Contracts for Public-Private Partnership (PPP) Options
The National Conference Center, Lansdowne, VAThe National Conference Center, Lansdowne, VAMarch 25-28, 2008March 25-28, 2008
Patricia BaqueroPatricia Baquero pbaquero@[email protected]
IEF, May 2005 2
Contents
PPP options - General review
Basic principles for successful procurement
Commonly used methods for award of PPP contracts - characteristics, pros and cons
Prequalification or postqualification?
Single or multiple award stages?World Bank procurement policies &
procedures for different PPP options
Use of consultants/transaction advisors
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Public-Private Partnerships (PPP)
PUBLIC SECTORPUBLIC SECTOR
PRIVATE SECTORPRIVATE SECTOR
• Public provision
• Service contract
• Management contract
• Lease/Affermage
• Concessions
• Divestiture
• Public provision
• Service contract
• Management contract
• Lease/Affermage
• Concessions
• Divestiture
Role
of m
arke
t in
centiv
es
Low
Hig
h
Include full range of arrangements for construction, upgrading, maintenance, and operation of infrastructure
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Summary of responsibilities and risks under different PPP options
Responsibilities & risks
Service contracts
Management contracts
Lease / Affermage
Concessions (incl. BOT)
Divestiture
Ownership of assets
State or mixed State or mixed State or mixed State or mixed Private
Investment planning & regulation
Parent agency or separate
public authority
Parent agency or separate
public authority
Parent agency or separate
public authority
State, negotiated with
contractor
None or state agency
Capital financing Public Public Public Private Private
Working capital Public Public Private Private Private
Execution of works
Private as specified
Public Public Private Private
Operation & maintenance
Private as specified
Private Private Private Private
Management authority
Public Private Private Private Private
Commercial (demand) risk
Public Mainly public Private Private Private
Basis of compensation
Services rendered
Services rendered &
resultsResults Results
Privately determined
Duration Less than 5 yr.
3-5 years 5-10 years 10-30 years Indefinite
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Basic principles for successful PPP procurement Best value for public money
Economy – lowest cost possible on a whole-of-life basis considering commensurate benefits
Efficiency – simple & swift process with positive results & without protracted delays
Fairness Adequate promotion of opportunities among potential service
providers
Impartial, objective, consistent & reliable level playing field
Transparency Accessible, open & unambiguous procedures
Ethics Practitioners and service providers conduct business with integrity
& ethics & mutual trust & respect
Accountability Practitioners enforce & obey rules & are accountable for actions
involving public moneys
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Commonly used methods for award of PPP contracts
Competitive bidding* International (ICB)
Limited International (LCB)
National (NCB)
Direct contracting** (includes renegotiation and unsolicited proposals)
Competitive negotiations***
* Acceptable by WB
** Acceptable by WB exceptionally under set conditions*** Acceptable by WB ONLY for consultant services
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Competitive bidding – Characteristics May involve prequalification of potential bidders Ample advertisement of opportunities at appropriate level
ICB – in media of world-wide coverage LCB – restricted to limited number of identified qualified
bidders NCB – locally only when opportunity not likely to attract
foreign competition or when ICB’s administrative/financial burden outweights its advantages
Distribution of bidding documents including: Clear procedures for offers submission Clear procedures for bid evaluation & contractor selection Draft contract
Public opening of bids Award to qualified bidder submitting responsive, “lowest
evaluated bid” (offering lowest overall cost to the govt.), determined upon application of objective criteria (generally cost or cost-related)
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Competitive bidding –Applicability
Could be used for all PPP options
Normally mandated by national rules for privatization & concession of existing infrastructure services & in some cases, for concession of new projects involving monopoly franchise
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Competitive bidding – Pros and Cons
PROS Stimulates interest among
broader range of potential service providers/operators/investors
Market mechanism for selecting best proposal results in lower costs
Ensures transparency in contract award (reduced claims/protests)
Easiest to design when
Services fairly standard
Technical parameters definable with reasonable accuracy
Limited room for innovation & creativity
Favored by MDBs
CONS Does not allow for objective
evaluation of proposals’ quality aspects
Complying with required stages & time frames may delay award
Not suitable for non-standard services or inaccurate technical parameters
Does not encourage bidders’ innovative & creative solutions (except in case of two-stage bidding)
Requires sufficiently high performance securities to discourage unreasonably low tenders
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Direct contracting - Characteristics Contracting of single source without competition
Efforts should be made to determine Price fairness & reasonableness (e.g., benchmarks, prior
tendered prices for similar services, detailed cost analysis, etc.)
