The starting point of this phase and of the full PPP process is the same starting point as for any procurement of public goods and services process: identification of the need.
There are some steps in the Screening Phase which includes: project identification (entry routes), scope and preliminary economic analysis of these projects and then the decision to move forward to the Appraisal Phase. This final step of prioritization is important to avoid wasting time on projects that will not go ahead guaranteeing that the Public Sector are not going to spend their limited recourses in failed projects (See figure 3.1).
If potential alternatives for the project (from a technical standpoint) are possible, a preferred technical solution must be selected to ensure that the choice best suits the identified needs that the public sector is seeking to address. See boxes 3.2 and 3.3. To fully understand those needs, it is necessary to identify the benefits created by satisfying them; for example, better access for users, a lower price of provided service or investment, and so on. Selection techniques are explained in section 2.5.
BOX 3.2: Example of Technical Alternatives
Imagine that you are running a project to reduce the time spent travelling between two important neighbourhoods by implementing a river crossing. There are lots of different ways of crossing that river. You might have a boat, a bridge, or a tunnel. Even in the bridge or tunnel alternatives you might use cars, buses, heavy rail, light rail, or even pedestrian access. You may or may not charge for the service of crossing. All of these alternatives have different costs, different qualities, and different impacts upon citizens. The impacts will not only be the financial impact on users, in the case of charging, but also the time saved by these alternatives such as the impact on the value of land or property, traffic impacts, environmental impacts, and many others.
If the government is running this project, it probably has a cost parameter in mind, a price beyond which it cannot go. Everything beyond that limit is unaffordable. Also, there is likely to be a minimum quality of service expected from the project, which will imply a minimum cost. Within these minimum and maximum cost limits, a range of technical alternatives may be possible.
The government must also consider different levels of quality offered by technical alternatives. Some alternatives may provide a level of quality far in excess of that required from day one (for example, a bridge with far greater road capacity than that required for the number of users). This may be an inefficient solution.
At the same time, the government cannot settle for a technical alternative that does not meet the quality requirements of users or other affected citizens.
Which alternative must be chosen? The one that best suits the identified needs of society.
BOX 3.3: The Risk of Proposing a Unique Solution
Technical specifications can also derail a project. A common danger is to focus primarily on how the project will be constructed (input-based specifications) rather than on the performance and capacity of the completed asset (output-based specifications). While focusing on input-based specifications provides comparability across different private-sector bids and ensures that public-sector design concerns will be taken into account, doing so limits the ability of the private sector to innovate and propose alternative, and potentially more cost-effective, solutions.
One of the objectives of a PPP is to open up the possibility that the private sector can devise innovative solutions. This potential benefit can be blocked if everything is determined before the tender even starts. When that happens, then the tender is often issued as "build a specific piece of infrastructure and operate it for 20 years" rather than "construct and operate a piece of infrastructure that will solve this problem for the next 20 years". The government must strike a balance between the need to define the technical aspects of the project to be able to cost and appraise it. Indeed, the government needs to avoid becoming locked into a single solution early on.
The next step after defining the technical solution is to clarify the technical scope, including a detailed description and requirements for the most important aspects of the project (technical outline of the project).
Subsequently, the economic sense and soundness of the project must be tested. If Cost-Benefit Analysis (CBA) is used as a selection technique, this will implicitly confirm (or not) the economic sense of the project. If another selection technique is used, CBA must still be performed on the selected technical solution. This will require the gathering of extensive information (see section 2.7) and the use of CBA according to well established practices (which ideally should be provided in the form of guidelines). The process of conducting a CBA is explained in section 2.8.
An economically sound or optimal project solution will be part of a plan (that is, a planned pipeline of projects) or it may be a stand-alone project candidate if there is no planning approach. It may also be a project that has been identified after the plan has been put together. The differences between plans and individual projects are discussed in section 2.3. Every project in the pipeline is a potential PPP candidate, regardless of whether there is a public finance alternative.
If the project appears to have the potential to be developed through a PPP process, the government must screen the project for PPP suitability to test whether the project makes sense as a PPP (see section 2.9). A preliminary financial analysis to pre-test affordability should also be done. This chapter considers that this is done at the same time as testing the PPP suitability of the project. Note that the PPP project scope will have to be defined (and it may differ significantly from the technical scope for the project) so as to remove some responsibilities and tasks from the PPP contract (see section 2.9).
When conducting the PPP suitability analysis, the government must assess the potential gap in information and any uncertainties, and thus the need for additional information. If the information currently available is insufficient or if the results and conclusions are not clear, then further studies will be necessary (see section 2.7). Although some information gaps may be handled during appraisal, these should be clearly described and any uncertainty assessed as part of the decision to move forward to appraisal.
Once the project has been properly identified and pre-defined, and if the suitability test is satisfactory and the information gaps and main uncertainties have been identified, as well as the key stakeholders, then a project management plan should be developed. This will need to include the development of a staffing plan and the identification of any potential needs for advisors to support the feasibility studies that will be needed for the appraisal. It should also include budget estimates and a funding plan for hiring any external expertise that may be needed (see section 2.13).
After that, or during the course of these tasks, all the information should be consistently recorded in a report (the screening report, see section 2.14) on the basis of which an important decision must be taken: whether to move forward to the Appraisal Phase.
FIGURE 3.1: Main Tasks of Identifying Projects and Preparatory Activities to Move Forward in the PPP Cycle
A full appraisal (of technical, environmental, socio-economic, and financial aspects) will take place in the next phase of the PPP cycle, which is described in chapter 4.