Fostering Improved Performance through

Internal Contractualisation

Presented at the Water Week Washington

By

Dr. William T. MuhairweManaging Director, NWSC-

Uganda

February 18th 2009

Improved Performance Through ContractualisationDefinitions■ Improved Performance is a result of incremental

value addition to the desired state of a given situation

■ Contractualisation is therefore the process of establishing a workable/Practical relationship between two parties (principle and agent) with a view of reaching the desired state of the given situation.

■ Attributes: □ Clear Common Vision of both parties□ Clear obligations of both parties□ Clear Roles and Responsibilities□ Clear performance Indicators and Targets.□ Incentive/Penalty Framework□ Monitoring and Evaluation Framework□ Dispute resolution

Legalistic Contracts (Anglo-Saxon type) Use strong deterrent approaches Attempt to be detailed enough to apportion blame for

poor performance Partnering Contracts (French type) These are like agreement to marry; enter first and

negotiate modalities of engagement Use persuasive and ‘lets work together’ approaches

The “Eye to Eye” or “The Word” Contracts (Arabian/African Worlds) No written agreement, based on trust and my word

against yours. Community Based/Elders Contracts

(African/Indian/Asian) The Elders or the most experienced or seniors have last

word Autocratic Type of Contracting The contracting parties themselves have little or no say

Traditional Categories of Contracts

For unpredictable operating environments where both the principal and agent are on a learning phase:

More of partnering and less of legalisticMost WSS utilities in developing countries whose operating systems and procedures are not fully developed fall here

For reasonably predicable environments where each party is clear/knowledgeable about its obligations:

More of legalistic and less of partnering Most WSS utilities in developed countries fall here

Determining Factors of Choice of Contractsa) Operating Environment

5

High

Low

Fin

an

cial O

per

ati

ng E

ffic

ien

cy

Low

Performance Improvement Programmes with Incentives + Significant Coaching Activity

Team-based Incentive Contracts, incorporating suitable combinations of Individual and group Incentives & targets

Team Development Level (Congruence on Organisational Objectives)

Hig

h

Team-based Incentive Contracts with clear group incentives & performance targets

Team Building (Start-up)

Team Consolidation

Individual Accountability within

Strong Team

Evolution of Contracting Optionsb) Developmental level of Contracting Parties

NWSC Experience To Contractualisation

Parastatal set up in 1972 Currently responsible for WSS services in 23 towns of

Uganda (pop. 4.3M, 202,000 customers, Network Length: 3,400 Km; Staffing: 1,413; 72% pipe water coverage; Turnover: Ushs 84Bn)

Vision StatementTo be One of the Leading Water Utilities

in the World Mission Statement

The Mission of the Corporation to provide efficient and cost effective water and

sewerage services, applying innovative managerial solutions to the satisfaction of our customers and other stakeholders in an environmentally friendly manner

Background To Contractualisation in NWSC

■ NWSC Historical performance: Prior to 1998 characterised by gross inefficiencies- Monthly cash deficit -$300,000 per month- Low collection efficiency 60%- Low staff productivity 36/1000- High operating expenses etc.- 3,000 connections per annum.

■ Urgent need to revamp the operations of the Corporation.

■ Turn around strategies commenced at a policy/strategic level with the change in the Board and Management.

■ At an operational level, instituted a number of change management programmes, commencing with, 100 Days, SEREP, Stretch out Programme.

■ The above programmes Focused on reversing the operational and financial deficiencies and restoring customer confidence.

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NWSC Internal Contracts

The Cascading Trickle Down Mechanism of Contracts

■ GoU/PC 1 => APC 2000-2003

■ GoU/PC II => IDAMCs 2003-2006

■ GoU/PC III=> DAMCS 2006-2009

• Individual Performance Contracts

•One Minute Goals

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Schematic Presentation of Contracts

The NWSC-Head Office (Represented by Authorized Representative) on one side and the Operator (Area Manager as the Managing Partner, supported by Key Select Team, as provided for in the Deed of Partnership) on the other side: the MD is still accountable for operations of both parties

Head Office

Area Manager

Key Staff

Seconded Staff

OPERATOR

10

Obligations: Operator/Head Office

Obligations of Operator include:

■ Safeguard, use, maintain and control assets, provide O&M management services, carry out rehabilitations and extension of systems and bill/collect revenues.

