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Appraising PPP Projects

416.1 The Timing of the VfM Exercise

The assessment of the Value for Money (VfM) of the project can be revisited in the Structuring Phase. Until then, the risk allocation mechanisms may still be altered with potential consequences for the VfM conclusions.

However, it is good practice to produce a confident evaluation of VfM during the Appraisal Phase, since it might indicate the practical impossibility for the project to deliver VfM, in which case a recommendation that the project not proceed as a PPP should be issued before reaching the Structuring Phase. The government will then need to consider whether it is possible and appropriate to proceed with traditional procurement of the project using public finance.

It is also convenient to review the VfM exercise when the project has been awarded in order to check the decision that was made at the Structuring Phase. Since risk transfer has already been fully determined in the contract and prices have already been set, the exercise can be developed with real data, at least for the chosen procurement route. At that moment, the Value for Money exercise can be used as a test for checking whether the risk transfer has been properly developed and whether it can provide some lessons for future projects.

Other ex-post evaluations can be carried out, for instance, in cases in which the contract has been significantly modified for whatever reason, or if a contract extension is being analyzed.

Developing the Value for Money exercise is thus a progressive effort and could be done in at least four different stages of the PPP process, as explained in box 4.15.

BOX 4.15: VfM alongside the PPP Process

Phase

Scope (source of data)

Purpose

Appraisal

VfM using available data.

Indicative for the green light decision.

Structuring

VfM may be revisited if necessary (for example, if there has been a material change in the contract structure).

Decision to issue Request for Proposals (RFP).

Following contract award

Full VfM, considering final contract after procurement.

Feedback for future projects.

Contract management

Full VfM, considering contract amendments and reviewed risk allocation.

Guidelines for conducting negotiation with the private sector.

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