Procuring Successful Mega-Projects

How to Establish Major Government Contracts Without Ending up in Court

Louise Hart

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317075455
• Edition: 1
• Topic: Law
• Subtopic: Financial Law
• Index: Law

Mega-projects descending into chaos and litigation embarrass governments all over the world, as the public sector presides over fiascos that waste billions and destroy reputations. Inquiry after Inquiry finds the damaging and costly failures of major government projects can be traced back to the contract establishment process. Procuring Successful Mega-Projects, is a mentor's guide for project directors, providing frank, fearless, practical advice on how to set up a major government contract that won't end up in court. It's all there:

• How to develop and negotiate a contract that doesn't contain undeliverable obligations or perverse incentives but does contain the necessary provisions for successful project management.
• How to navigate the pitfalls of the public sector environment, from hiring freezes and governance frameworks to the complexities of managing the relationship with the Minister.
• How to select and manage the lawyers and other advisers, build the adviser-client relationship and recognise that unwelcome advice may not be unhelpful.
• How to structure and follow a bullet-proof procurement process that is fair to bidders and delivers great outcomes.

Procuring Successful Mega-Projects is essential reading, not just for the project director, but for everyone with a stake in the success of a mega-project: public sector executives; Ministers; private sector tenderers; infrastructure lenders; legal, financial and technical professional service providers; and procurement and project management professionals.

PART I
Introduction

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Chapter 1
Introduction

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The world changes when Government establishes a contract worth billions. One minute before signature, there is nothing. Just tired people hanging around a table in the lawyers’ offices. Sixty seconds later, Government and the contractor have each acquired huge rights and obligations. A little private law has been enacted: the parties are now entitled to the full majesty and protection of the law courts to enforce their bargain. The bridge will be built. The submarines will be delivered. The hospital will provide medical services. The IT system will streamline operations. And if it doesn’t happen according to plan, there is a judge out there somewhere whose job it could become to find out who is to blame. The world is now different.

It is not necessarily better. Government projects descend into spectacular failure in embarrassing numbers.

Over the last 30 years there have been many public inquiries into failed Government projects. The specifics of failure are always different, following the Anna Karenina principle that every unhappy family is unhappy in its own way, but the inquiries invariably find the roots of failure in the procurement phase. This gives the failures another thing in common. They were unnecessary. Expensive, often appallingly expensive, but unnecessary. If the establishment of the contracts had been better done, every one of those spectacular failures could have been avoided.

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If the establishment of the contracts had been better done, every one of those spectacular failures could have been avoided.

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Sometimes the contract hasn’t even been awarded before the problems trigger a court case. Sometimes the catastrophe takes a few years to manifest itself. But time after time, the failure is caused by something the project director could have identified and sorted out in the procurement phase.

Easily said. A project director who has been charged with establishing the contract for delivery of an extremely large Government project, one where the overall budget is calculated in billions, is working in an extremely difficult environment. I’ve been there. The pressures are close to overwhelming. The political stakes are high. The economic stakes are high. The media are all over it. The players in the market are yanking every string they can pull to position themselves to win the tender. The would-be advisers are in your ear and the already-appointed advisers are cluttering your office. The stakeholders are demanding incompatible requirements, the latest public sector hiring freeze has left you with half a team and the Minister wants everything delivered yesterday.

If you are in this position, this book is for you. This is the book I wish someone else had written years ago, so that I could have had the benefit of it when I was establishing major Government contracts. It would have given me some reassurance that yes, the job can be done – with effort, but without rocket science. I could have asked my team to read it, so they would know how to help me. I could have asked my bosses to read it, so they would know how to support me. I could have asked my stakeholders to read it and hoped they might realise theirs was not the only point of view in the universe. You can do all of these things, but what I hope you will do is read the book yourself.

It is not a student textbook. The occasional sentences highlighted along the way may help you notice and remember some of the things I have found particularly important or interesting, but there are no checklists to extract and tick the boxes on, no bullet point summaries at the end of each chapter that save you the bother of reading the chapter at all, no practice exam questions. The only examination you face is cross-examination in the witness box if your project joins the long list of Government fiascos. That isn’t an examination you can pass, because if things get that far you have already failed. Reading this book will help keep your project off the fiasco list and you out of the witness box.

