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External Maintenance Contractor for Montenegro’s railway infrastructure

External Maintenance Contractor for Montenegro´s railway infrastructure

In the context of the major railway sector reform the Government of Montenegro wishes to outsource the railway infrastructure maintenance work currently being carried out by Zeljeznicki Infrastruktura Crne Gore AD Podgorica [ŽICG], Montenegro’s railway infrastructure manager. The State of Montenegro owns 72,35% of ŽICG.
The outsourcing of the railway infrastructure maintenance works will be put into effect by:
  1. identifying the respective staff and equipment, i.e. tools of ŽICG used to execute preventive and corrective infrastructure maintenance (sufficient planning and monitoring resources must and will stay with ŽICG),
  2. spinning off staff and equipment used to execute preventive and corrective infrastructure maintenance into a yet to be established subsidiary (Maintenance Contractor); and
  3. fully privatising the newly established subsidiary (Maintenance Contractor) to a strategic investor.
The shares of the Maintenance Contractor and the Multi-Annual Contract allocating tasks and responsibilities to the involved contractual parties will be tendered separately, but simultaneously ensuring that both contracts are awarded to the same party.

One of the intended built-in incentives to encourage investors to embark in this venture, i.e. to acquire the Maintenance Contractor, is the eligibility of this Maintenance Contractor to participate in the upcoming rehabilitation tenders. Consequently, it is of utmost importance that no ownership link remains between ŽICG or any other state owned body and the Maintenance Contractor.

Traditionally the contractual parties for the implementation of a Multi-Annual Contract are the Infrastructure Manager, i.e. the state owned company trusted with the ownership and responsibility to operate the railway infrastructure, and the external Maintenance Contractor. This outsourcing of the infrastructure maintenance work to private entrepreneurs is a common practice in the developed world. Rather unusual, but fully compliant with EU Regulations, is the scheme preferred by the Montenegrin Government, which will involves the Railway Directorate as a third party.

The relative roles and responsibilities allocated to each of these three parties are reflected in the chart shown below:
  1. The Railway Directorate will fulfil the role of “Client” and will be managing the respective budget allocated by the Government for the railway infrastructure maintenance. Payments for the works will be made by the Railway Directorate to the Maintenance Contractor in accordance with the provisions of the Multi-Annual Contract and based on information provided by ŽICG from its verification of the work carried out by the Maintenance Contractor. The verification carried out by ŽICG is done in accordance to a verification plan presented to and approved by the Railway Directorate. In addition, the Railway Directorate will have the possibility to carry out own ad-hoc verifications with own staff.
  2. ŽICG will be the „Infrastructure Manager“ (IM) under the Multi-Annual Contract and will be responsible for specifying the works and verifying/checking that all works have been carried out to the contract standards and quality. ŽICG will undertake detailed checking and monitoring in order to verify that works have been undertaken properly by the Maintenance Contractor and to inform the preparation of subsequent plans.
  3. The Maintenance Contractor will be the “Contractor” under the Multi-Annual Contract and will be responsible for converting the specification of works provided by ŽICG into a detailed plan of work and carrying the works out respectively. The plan will include all resources needed to undertake the works in accordance with the standards and timescales set out in the contract.
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Under the current arrangements the Ministry of Transport, Maritime Affairs and Telecommunications (MoTMAT) has appointed the Railway Directorate to release funds to ŽICG and verify that works have been carried out to the required standard. ŽICG is responsible for specifying and carrying out the works. The Railway Directorate is responsible for verifying that works have been carried out correctly before making the payment.

Under the envisaged and agreed new approach it is foreseen that the responsibility for a reliable, safe and efficient railway remains with ŽICG as infrastructure manager. The responsibility should stay with the Infrastructure Manager as it will need to:
  • retain full knowledge of its assets in order to specify the necessary works,
  • balance works needed with the budget made available by the Railway Directorate,
  • coordinate and manage the work of separate maintenance and rehabilitation contractors. This is important as a single party needs to be responsible for managing:
  • potentially complex arrangements between contractors working on different assets on the same railway route section,
  • the operation of train services when railway route sections being rehabilitated are open to traffic between works.
In the agreed new arrangement the responsibility for detailed checking and monitoring of the Contractor’s work will be transferred to ŽICG. The Railway Directorate will have the possibility to influence the verification process through the approval (or rejection) of the verification plan and the possibility of ad-hoc monitoring and verification.

The Multi-Annual Contract will be a measured-term contract whereby the Maintenance Contractor undertakes to carry out works specified by the Infrastructure Manager (ŽICG) and where the work is subsequently measured and valued at rates contained in a pre-priced Schedule of Rates. Measured term contracts are often used for maintenance works and usually include a Schedule of day rates for resources (labour, plant, material etc.) to price any works needed by the Infrastructure Manager and/or Client and not included in the original Schedule of Works.

Railway Infrastructure Rehabilitation under IFI funding
The much needed rehabilitation of the outdated Montenegrin railway infrastructure is to a large extent funded by loans provided by International Funding Institutions (IFIs). For these loans, guaranteed by the State of Montenegro, ŽICG is the intended and factual recipient. As the responsiblity for a safe and reliable railway infrastructure lies with ŽICG it follows common practice to have the resulting infrastructure rehabilitation contracts also managed by ŽICG. The management of these contracts comprise preparing (technical specifications) and carrying out the tendering process, awarding the works contract to the respective contractor, monitoring anf verifying the implemented works. To ensure that the procedures follow international best practices, IFIs provide (or reject) each step with a "no objection" and hire external consultants to supervise the works on their behalf. Additional ad-hoc verifications of these contracts may also be carried out by the Railway Directorate.

Contact person: Mathias Nehm

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