Public Monopoly with Management Contract / Legal Aspects / Legal Instruments / Management Contract / Allocation of Risks and Responsibilities

Allocation of Risks and Responsibilities
The management contract must clearly define the precise responsibilities of the management company in running the bus operation. It’s not enough for the public monopoly to merely give up the management and operational control of its bus transport enterprise.

It must also decide before doing so what are its objectives in entrusting the enterprise to another party and what precise responsibilities must be delegated to the management company in order for the sought-after objectives to be realized. In other words, the scope of the management company’s responsibilities must be commensurate with the objectives that it’s expected to achieve.

General responsibilities and corresponding risks for a management company

General management (overall corporate planning and organization).
Financial administration (planning, budgeting, financial analysis, borrowings, liquid assets control and accounting).
Personnel administration (including hiring, firing, promoting).
Training of existing staff.
Providing technical know-how.
Marketing
Controlling procurement and maintenance programs.
Preparing annual work programs and accompanying budgets.

The public monopoly’s role will normally be restricted to overall control of the bus transport enterprise, broad policy direction and review and approval of matters specifically reserved to it under the terms of the management contract. Among the matters usually subject to the public monopoly's review and approval are:

Work programs.
Capital and operating budgets.
Expenditures in excess of amounts provided in the approved budget.
Contracts in excess of an agreed amount or lasting longer than the management contract itself.

Specific responsibilities of the public monopoly

Compensation
The public monopoly’s primary obligation under the management contract is to compensate the management company for its services.
General facilitation
A public monopoly is often required in the management contract to facilitate certain activities of the management company. The public monopoly can undertake to supply, without charge, agreed facilities, information, data and assistance in obtaining work permits, housing, office space, transportation, and communication facilities.

Some of the most important areas of this facilitation from the management company's viewpoint can be, particularly if the company is a foreign company, help in obtaining import licenses for select items of equipment, such as computers, help in opening bank accounts, help with clearances through customs, and help in establishing contacts with relevant government departments.

Retrenchment of surplus personnel
As part of the management contract, or as a condition for it to come into force, the public monopoly may be required to bring into effect a plan for the severance of personnel in excess of those numbers that the management company feel are sufficient to properly run the bus transport enterprise.

Non-interference
If the management company is to be given the responsibilities set out in the management contract, it must equally be given the required authority and control to fulfill those responsibilities. Depending on the management company’s past experience with previous owners, it may well require, as one of the terms and conditions of the contract, an explicit undertaking that the public monopoly will not interfere in the management company's day-to-day management and operation of the bus transport enterprise. There is indeed little point for the public monopoly to enter into a management contract if it wants to continue to micro-manage the enterprise.

Specific responsibilities of the management company

Personnel
In taking over the management and operational control of the bus transport enterprise, the management company will not only be providing its own qualified personnel to fill agreed managerial, administrative and operational positions, but will become responsible for the direction of the enterprise's personnel at all levels.

Without some substantial right to exert control over existing personnel, the management company will not be in a position to manage effectively. Provided that all personnel relations are conducted within the framework of applicable labor laws and existing collective or individual labor contracts, the management company should be granted the right to appoint, promote and, if necessary, dismiss personnel, and conclude agreements on new terms and conditions of service.

Training programs
The management company is often required to undertake training programs with respect to all or some of the personnel of the bus transport enterprise. Sometimes this responsibility is the object of separate compensation, which is not included in the basic compensation package under the management contract. The emphasis on training, when it is requested by the public monopoly, highlights a key objective for many owners — to ensure that the improvements made in management and enterprise performance during the tenure of the management company can be sustained on a long-term basis.

This is less important if the public monopoly has decided as a matter of policy that the bus transport enterprise will be run by the same or a successor management company for the foreseeable future. This means where entrusting the enterprise to a management company is seen as a permanent solution, and not merely a temporary measure designed to improve both management and enterprise performance before the enterprise reverts back to the public monopoly.

Liability
If the management company is vested with full authority to manage and control the day-to-day operations of the bus transport enterprise, it will in effect be in control of most of the factors that can account for preventable accidents in the course of providing urban bus transport services.

A management company is understandably reluctant to take on unlimited liability with respect to the enterprise which it manages. Nonetheless it should be made to bear, under the terms of the management contract, a degree of responsibility and liability that is proportionate to its control of the enterprise. The management contract should also be clear as to the obligations of the management company with respect to property and liability insurance. Proper insurance coverage will protect not only the management company, but also indirectly the public monopoly, its bus transport enterprise and the public at large.

A management company will, on the other hand, rarely accept liability for indirect or consequential loss or damage (including loss of profits), however such loss or damage may arise.