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The only examination you face is cross-examination in the witness box if your project joins the long list of Government fiascos.

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One caveat. If you are an employee of a Government agency and you have just been charged with establishing the contract for delivery of an extremely large Government project, but you also have a day job like Infrastructure Director or General Counsel or Head of Procurement, you are not the project director. You may still find this book very useful, but the most important thing it will tell you is that setting up a contract on this scale is a full time job. You cannot do it and run a department at the same time. Either ditch the day job for the duration or appoint a dedicated project director.

Your Project

Your task is to establish a contract. Not just any old contract. You want to deliver a binding agreement for the contractor to deliver your mega-project in a way that meets Government’s objectives, on terms that represent value for money to Government. Your task is a project in itself, separate from and additional to the mega-project which forms the subject matter of the contact, and quite unlike the examples normally found in project management textbooks. The application of project management principles is always a good idea, but you need to think about things differently when your deliverable is as long as a piece of string and commits the Government to staggering amounts of expenditure. Establishing a contract for someone else to deliver a project is qualitatively different from managing the delivery of a project.

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Establishing a contract for someone else to deliver a project is qualitatively different from managing the delivery of a project.

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To help you make sense of your project, the book is divided into parts:

• The Contract

• The People

• The Procurement Process

• Finishing in Style.

THE CONTRACT

People seem happy to accept that there will be significant design and development required for a fleet of trains, or a bridge, or whatever the underlying project is, but somehow expect that a contract will miraculously spring into being fully formed. The truth is, contracts also need a design and development phase, which requires just as much thought as the design and development of the underlying project.

There is also a tendency to think that since the final detail of the contract will have to be negotiated with the selected tenderer, it does not matter if the contract issued with the Request for Tenders is an early draft. It matters a lot. You won’t enter the delivery phase with a litigation-proof contract if you don’t enter the procurement phase with one. The terms of the contract will dictate the pricing put forward: a poorly-developed contract means the successful tenderer cannot be held to the bid price. Time pressure is no excuse. Concluding negotiations on a poorly-drafted contract is likely to take longer than the time it would have taken to develop the contract properly in the first place, and the longer negotiations go on, the more Government will concede.

The chapters in this Part follow the process for contract development. The first step, examined in Chapter 3, is to understand what Government wants to achieve and the scope of work required to deliver that. From this a choice can be made of the type of contract to be developed. At this time, too, you need to understand where the limits are, so you don’t allow Government to be sucked into accepting the unacceptable.

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You need to understand where the limits are, so you don’t allow Government to be sucked into accepting the unacceptable.

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Chapter 4 builds on this to examine what, precisely, you want the contractor to do and how you are going to incorporate it in the contract. The division of obligations between Government and the contractor needs to be made on a sensible basis and without ambiguity. Most contract disputes relate to the specification: make the investment to get it right.

Chapter 5 examines how to use the contract as a tool for risk management, through the appropriate allocation of risk and the inclusion of obligations to undertake activities that have the effect of reducing risk. It also examines some risks specific to mega-projects that need to be dealt with in the contract.

Chapter 6 takes risk management a stage further, looking at contract performance incentives as a way to improve the chances of success of the underlying project. Some incentives are inherent in the contract structure, while others need to be specially developed to ensure the incentives drive the outcomes you want, not the outcomes you don’t want. Contractors will not hesitate to ‘game’ the incentives if you make it possible for them to do so.

Chapter 7 looks at the contract ‘boilerplate’, a derogatory term for the clauses nobody wants to read. Many clauses, such as those covering default and termination, are only of use in situations you hope will never happen, but they can have a profound impact on Government’s ability to manage the contract you deliver, and therefore on the success of the project overall.

THE PEOPLE

You don’t set up a contract for a mega-project in isolation. The range of stakeholders is on a par with the scale of the project itself, and public sector stakeholders are in a class of their own. If you are new to the public sector, pay particular attention to the first two chapters in this Part. The differences between the private sector and the public sector can be exaggerated, but they are real and you need to tailor your approach accordingly.