Benefits of not carrying out a competitive process
Parties’ bilateral negotiations prior to contract signing involve price, requirements, and contract terms and conditions
Renegotiation (negotiation with incumbent contractor of issues outside scope of original contract) & award without competition based on unsolicited proposal are forms of direct contracting
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Direct contracting - Applicability May be appropriate & acceptable under most national
and MBD rules when There is only one possible bidder capable of providing the
required service (e.g., due to proprietary rights, patented technology, or unique know-how) & there is no reasonable alternative or substitute
Competitively awarded existing contract needs to be extended for additional services of similar nature
There is urgent and compelling need for uninterrupted service provision
Justified by national defense or security reasons
Suitable at pilot level in countries w/o proven legal & regulatory PPP framework to gain experience & build record with investors
Used for management contracts, concessions, BOT, BOO, or privatization
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Direct contracting – Pros and Cons
PROS Only suitable economic &
efficient method under certain set circumstances
Saves time and costs associated with preliminary studies & competitive process
Provides more space for technical innovation from private sector
Provides maximum flexibility to public authorities
Private sector more willing to invest in proposal preparation due to better chance of success
CONS Inexperienced public authority
at risk of unequal negotiation
Lack of transparency may lead to accusations of corruption by the community & media
Private firms bear risk of capturing efficiency gains
May require periodic bidding to help ensure longer-term economic efficiency
Not favored by MDBs for general use
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Unsolicited proposals – Characteristics and applicability Presented by private entities/JVs for development of
infrastructure projects in any sector for which no selection procedures have been publicly opened
Most common unsolicited proposals Claiming to involve the use of new concepts or
technologies to address public authority’s infrastructure needs (though two-stage bidding could be used instead if project has already been identified by authorities)
Claiming to address an infrastructure need not already identified by public authority (insufficient justification for direct contracting)
Not allowed under many national and MDB rules, especially if projects require significant public financial commitments (e.g., guarantees, subsidies, or equity participation)
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Handling of unsolicited proposals
Initial proposal requested &
assessed
Usual procedures when national rules allow for unsolicited proposals
Formal proposal invited & examined
YES
Proposal no longer
considered
NO
* Extra evaluation credit or proposal preparation cost reimbursement
Authority engages in competitive selection granting incentives* to original proponent
YES
Authority may be authorized to
negotiate directly with original proponent
NO
Authority invites all offerors to competitive negotiations
NO
Authority engages in competitive selection granting incentives* to original proponent
YESIs project in the public
interest?
Is project possible w/o
involving proprietary
rights?Alternative proposals received?
YESMany
alternative proposals received?
** Variation: “Swiss challenge” – competitor offering lower-priced proposal gets award if not matched by original proponent
NO
Authority publishes description of
proposal’s essential output elements & invites comparable
proposals**
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Competitive negotiations – Characteristics and applicability Authorities may combine elements of competitive bidding
with direct negotiation to promote transparency while preserving proposals’ innovative or proprietary aspects
Most common procedures: Step 1: Authority uses competitive process to solicit proposals
(RFP) in response to broad output specifications to narrow number of potential proponents
Step 2: Authority negotiates directly with preferred proponent (& with fallback proponents if negotiations with preferred one fails) to work out detailed terms & conditions
Alternative Step 2: Authority negotiates simultaneously with technically responsive proponents to enhance competitive aspects of negotiated transactions
Competitive negotiations suitable for projects in which: There is scope for innovation and/or different approaches
Financing on basis of standardized contract documents difficult to secure
IEF, May 2005 16
Competitive negotiations – Pros and Cons
CONS Require a formal process with
safeguards to ensure transparency and efficiency
Evaluation of different approaches requires technical & financial expertise not always available at govt. level (external experts needed)
Subjective merit-point evaluation system susceptible of corruption, manipulation & protests, delaying award
Not favored by MDBs except for employment of consultant services
PROS Proponents may be more
creative & tailor projects to particular needs of public authority facility during negotiation stage
Allow for comparative evaluation of quality attributes of proposals (e.g., work methods, investment plan, staffing plan, etc.)
Remove potential incentives created by price-based competitive bidding for bidders offering unrealistic offers
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Prequalification or Postqualification? Rationale for Prequalification (PQ)
High cost of bid preparation for PPP projects may discourage competition
Only bidders with adequate capabilities & resources to perform particular contract satisfactorily need to engage in proposal preparation
Usual PQ criteria (to be applied on a pass-fail basis) Experience in similar works/services (how many?)
Past performance in similar contracts (how well?)
Capabilities with respect to key personnel, equipment, etc.
Financial position to face project’s investment/cash flow demands concurrently with any other financial commitments
PQ criteria should be stringent but sized to fit required services
PQ not to be used to restrict bidders to a preset number
Postqualification of prospective contractor required in cases where PQ may not be possible or desirable, such as Smaller projects attracting few interested/qualified bidders
Time constraints
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Single or multiple award stages? If due to PPP project simplicity, technical &
performance requirements can be clearly defined
➨ Single Stage Bidding
If due to PPP project complexity, determining complete technical & performance requirements in advance may be undesirable or impractical
➨ Two-Stage Bidding
Single-stage Bidding
Tenders include offered (or requested) price and documents demonstrating technical proposal’s responsiveness to bid requirements
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Two-Stage Bidding process
Invitation to 1st Stage Bidding
Evaluation of Technical Proposals
Clarification/Feedback Meeting
with Qualified Bidders
Invitation to 2nd Stage Bidding
Technical/Financial Evaluation and
Award
Employer issues bidding docs. including objectives sought and performance specifications
Bidders asked to submit technical-only proposals
Employer evaluates technical proposals’ responsiveness to objectives/performance specs.
