During the Appraisal Phase, all relevant aspects of the project were assessed for feasibility purposes, and in many countries public investment in the project would have been approved. Some feasibility exercises may be subject to confirmation during the Structuring Phase. This is especially true if further development of the project’s details and structure give the procuring authority a reason to reconsider certain aspects of the project scope and/or previously assumed features of the PPP contract structure. For example, the financial analysis will most likely have to be adjusted to complete a definitive affordability analysis on the basis of the final structural elements of the project contract. Similarly, the economic analysis/cost-benefit analysis (CBA) could be reopened if substantial changes in project scope or cost estimates emerge. Furthermore, if other changes occur during the preparation and structuring process (for example, changes in the legislative landscapes that affect the authority's base case assumptions, such as changes in tax or environmental legislation), this may also mean that the feasibility study has to be revisited. See figure 5.2.
Risks were assessed during the Appraisal Phase through a careful due diligence process, and preparatory work was conducted to offset any limitations and/or threats detected. Some specifically identified risks and contingencies may need to be further investigated during the Structuring Phase in parallel with the final preparation of the contract (that is, structuring or final structuring of the contract, and the design and drafting of the entire tender package).
During appraisal, the PPP project structure, including the PPP contract structure (see box 5.2) has usually been preliminarily defined (at a basic level) as follows.
- The project scope and responsibilities (including the definition of the technical requirements) should already be well defined because they were originally settled within the Identification Phase and subsequently refined in appraisal (since the socio-economic appraisal was necessary to move forward into the Structuring Phase);
- Commercial feasibility and affordability analysis was carried out in the Appraisal Phase and required a preliminary definition of any potential public co-financing and other means of support, for example, the contract term, the preliminary risk allocation structure, and so on. In some (but not all) jurisdictions, a VfM test will have been done, requiring a business case model and a basic risk allocation structure; and
- If a preliminary market testing was conducted in the Appraisal Phase and feedback was incorporated into the preliminary structure and financial plan.
During the Structuring Phase, the preliminary structure should be challenged and refined. This is especially true for the financial structure, payment mechanisms and risk allocation, as it is usually at this stage that the risk analysis is developed in substantially greater detail.
On the basis of this “pre-structure”, new exercises and work must be done during this phase to complete the preparation of the project prior to being tendered out as a PPP. The new tasks to be developed in this phase may be classified into two broad groups:
- Structuring and Drafting the RFQ and RFP. This includes defining qualification requirements and criteria, proposal requirements, evaluation criteria, and others explained within this chapter; and
- Finalizing the structure of the contract and drafting the contract (implementing the structure in an enforceable document). This mainly includes defining the technical requirements, defining a detailed risk allocation structure, preparing the payment mechanism, and other tasks described below.
As explained in the introduction, the choice of procurement model will influence the timing of the finalization of the PPP contract structure and of the requests for qualifications and proposals. However, for convenience this chapter assumes that all structuring and drafting of the whole tender package (contract, RFQ and RFP) is prepared during this phase before launching the tender as if it were a one-stage process.
The results of the different analyses (for example: financial feasibility that will set the limits for payments or the concession fee floor if the project generates excess revenue; or VfM analysis, affordability analysis and socio-economic analysis when they have been revisited) are reviewed and validated. The tender document package, which implements the structure, must be duly approved and authorized by the relevant entities. Here is where this phase finishes as the process is considered and explained in this PPP Guide. After that, the tender process is launched.
After the tender launch, the process will have to be managed, in particular, the receipt and response to consultations from interested parties (during a pre-qualification phase if that is considered in the tender process and/or during bid submission or the Tender Phase, or through a structured dialogue and interaction with a short list of bidders in the case of competitive dialogue or other interactive processes) and finally receiving proposals, carrying out the evaluation and selection, and signing the contract (all of which are covered in chapter 6).
FIGURE 5.2: Where We are in the Process Cycle
Note: RFP= request for proposal; RFQ= request for qualification.
During appraisal, the project has been defined and prepared to a significant extent. This includes the development of a definitive scope and preliminary technical design or a detailed project outline, testing for economic sense (CBA), commercial feasibility, affordability, PPP suitability (VfM), analyzing in terms of asset and debt classification (in some countries), and significant preparation in the form of risk assessment and due diligence of legal, environmental and technical risks.
Some of these assessments or feasibility conclusions may now be challenged or updated depending on the changes that may be introduced in scope, project outline and structure. Other changes may occur during preparatory activities (for example, certain tests to finalize assessments of some risks) that may continue during structuring (although in some jurisdictions or some particular projects, appraisal may end with a more detailed and definitive project outline and assessment).
Together with a defined scope and project outline, the appraisal has assumed and defined at least a preliminary contract structure (pre-structure, in terms of risk allocation, contract term, revenue regime and payment mechanism, public financial and guarantees support, and so on), and a procurement strategy has been defined (as in an outline of the tender process).
On the basis of that pre-structure — the pre-design (including the technical requirements defined during appraisal) and the procurement strategy — the contract structure will then be further and definitively developed to reach a final draft contract (which may be subject to changes in some tender processes). Additionally, the tender process will be determined and documented in a RFQ and RFP, before submitting the tender package for final approvals to launch the tender.