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
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Background context for risk management
Building a sound foundation
Developing a governance framework
Stage Gate approach
Managing public stakeholders
Working with commercial advisers
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
Risk in the context of Central /
Local Government 2
• Affordability
• Deliverability
• Market
• Response
• Reputation
• Stakeholder expectations
• Political environment
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
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!
Building a Team
Project Manager
Internal Finance
Internal Technical
Internal Legal
Administrative
Commercial Technical
Commercial Finance
Planning
Technical Services
Commercial Legal
HR
Communications
Developing a governance
framework 1
• Consider institutional protocols /
requirements – who are exposed to project
risks?
• Senior reporting / accountability
• Financial management
Developing a governance
framework 2
• Identify stakeholders – who are able to
influence risks?
• Project interface matrix
• Direct & indirect stakeholders
Developing a governance
framework 3
• Constitute steering arrangements
– Effective arrangements involve
• Senior accountable officers
– Project Sponsor
• Key stakeholder representatives
• Technical specialists
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
Developing a governance
framework 5
• Establish lines/forms of communication
– Reporting requirements
• Process
• Protocol
Governance Framework
Steering Group
Senior Finance
Chief Executive
Senior Communications
Senior Legal
Senior Responsible
Officer
Senior Planning
Senior Technical
Senior Technical
Project Sponsor
Services
Services
User Reps
Union Reps
Project Manager
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
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
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.
Stage-Gate approach
Pre-OJEU notice:
• Market sounding, procurement strategy,
PQQ, IM, evaluation criteria, market
management strategy, affordability
management strategy.
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).
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.
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.
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.
Stage-Gate approach
Process - at each review:
1. Submission
2. Clarifications & Independent review against
set criteria
3. Independent recommendations
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Essential vs. desirable
4. Response / action to recommendations
5. Central Government review of actions taken
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No action –> HOLD / STOP
Positive action –> GO
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.
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.
Managing public Stakeholders 3
Managing risks through a communication &
consultation strategy
– Creates clarity & consistency of message
– Maximises impact
– Identifies appropriate channels of
communication
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!
Managing public Stakeholders 5
• Managing stakeholder expectations Defining key stake-holders
– Procuring Authority - - - > Users
– Policy
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Transport, Justice, Education, Health, etc
PFI/PPP policy
Procurement policy
MoF
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
Scottish Government
Passenger
Focus
Transport Scotland
Waverley
Transport
Partnership
Scottish Borders
Council
Midlothian Council
Office of the Rail
Regulator
City of Edinburgh
Council
Network Rail
Scot Rail
Franchise
Working with commercial advisers
• Benefits:
– Necessary source of expertise
– Wider access to critical information
– Developing an ‘Intelligent Client’
Working with commercial advisers
• Risks:
– Project ownership
– Knowledge transfer
– Accountability
– Authority
– Affordability
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.
Questions?
Mikko AJ Ramstedt
mikko.ramstedt@scotland.gsi.gov.uk
0131 244 4940