A well designed and implemented procurement is central to achieving Value for Money from the PPP. Procurement processes can include marketing the PPP, checking the qualifications of bidders, inviting and evaluating proposals, interacting with bidders during the process, selecting the preferred bidder, and concluding the contract. Stakeholder engagement is essential to this and all other stages, as outlined in box 2.9.
BOX 2.9: Engagement and Communication with Stakeholders
Without giving due consideration to stakeholders and their ability to influence the project, the viability of a PPP project may be compromised.
In order to reduce the likelihood of such risks occurring, the PPP framework can include a policy on stakeholder engagement. This should address the following concepts and principles.
Source: International Finance Corporation (2007) Stakeholder Engagement: A Good Practice Handbook for Companies Doing Business in Emerging Markets.
At the end of the transaction, after bids are received and the contract agreed, the government will finally know the cost of the PPP project and other terms. At this point it may be checked once more to ensure it still meets the PPP criteria. Cancelling a project, however, at the end of procurement is undesirable and can damage the market reputation of the jurisdiction. There are significant costs involved in preparing a bid, so unless the market has confidence that the project will proceed, the private sector will be unlikely to participate. To make sure that projects are not cancelled at the end of the procurement process, the PPP framework should set out the circumstances under which a project will not proceed. For example, in some jurisdictions (such as Canada’s British Columbia), “affordability ceilings” are revealed to ensure the market knows the maximum that the public sector is willing to pay.
To test if the procurement was appropriate, the following criteria are helpful;
- Was the procurement competitive? For example, have most qualified private partners heard about the opportunity? The competition will only be as good as those competing. Have qualified private partners been given ample opportunity to express their interest and develop proposals? If timelines are too short, or processes too onerous, private partners will avoid becoming involved; and
- Has the process been transparent and conducted with integrity and fairness? The way that the award process is administered should be clearly communicated and responsibilities clearly allocated. The criteria for award should be transparent, with a well-defined objective, qualification criteria, technical specifications, and bidding requirements. The tender process should ensure that all bidders are treated fairly.
Procedures and institutional responsibility
The framework should highlight the following procedures and institutional responsibilities.
- PPP marketing, evaluation of qualifications (and, if there is short listing of qualified consortia, the short-listing process), and applying the evaluation criteria to select the proposal that offers the best Value for Money. The framework should not be overly prescriptive with these tasks. Rather, it should provide guidance on how to ensure the process is smoothly delivered and that common pitfalls are avoided. The framework states who evaluates, who makes the selection decision, and who approves the contract;
- Reaching commercial close. The framework should give guidance as to the extent of negotiations that will occur to reach commercial close. For example, in British Columbia and most Canadian jurisdictions, the final proposal submitted by the competing teams is based on a final version of the project agreement. Beyond this point, no changes to the key commercial terms of the agreement are permitted; and
- Reaching financial close. After the contract has been agreed, the financiers (in particular debt providers) need to agree to provide the funding. Often the financiers of the project company want to change some of the conditions that were agreed at commercial close. The framework should address this risk, containing processes to reduce delays and contractual changes in getting to financial close. It should also make it clear who is responsible (on the government side) for this process, and what approvals are needed if it seems necessary to agree to changes to the contract in order to reach financial close.
Refer to chapter 6 for details on how to tender and award a PPP contract.
 East West Link: Taxpayers hit with $339 million bill as Government strikes deal to scrap East West Link (15 April, 2015). ABC News. Accessed online July 2015 at http://www.abc.net.au/news/2015-04-15/victorian-government-to-pay-339-million-east-west-link-contracts/6393536