Module 17: Negotiating and Contracting

17.2.   What is the process of contracting?

A contract is a legal agreement between two or more parties where one party (the contractor, in this case the private sector) agrees to carry out certain tasks in return for a reward (or in legal terms, a consideration) paid by a party (the users of the service). The process of contracting is therefore a series of interactions between the stakeholders to a PPP contract; this in turn leads to the execution of the contract (delivery of the required services). Negotiation characterises all stages of the contracting process.

The rights, responsibilities and obligations of each stakeholder (the private sector and the municipality) fall into two categories:

1. There are specific duties and obligations required by the contract; these are set out in the contract documents.

2. Then there are general legal requirements – the laws of the country concerned.

It should be stressed that the principal objective of the contract is the successful completion of the tasks identified, for which each party is making a contribution (either in cash or kind). Ideally, the contract must be executed with the least possible trouble and to the highest standard possible within the provisions of the contract. This can only be achieved if all parties involved in the PPP aim to work together – not against each other, as is the case on occasions. Therefore cooperation, despite differences of opinion and personality, is essential.

The process of contracting in a PPP involves the following stages:

◊ the pre-bidding phase;

◊ the procurement phase; and

◊ the operation phase.

The contractual issues that need to be tackled at each phase of the PPP are discussed in the following section.

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