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Designing the PPP Procurement Work Plan

Designing the PPP Procurement Work Plan. John Buttarazzi Zanzibar August 2015. Procurement. Traditional. Design the project Specify the inputs Obtain appropriation Draft construction drawings Tender the drawings for construction bids Select the lowest priced responsible bidder.

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Designing the PPP Procurement Work Plan

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  1. Designing the PPP Procurement Work Plan John Buttarazzi Zanzibar August 2015

  2. Procurement Traditional • Design the project • Specify the inputs • Obtain appropriation • Draft construction drawings • Tender the drawings for construction bids • Select the lowest priced responsible bidder

  3. Procurement Traditional PPP Identify a need Screen for PPP eligibility Specify outputs Conduct feasibility Identify and allocate risks Draft & tender procurements documents Select the proposal that delivers the best value-for-money • Identify a need • Design the project • Specify the inputs • Obtain appropriation • Draft construction drawings • Tender the drawings for construction bids • Select the lowest responsible bidder

  4. Need For Sound Procurement • Sound procurement = good governance • Bidding is expensive • Typically 1 to 2% of project costs • Efficient procurement increases competition • Effective framework to: • Mitigate risks; • Demonstrates effective management of public funds; and • Increases accountability 4

  5. Procurement and PPPs • For good governance, PPP procurement arrangements should be undertaken in a competitive manner • PPP includes the full range of concession type arrangements for the provision, upgrading, maintenance, and operation of infrastructure projects • PPP also includes long-term service contracts, management contracts, leases, and divestiture

  6. Continuum of Alternatives

  7. International Competitive Bidding (ICB) • Ensures transparency • Provides a market mechanism for selecting the best proposal • Stimulates interest among a broad range of potential bidders, thus increasing competition

  8. Competitive Bidding Process Generally Consists Of: • Public notification of the government’s intention to seek a private partner for the provision of services, including prequalification or a request for expressions of interest from private companies; • Distribution of bidding documents and draft contracts to potential bidders; • A formal process for screening potential bidders and finalising a list of qualified bidders; and • A formal public process for presenting proposals, evaluating them, and selecting a winner.

  9. PPP Project Cycle

  10. Procurement Phases

  11. 2. Detailed Preparation

  12. Engaging Advisors • Pay attention to the incentives created for engaging advisers and paying them. • If the consultants hired to carry out the feasibility work are fairly certain that they will be kept on board to advise on the transaction, they may have a disincentive to disclose major problems for fear that preparation will not continue. • If the transaction advisers are paid a success fee in full when the PPP contract is signed, they may have an incentive to deliver a project that is not bankable and will take many months (or years) to reach financial close. • It may therefore be useful at the outset of the process for the CA to hire an initial high level consultant to assist in the planning of all the technical assistance that will be needed during the process (e.g., prepare terms of reference).

  13. PPP Advice - Legal • Assist in the assessment of the legal feasibility of the project; • Advise on the appropriate procurement route; • Advise on the initial contract notice; • Advise on procurement documentation such as pre-qualification questionnaires, invitations to tender and evaluation criteria; • Develop the PPP contract; • Ensure that bids meet the legal and contractual requirements for submission; and • Evaluate and advise on all processes and contractual solutions throughout the procurement phase, including contract negotiation.

  14. PPP Advice - Technical • Draft the output requirements and specifications of the PPP project; • Develop payment mechanisms in the PPP contract (with the financial adviser); • Evaluate and advise on all technical solutions during the procurement phase; • Undertake technical due diligence on bidders’ solutions; and • Carry out any site condition, planning and technical design work.

  15. PPP Advice - Financial • Support the development of all financial aspects of the project; • Advise on the applicability of specific sources of funding, and how these can be optimized in the funding structure; • Ensure that all financial aspects of the bidders’ solutions meet the requirements for submitting a bid; • Optimize, scrutinize and possibly audit the financial models submitted by bidders; • Evaluate and advise on financial proposals throughout the procurement phase; • Advise on the bankability issues raised by the PPP contract; • Undertake financial due diligence on the submitted bids; • Assist in the negotiations with the lenders.

