Bouncing Back

Rebel(lious) visions for a post-Covid-19 society
bouncing back | Building more resilience: from pandemics to PPPs

Building more resilience: from pandemics to PPPs

Within a few short weeks COVID-19 overtook our lives. At first, for those of us not living in China, it seemed far away—an interesting news headline, but ultimately a challenge faced by someone else. But then, the stores sold out of toilet paper, hand sanitizer, and basic food items. Children were sent home from school; masks mandated; and if you happened to cross someone on the sidewalk you felt the need to jump out of the way. Even if not actually infected by the virus, suddenly, all aspects of our lives seemed affected by it. We had to rearrange and adapt to our new circumstances.

At about this time, from the confines of our newly constructed home offices, we were wrapping up a project titled Improving Climate Resilience in Public Private Partnerships in Jamaica, seeking to provide guidelines on how to make infrastructure Public-Private Partnerships (PPPs) more resilient to the effects of climate change. This meant we were pinpointing ways project teams could ensure that the infrastructure they developed was future-proof: prepared for more uncertain weather conditions and higher sea levels. And ensuring that when that future arrives, contracts and the people enforcing them can adapt.

❝ We were struck by some parallels between our work and current events. We realized our insights were applicable for building resilience to any sort of large ‘shock’ to a project.❞

Resiliency refers to the capacity to recover quickly from difficulties or the ability to adapt to changing circumstances. Interestingly though, the work to ensure resiliency – of a system or project— often needs to be built ex-ante, or prior to an event that inflicts stress. Hence for a PPP project, this occurs during its prefeasibility and feasibility stages. This is when robust risk assessments can determine if a project is at risk of landslides and perhaps needs to be relocated, for example.

Unexpected or not acknowledged? Preparing PPPs for future shocks

But what about when forethought has eluded us? For those of us who are aware of the history of bird flus and coronaviruses, this current outbreak was not unprecedented – we as humans just did not want to hear the message and take the risk seriously.[1]  For many, awareness and acknowledgement of climate change works in a similar way. Yes, wildfires may be on the rise and Antarctica may have recorded its hottest temperature on record this year. But in our day-to-day, making changes happens slowly. For project work, this slowness means we may not be as quick to integrate new and perhaps important information into our existing feasibility studies, design guidelines, and contract specifications . As a result, our projects will not always be prepared for shocks and must react, ex-durante and ex-post.

As the infrastructure PPP world seeks to ‘bounce back’ from this current crisis ,we see the opportunity to work on making PPP projects and other contracting models ‘shock-proof’. Going forward we should ensure projects are developed on the premise of preparation and flexibility, which will ultimately add to  making them more resilient. For new projects, this can be coded into a project’s DNA in the planning stages, prior to construction and operation; though there is also space to ensure resiliency in ongoing projects, which were unprepared.

Building Resiliency Ex-Ante: Prevention is key

What can we learn from the current crisis and our previous experience? First, that prevention is key. One of the best ways to guarantee resiliency is by taking ex-ante preventive measures, or other efforts in parallel to the development of the project, including instituting higher or stronger standards.

Often, when we think about resilient infrastructure, we picture stronger assets. Yet by adhering to stronger standards, we propose a holistic array actions throughout a project’s lifecycle. Together, they create a more resilient project. Resiliency is not narrowly constrained to the physical assets. In the project preparation stage, several opportunities exist for ensuring a project can withstand any number of uncertain futures, including:

