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Module 4 -17 Negotiation & Contracting


17.1 What is the process of negotiating?
17.2 What is the process of contracting?
17.3 What should the contract cover?
17.4 Who should conduct this stage?
17.5 What are the key issues to keep in mind?
Further Guidance

Key Questions:


Why carry out negotiating and contracting?
What does negotiating and contracting entail?
How does negotiating and contracting achieve poverty reduction objectives?

Related Tools:


4 Collecting Information
6 Defining Objectives



Implementation – Negotiation & Contracting

17.5 What are the key issues to keep in mind?

The municipal officers and the PPP task force need to be aware of the following summary of issues. These factors are dealt with in more detail in [Toolkits 15, 16 and 18].

  • Commencement of works
    The private partner is expected to commence the PPP works agreed to as soon as is reasonably possible. Commencement is the start of the period during which the contract is to be in force. Therefore, a late start by the private partner may affect profitability.
  • Kick-off meetings
    Prior to the private sector beginning any works agreed under the contract, a kick-off meeting should take place between all stakeholders to the contract. The purpose of the meeting is to introduce staff, clarify organisation and agree on lines of control and communication as well as to set administrative routines.
  • Subsequent meetings
    Subsequent meetings among the stakeholders are necessary in order to record events, discuss problems and decide on matters. These could be held at set times – for example, quarterly.
    Since the poor are important stakeholders, it is important for the partners to the PPP to hear their voice through community representatives. It is crucial to maintain community involvement at all stages and to pay particular attention to the needs of the poor during the stages of negotiating and debating; where there is little such involvement financial and economical reasoning may well suppress the voice of the poor. It is the wellbeing of those on low incomes that is the goal of the pro-poor PPP project after all.
  • Supervision documents and records
    Good record keeping and documentation are essential to monitor and control the PPP contract.
  • Compliance with specifications
    There is a need to monitor the operations of the private partner continuously to ensure compliance with set targets. International Federation of Consulting Engineers (FIDIC) requirements for quality control may be used where construction projects are involved.
  • Communication with the private sector
  • Measurement and valuation of work
    Honest and transparent feedback from consumers is an important measure of the work carried out by the private sector.
  • Variations to the contract

Licences and contracts

There are two categories of contracts.

Legal contracts…
…are designed to be enforced by court ordering and need to be used if an urban government is involved.

Relational contracts…
…rely on self-enforcement or “private ordering”.

 

This leads to the following options:

A verbal contract…
… generally the mode in the informal sector, but also common in formal sector sub-contracting.
– If specified, there is a mutual verbal agreement between the stakeholders.
– If unspecified, there is no specific verbal agreement, but an understanding exists between the stakeholders as to their expected roles.

Written informal contracts…
…a simple legal contract.

Written formal contracts…
…typified by the standard contracts used by urban government in the tender contract method of procurement. Non-standard conditions may be tailored to the requirements of the different stakeholders.

Whether legal or relational contracts are used, it is important to ensure clarity with respect to roles and responsibilities.

Are the contractors literate or do they have access to somebody reliable and trusted who could read and translate the documents? If yes, a written contract could be used; if no, contract conditions must be specified verbally.

Are the potential contractors used to working with any particular type of contract? If yes, consider building on the practices that already exist.

Is the contract likely to be enforced by court ordering? If no, an informal contract could be adopted; if yes, either legal assistance may be required or – in the case of urban government – standard contracts and conditions can be used.

A possible solution to tackle the lack of capacity on the side of the public sector could be capacity development [Tool 21]. An alternative solution is to involve consultants. Ideally, a good balance should be found between training municipal officials and employing experts to do very specific tasks, such as financial analysis or preparation of contract documentation.

 

Outputs
<– A strategy linked into an overall municipal
action plan
<– Explicit reference to the approach to be taken
towards the poor

Negotiating techniques

Some prescriptions can be made for effective and principled negotiation:

  • separate people from the problem;
  • focus on interests, not positions (interests are the overriding motivator
    – why someone wants something; issues are agenda items – what a person wants; position is the person’s focus or stance on the issue);
  • generate a variety of possibilities before deciding what to do;
  • insist that the results be based on some objective standard;
  • respect the other side’s dignity and authority;
  • remember that the other party probably has a different view on disclosure of information;
  • avoid misunderstandings by summarising key points and issues;
  • nothing is agreed until everything is agreed;
  • listen carefully;
  • do not concede, trade; and
  • use traded movement to close the deal.

 

 



 
     
  S T A R T P A G E  
  Module 1 - Before PPPs  
  01-Starting Out  
  02-Strategic Planning  
  Module 2 - Preparation Stage  
  03-Planning & Organising  
  04-Collecting Information  
  Module 3 - PPP Development Stage  
  05-Identifying Constraints  
  06-Defining Objectives  
  07-Defing Parameters (Scope)  
  08-Establishing Principles  
  09-Identifying Partners  
  10-Establishing Partnership  
  11-Selecting Options  
  12-Financing (Investment)  
  13-Financing (Cost Recovery)  
  14-Preparing Business Plans  
  15-Regulating the PPP  
  Module 4 - Implementation  
  16-Tendering & Procurement  
  17-Negotiating & Contracting  
  18-Managing PPPs  
  19-Monitoring & Evaluation  
  20-Managing Conflict  
  21-Capacity Development  
  Contact Information