Obligations of Head Office include:

■ Set tariffs, rates, charges, pay management fees, monitor evaluate performance, provide general strategic guidance, and carry out major capital works

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Contractual Provisions

■ Flexibility and Possibility to amend or cause a variation in the Contract

■ Termination of Contract after giving sufficient notice (either party can terminate)

■ Contract intended to act as a business partnership other than a legalistic venture => “fairness” is the key word

■ Dispute resolution starts with amicable understanding between the two parties => MD => Board of Directors (in the unlikely event of dissatisfaction after the two stages)

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■ Working Ratio (WR)■ Cash Operating Margin (COM)■ Non Revenue Water (NRW)■ Collection Efficiency (CE)■ Connection ratio (CR)

Measurement and verification system for indicators: ■ Measured through reports, analysis and verification through

regular checkers visits.■ Abnormal trends are discussed and corrected through

regular consultations with Areas before payment of incentives.

■ Deliberate data manipulation, carries strong penalties on partners (provided for in IDAMCs).

■ Checkers system, un announced visits to areas to verify what is on the ground. (Messiah-Principle)

□ Checking parameters agreed with areas

Typical Key Performance Indicators/Measurement Framework

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Financial Incentives Based on clear, specific and measurable targets. Computed, based on minimum and Target standards Need for a base fee and incentive/performance fee directly

linked to key targets. If an Area meets SMART targets; individuals earn bonuses up to

60% of baseline gross salary increment; if an Area meets stretch targets individuals earn up to 120% increment (capped).

Performance below minimum performance targets attracts a penalty of up to 25% of partners’ gross salary.

Non – Financial Incentives (Emotional) Trophies to best performing Areas/Departments.

Publication of Monthly, Quarterly and Annual Performance of Best and worst.

Incentive and Bonus Mechanism

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Key Success FactorsKey Success Factors

■ Empowerment of staff

■ Devolution of power from the centre to regional operations

■ Increased Customer Focus

■ Incorporation of “Private Sector Management Style” efficiency and/or Good Management Principles (less bureaucracy, performance-based pay, “customer-pays-for-a good service” principle etc).

■ Good planning & continuously challenging management teams with new performance targets

■ Clear oversight and monitoring through checkers system

■ Information sharing through benchmarking

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The Results

Performance Indicator 1998 2008Service coverage 48% 72%Total connections 50,826 202,559New connections per year 3,317 25,000Metered Connections 37,217 201,839Staff per 1000 connections

36 7

Coll. Efficiency 60% 92%NRW 60 % 32.5%Proportion metered accounts

65% 99.6%

Annual turnover (Billion UShs)

21 84

Profit (After. Dep) (Billion UShs)

2.0 (loss) 3.8 (surplus)

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Conclusions/Lessons

In today’s perspective Internal Contracts can be an alternative, a complement and are in any case a good preparation for conventional PSP solutions.

Individual contracts act as a complement to collective contracts.

Internal Contracts can be successful if:■ Well planned and owned by the staff.■ Prepared using International Benchmarks■ The Top management is competent and committed to it■ Well managed through effective monitoring and

evaluation. Incentives key to efficiency and productivity of staff

“Be the Change you want to see” (Mahatma Gandhi)INNOVATION IS KEY!

In line with the Innovative Programmes, we are currently offering Consultancy services as shown overleaf

Services offered by NWSC

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Organizational behaviour change

Institutional development

Contract design & incentive systems

Asset management Project management Systems development

Billing , Block mappingDevelopment & Strategic plans / Annual plans Establishment of M & E Units

Who have benefited from ES?e Management Initiatives

18 The Water Sector Nairobi Water and Sewerage Company, Nakuru Water, Naivasha Water,

Kisumu Water, Mombasa Water, NZOWASCO Ltd: Kenya, Small towns around L. Victoria under UN-Habitat Nkana Water; (Lusaka Water and Sewerage Co Ltd: Zambia DAWASA/DAWASCO: Dar-es-salaam: Tanzania Electrogaz, Rwanda Nigerian utilities (Lagos Water, Oguni State Water) New Delhi Water Board and Several Water Municipality Water Boards in

India Zanzibar Water Authority (ZAWA) Liberdade, Mozambique Association of Water Operators of Uganda Northern Uganda Towns of Kitgum and Pader (USAID-funded)

Outside the Water Sector Steel Rolling Mills Alam Group of Co. The Lands Dept in Ministry of Lands and Housing The Kampala City Council (Revenue Improvement)