  • Feasibility: when assessing project structure, teams can encourage the development of a robust (climate) risk assessment. They can then incorporate the assessed risks in the different feasibility studies; e.g. by:
      • considering the financial and non-financial implications of risk mitigation efforts per hazardous events, given different contracting models (Value for Money);
      • measuring the impacts and potential solutions to a population if the project’s functionality is affected by a hazardous event
  • Design: Relates to the physical asset in itself, such as better design and construction requirements against hazardous event; e.g. through,
      • designing for higher water levels, longer dry spells, heavier rains;
      • designing and constructing structures or wider halls to facilitate social distancing;
      • keeping open spaces structures when possible; etc.
  • Operations: Incentivize crisis/risk management plans as part of the evaluation during the procurement process, e.g. by,
      • requesting and evaluating bidders’ disaster risk management plans to mitigate project specific risks/hazardous events identified in the risk assessment;
      • enforcing periodical reviews of such plan in project operations.
  • Contract: Several clauses can help protect both public and private parties in a PPP agreement:
      • Incorporating Key Performance Indicators (KPIs) in the contracting agreement to mitigate the risk of hazardous events (e.g. availability of hand sanitizers every X distance inside the facility);
      • Requesting/agreeing on a shared crisis fund;
      • Creating a crisis management team among the concessionaire and the contracting authority;
      • Defining force majeure or exclude recurring hazardous events around the project area (e.g. pandemic situations extending over a period of X months to be excluded from FM clause);
      • Requesting insurance for events not included in the FM clause, such as pandemic situations that exceed X months of duration.
❝ Mitigating disastrous events upfront during the project development and structuring phases may be the most effective way to alleviate the effects of such events: in the project functionality, as well as for the surrounding population. ❞

Building Resiliency : Response and Flexibility

Hardcoding (climate) resiliency measures into PPP projects is a newer concept, so we anticipate that most infrastructure projects do not (yet) assess disastrous events holistically. Yet when disaster does strike, what are our options for mitigating the effects of their damage – even if we are caught unprepared?

Like the situation we face in our pandemic world, the only path forward at this stage is to react. Many ongoing PPP projects were not prepared for their massive dips in demand and subsequent revenue declines. The trick is to try and institute a reactive approach that is simultaneously flexible and focused on the broader goal of keeping the project afloat. It is during these moments that the partnership will be tested. A focus on higher-level goals and maintaining good relations are needed.

The partners involved in PPP projects can consider the following options:

  • Emergency Disaster Risk Management Team: if one does not yet exist, creating such a team comprised of individuals from the concessionaire and the public authority can be useful in responding to major project issues. This team can meet regularly and focus on assessing the major areas impacted that need to be mitigated.
      • Can the local/regional/national government provide financial and non-financial safety nets to the project?
      • What are the essential services that the project needs to keep operative (e.g., ports, healthcare facilities)?
      • Does the project provide essential services to the surrounding population?
      • Can the concessionaire rely on its insurance for financial support?
  • Consider re-discussing terms of the contract agreement: although PPP contracts are inflexible in nature, current events have forced many governments to revisit the terms of the contracts. Clauses to consider include, but are not limited to:
      • What are the KPIs that the concessionaire needs to abide by to maintain essential services? What KPIs can be malleable and softened during the crisis?
      • Can the contracting authority forgive penalties due to unmet / unessential KPIs?
      • Provision of services. Can the concessionaire provide or shift operations to essential services (e.g. facilitating air traffic for food supplies in a remote area, opening ports operations for food and medicine)

No resilience without relation

COVID-19 has left us all scrambling to change how we go about our day-to-day lives. It has also taught us the importance of resiliency – for us as humans, but also for our systems and existing mechanisms for contracting infrastructure projects, like PPPs.

Our recent experience in Jamaica focused on preparing projects for what may yet still be the defining shock of our lifetimes: responding to the effects of climate change. It offered a good starting point of ideas from which to think about developing PPP projects resilient to any type of shock.

When a project team has the benefit of foresight, they would be wise to remember that prevention is key. This means rigorously assessing all types of risks and ensuring they are responded to and mitigated against through effective project design and well-thought operational structures. This will help ensure the project can withstand many uncertainties the world may throw at us.

But all is not lost for those caught unprepared – and the ‘unknown unknowns’. It is during these times that the relational aspects of the partnership will be tested, as a reactive approach is the only solution. Working together, individuals from the public and private sector can assess and respond to risks as they come, and consider options for making the contract . Afterall, the third word in PPP is “partnership,” which implies that both parties will work together.

[1] Source

By: Christine Shepherd, Elisa Donadi and Irene Pohl

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