Employer verifies continued bidders qualification
Bidders may be invited to discuss content of tech. proposals and tech./commercial changes required
Employer prepares minutes of required changes and may amend bidding documents based on discussions
Bidders invited to submit 2nd stage bids including final technical proposals and priced bids
Employer evaluates 2nd stage bids per evaluation criteria
Award to qualified bidder with responsive, lowest evaluated 2nd stage bid
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WB procurement policies & procedures for service contracts WB finances fees and incentives (when applicable)
Selection procedures per Procurement Guidelines (similar to those applicable to goods and works)
WB’s Sample Bidding Document for non-consultant services Encourages expressing technical requirements in terms
of results
Requires submission of performance security
Contemplates lump-sum payments according to payment schedule & linked to outputs delivery
Provides for optional performance incentive compensation, liquidated damages & lack of performance penalty
Prescribes award to qualified bidder with lowest evaluated, responsive bid
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WB procurement policies & procedures for management contracts (1/2) WB finances fixed base fee and performance-
based payments & sometimes rehabilitation, improvement or emergency work and operations investment funds managed by the contractor
Sample doc. for Output- and Performance-Based Road Contracts (OPRC) Most payments based on measured outputs reflecting
specified service levels
Allows for inclusion of rehabilitation, improvement & emergency works
Includes annex with sample technical specifications
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WB procurement policies & procedures for management contracts (2/2) New PQ & Sample documents & Technical Note for Management Contracts
TN provides guidance for using other 2 docs., choosing appropriate selection method & understanding characteristics & modalities of management contracts
PQ document based on that for Procurement of Works Bidding document includes alternative selection approaches to chose from
depending on nature of services Option A – Single-Stage Bidding process, with 3 possible selection methods:
Lowest Evaluated Cost (governed by Procurement Guidelines) - Suitable for management services focused to O&M, with or w/o investment fund mgmt.
QCBS & Fixed Budget Selection (governed by Consultants Guidelines) - Suitable for management services leaning toward technical assistance
Option B– Two-Stage Bidding process
Model contract based on GCCs for Works enables: Clear definition of expected services, including responsibilities for know-how transfer,
training & (where relevant) managing capital works & finance Clear delegation of management authority Clear and appropriate contractor’s remuneration distinguishing between service
obligations & performance targets Improved mechanism for preserving the relationship in the face of changes and
disputes Appropriate limits on contractor’s risk
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WB procurement policies & procedures for concessions
WB finances public owner-committed contributions (e.g, equity, assets) & subsidies (OBA)
Policies apply to BOO/BOT/BOOT, concessions & similar arrangements
Concessionaire’s selection method linked to way it will have to procure Bank-financed goods, works, & services: If selected through Bank-acceptable ICB procedures
Concessionaire free to procure G, W & S required for facility or for producing promised outputs, using own procedures
Loan Agreement to specify type of expenditures to which Bank financing will apply
If not selected through Bank-acceptable ICB procedures G, W, & S required for facility or for producing promised outputs & to be financed
by WB to be procured through Bank-prescribed ICB procedures (unless OPCS Nov. 7, 2005 OM apply)
ICB procedures acceptable to the Bank Not necessarily Bank-prescribed ICB procedures but assessment required to
ensure they meet procurement principles NCB appropriate in special cases when conditions for NCB are present
No WB standard/sample bidding documents available for lease or concession contracts
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Key aspects of contract design for concession-type contracts
Risks (e.g., commercial, political, exchange rate, etc.) to be allocated to party which can best manage each
Potential bidders to be consulted in areas of uncertainty on private sector’s appetite for assuming different risk levels
Technical specifications Input-based specification may reduce costs to bidders but transfers
more risk to the government Performance- or output-based specification gives bidders a scope
for innovation in design and risk taking but require definition of performance indicators & experienced team to supervise concessionaire’s performance
Important points to include in final concession contract Definition of services to be provided, concession area & contract
duration Rights and obligations of the parties Meaningful & uncontestable performance indicators Regulations to be applied & definition of regulator’s powers Penalty for noncompliance with concession agreement Tariff regime, adjustment mechanisms, & process for resetting tariffs Process for concession termination/renewal/rebidding Dispute resolution mechanisms & applicable law
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Use of consultants/transaction advisors
WB finances employment of consultants/transaction advisors
Role of Consultants Provide government with technical assistance &
advice on procurement and economic, regulatory, legal, financial & technical issues
Can support several government activities Road Shows Conferences Data Rooms Review of potential bidders’ suggestions to improve
selection process
Types of Consultant Contracts A firm or consortium of firms under a single contract
to deal with all issues Separate specialized advisors under individual
contracts
Thank you!
Any questions?
The National Conference Center, Lansdowne, VAThe National Conference Center, Lansdowne, VAMarch 25-28, 2008March 25-28, 2008
Patricia BaqueroPatricia Baquero pbaquero@[email protected]