Chapter 8 examines the role of the Minister and how your dealings with other stakeholders are affected by the Ministerial relationship. This is rarely relevant for small projects, but when the contract value is denominated in billions, political involvement is a given.

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When the contract value is denominated in billions, political involvement is a given.

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Chapter 9 looks at the Government agency that will be entering into the contract, focusing on how to find and train your team. I have assumed you will be directly employed by the Agency, which may not always be the case, but if you are working in some other part of Government (perhaps on a cross-Government shared services project) very similar considerations will apply.

The next two chapters are there to help you engage and get the best value from the advisers you will need to assist you. Since your deliverable is a contract, your key advisers are the lawyers, and they have the whole of Chapter 10 to themselves. Because this is a Government contract, you may need to deal with parliamentary counsel, and uncover the mysteries of how to identify sources of authority in the public sector organisations. Chapter 11 looks principally at financial and technical advisers, but also considers other advisers you may need or have foisted upon you.

Chapter 12 is about how to make governance work to support you rather than hinder you. It looks at how to establish functional governance frameworks for the project and for the evaluation of the tenders. It also looks at the use of Gateway reviews and other independent checks to provide you and others with the assurance you need to keep the project on track.

THE PROCUREMENT PROCESS

Having and following a good procurement process is critical for success. It doesn’t just save you from being sued for process failures: if you get it right it also means you will select a contractor who is capable of doing the job. A failing contractor may sue you in the delivery phase out of desperation; a successful contractor won’t need to.

One of the problems with a mega-project is that the Agency’s standard form procurement process will not be appropriate. Many of the techniques used on small procurements are actively counter-productive when applied to large scale projects, and public sector procurement processes are cluttered with myths about what probity does and does not require.

Chapter 13 examines how to establish a process that is fair to bidders but still enables you achieve good outcomes for Government without tying yourself in knots.

Chapter 14 looks at how to put out your communications to the market effectively, from the market sounding through to the issue of a Request for Tenders, so as to command the best quality bids the market has to offer.

Once the bids are received you have to evaluate them. This is the subject of Chapter 15, which examines the evaluation methodology: establishing evaluation criteria, structuring the evaluation process and scoring system and selecting a preferred bidder.

When the contract is for something on the scale of a mega-project, no bid will be capable of simple acceptance. Chapter 16 is about the negotiation required to bridge the gap between the draft contract you issued with the Request for Tenders and the final contract you will sign with your chosen bidder.

Chapter 17 looks at how to ensure your procurement process will withstand challenge, and how to discourage any challenge from being made.

FINISHING IN STYLE

With the contract established, the final hurdle is the transition from contract establishment to contract management, examined in Chapter 18. Whether you will stay to manage the contract yourself, or hand it over to a dedicated contract manager, this transition needs to be managed well. Your carefully-crafted contract will not work effectively unless people understand what is in it and their own role in its delivery.

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Your carefully-crafted contract will not work effectively unless people understand what is in it and their own role in its delivery.

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Chapter 19 attempts to capture the main themes in this book into a ‘Top Ten’ list of things to remember. Number 11 is that there are more things in this book than can be captured in a Top Ten.

The Witness Box

You may wonder about my determination to keep you out of the witness box. Why should this book focus on not ending up in court? Surely the objective is not to avoid litigation, but to ensure the mega-project is successfully delivered?

Good question. Let me take a little time to answer it before we delve into the specifics of your contract.

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Chapter 2
Ending Up In Court

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Litigaphobia, sometimes rendered liticaphobia, is a real word, although not one frequently encountered outside the United States of America. It means fear of lawsuits. Sufferers can experience symptoms such as sweating, nausea, trembling and an overwhelming desire to run away. Litigaphobia is irrational. Throwing up will not improve your chances of success in the litigation. Running away may result in summary judgment against you in a case you should have won. A reputation for settling claims rather than going to court will attract even more lawsuits.

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A reputation for settling claims rather than going to court will...

Table of contents

• Cover Page
• Half Title page
• Dedication
• Title Page
• Copyright Page
• Contents
• List of Figures
• Preface
• Part I Introduction
• Part II The Contract
• Part III The People
• Part IV The Procurement Process
• Part V Finishing in Style
• Appendix: Case Study References
• Index