  16. PPP Advice - Environmental • Examine the potential environmental impact of the project; • Assist in environmental due diligence, including required permits and certifications; • Identify potential environmental risks and how submitted bids address them; and • Consider the mitigation of such risks and the impact on the scope and technical design of the project.

  17. Getting Organized Checklist • Are all relevant project approvals in place? • Is a credible and well-resourced team in place to manage project preparation and procurement? • Are sufficient financial resources available to the CA to cover the costs of the preparation and procurement phase? • Are project governance structures and processes established to ensure effective decision making? • Have credible and experienced advisers been appointed? • Have all relevant stakeholders been identified and consulted to check their commitment to the project? • Is a realistic procurement timetable in place for the procurement phase?

  18. 2. Detailed Preparation

  19. Before Tender Launch Checklist • Are the requirements and scope of the PPP project clear and fixed? • Have all material environmental and planning approvals been identified and obtained? • Are there any unresolved issues regarding site and land acquisition? • Does the Authority have the powers to award the PPP contract and enter into a long-term contractual arrangement? • Has the value for money assessment of the proposed PPP investment been updated? • Is the scope of the PPP project affordable from the point of view of the Authority’s periodic payments required • (availability-based PPPs) or are tariff levels realistic and affordable for the users (revenue-based PPPs)? • With availability-based PPPs, have budgets and government or parliamentary approvals been obtained for all • the Authority’s payment obligations? • Is there enough evidence of sufficient commercial interest from contractors, operators, lenders and investors to • justify launching the tender? • Have project risks been identified and has a potential risk allocation been assessed? • Have plans to publicise the launch of the PPP project been agreed and finalised? • Has a project information memorandum been prepared? • Have the bidder qualification and bid evaluation criteria been developed?

  20. Before Tender Launch Checklist • Are the requirements and scope of the PPP project clear and fixed? • Have all material environmental and planning approvals been identified and obtained? • Are there any unresolved issues regarding site and land acquisition? • Does the CA have the powers to award the PPP contract and enter into a long-term contractual arrangement? • Has the VfM of the proposed PPP investment been updated? • Is the scope of the PPP project affordable? • With availability-based PPPs, have budgets and government or parliamentary approvals been obtained for the payment obligations? • Have project risks been identified and allocated? • Has a project information memorandum been prepared? • Have the bidder qualification and bid evaluation criteria been developed?

  21. 3. Procurement

  22. Bidding Process Checklist • Do the pre-qualification evaluation criteria include all relevant features related to the quality and strength of the bidders? • Does the invitation to tender document include a draft PPP contract? Does it include the output requirements of the Authority? • Does the invitation to tender document contain all essential components of the PPP project, especially the minimum technical, environmental, legal and financial requirements to be provided by bidders which constitute a compliant bid? • Have provisions ensuring that the CA offers warranties and setting rules of access to the data room been included? • Have all processes required to manage the interaction with bidders during the bidding process been considered and implemented? • Have the evaluation criteria and processes been established and evaluation teams and committees been appointed before bids are submitted?

  23. 3. Procurement

  24. PPP Contract and Closing Checklist • Has a negotiating team been assembled and empowered to take decisions on the issues pertaining to the PPP contract? • Have the CA and the negotiating team agreed on a negotiating strategy, including positions of the CA on key issues? • Have the legal advisers evaluated the marked-up draft PPP contract proposed by the bidders, assessing it against its risk allocation and value for money targets? • Have the financial advisers assessed affordability, project costs, sources and costs of funding and project bankability? • Have the negotiations resulted in terms that vary substantially and materially from the offer and therefore could be open to challenge? • Have all the legal and administrative requirements of contract award been complied with? • Is the final PPP contract still affordable and does it represent value for money?

  25. Contact Information John Buttarazzi Liberty Hall Advisors, LLC 1401 Gower Court McLean, VA 22102 USA 001 914-844-1141 jbuttarazzi@libertyhalladvisors.com

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