowering of costs
• De-politicizing decisions
• Better service quality
• Better management
• Improved labour relations
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• Wider share ownership
• Restoration of profitability
• Recapitalisation
• Competition and choice
• More competitive price structure
and that all the above objectives are achievable, so long as there is a deliberate effort
from all the stakeholders to make privatization work. It should be noted that, the
above objectives are those of a PPPs service delivery arrangement since all the different
variants of PPPs are based on the principles of privatization.
Clarification Points
• Private Sector Participation (PSP) refers to the TRANSFER of obligations to
the private sector as opposed to emphasis on the existent opportunities for a
PARTNERSHIP arrangement. This term is normally confused or misapplied as
referring to PPPs
• Privatization refers to the sale of shares or operating assets or services
OWNED by the Public Sector. It is more widely accepted and employed in
sectors that are not associated with public service delivery e.g. construction,
manufacturing, trading etc.
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