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Structuring and Drafting the Tender and Contract

510. Control Check and Approvals before Launching the Tender, and Planning Ahead

The last tasks of the process in the Structuring and Pre-launching Phase will include the following.

  • Formally raising the necessary approvals, packaging all tender documents, and running a control check. This is explained below; and
  • Planning the Tender Phase/tender process. The tender process should be carefully planned. This involves programming the works to be done and planning the resources that will be needed (including the role of advisors and the information technology (IT) needed to handle the tender process). It also involves determining the roles and responsibilities of the project team needed to manage the process from project launch to contract signature (which is the object of chapter 6).

Before launching the tender, the procuring authority should satisfy itself that all analyses and exercises have come to a satisfactory conclusion. It is good practice to develop a check list and confirm/check that all relevant conditions of preparation and structuring are met. Box 5.37 provides an example of a checklist. Each country’s and procuring authority’s processes will, to some extent, be distinct. The check list will obviously have to match the requirements of the PPP framework, the project, and the analysis carried out during the preparation and structuring cycle of the PPP.

Some or all of the reports, and the tender documentary package itself, may be subject to approvals by different areas or departments within the government (for example, the general attorney’s office, finance secretary, comptroller, and so on), which will depend on the respective framework (the legal or regulatory prescriptions embedded in the procurement law and/or the institutional framework of the respective PPP market).

To ensure that authorizations will be received in a timely manner, the project team should consider providing progress reports (even informally) to the respective decision-makers throughout the structuring process so as to avoid last minute rejections of the project documents or affordability tests.

In some tender processes under the two-stage approach, the final tender package and final approvals may not occur in one single milestone. However, the RFQ may be issued first and the RFP published after selecting the bidders (with or without a short list). Also, certain aspects of the tender regulations may be subject to refinement during a dialogue phase (competitive dialogue processes), including the contract (see appendix A to chapter 4).

 

BOX 5.37: Example of a Checklist before Launching the Tender[105]

Verification of technical feasibility and legal due diligence

  • The project has passed a public consultation (when this is requested by the framework), and suggestions or claims have been duly considered.
  • The technical feasibility has been tested by a sound design process and has included a third party revision or quality audit. The procuring authority has endorsed the project design and technical requirements.
  • Technical and legal risks have been analyzed and clarified, or duly treated in the risk allocation structure when needed. Some examples are as follows.
  • Utilities reallocation: When the risk is significant, proper documentation should have been delivered to bidders; otherwise, the risk will be fully retained by the public or shared within the contract.
  • Archaeological findings: When there is significant risk, a map of potential archaeological sites is provided for the bidders, and potential risk mitigation provisions are implemented in the contract.
  • Geo-technical risks: When significant structures are within the project design and scope, a geo-technical conditions study has been carried out and/or a risk-sharing scheme is in place within the contract based on “baseline conditions”.
  • Specific tax considerations: To the extent it is possible, they are clarified for bidders.
  • Site is available and/or Right of Way (RoW) is cleared, or there is a clear schedule to clear out RoW: When expropriations are not to be handled by the government, risks have been balanced with the level of uncertainty in terms of costs and timing (retained or shared as appropriate).
  • Any other uncertainty that may have arisen during the Appraisal Phase or Structuring Phase has been solved or considered properly in the risk allocation structure.

 

Verification of positive / sound cost-benefit result

  • If significant changes have been made in the project’s scope or new and significant uncertainties have arisen, an update of the economic report has be done and the original results confirmed.

 

Verification of commercial feasibility

  • The financial model and financial analysis have been updated to include new data and final considerations regarding the project’s financial structure, and the project remains feasible (in terms of equity return requirements and bankability) within the same original estimates done in the project’s Appraisal Phase. A definitive price limit is proposed for approval under affordability considerations to be made by the treasury.
  • From this analysis and the consequent financial feasibility report, it is clearly verifiable that an investor will recover the equity investment and enjoy a reasonable payback and equity IRR calculated according to the prevailing market conditions. It is also considered reasonable that lenders will be interested in providing loans on conditions (amount, term, price, and ratios) that will likely fit with the project’s fundamentals.

 

Verification of affordability limit

  • The commitments derived from the project are considered to be assumable according to a moderated projection of the procuring authority’s ordinary revenues or under a conservative scenario (for example, zero growth in real terms).
  • Contingencies coming from risk retention by the grantor have been described and considered.
  • All of this information and results have been revised by the treasury secretary and the general controller.

 

Verification of positive (if prescribed) or acceptable VfM

  • When VfM was done at appraisal – there have not been any relevant changes in the structure and projections that would require a reassessment of VfM or this analysis has been concluded with satisfactory results.

 

Legal feasibility of the contract structure and tender documents

  • The contracts and tender documents are in place and completed, including the minimum provisions according to the law. All provisions are consistent with the legal framework and ready for approval by the attorney general’s office.
  • The payment mechanism and output specifications are ready and settled in a clear, efficient, and objective way to be validated by the office of the chief of staff and treasury.

Packaging the documents and reports: After all of the previous requirements are accomplished and verified by the project team, a package/file with the final versions of the documents and reports should be distributed to the government entities in charge of assessing the project prior to the government’s final approval.

 

[105] This check list is an example, and it is based on that provided by the PPP Guidelines of the Río de Janeiro Municipal government, sponsored by the World Bank. Additionally, EPEC provides a check list before launching (page 25) in its Guide to Guidance. How to Engage with the Private Sector (PPPIAF, 2011) and also suggests a checklist (pages 109-110).

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