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Appraising PPP Projects

44.2 Designing the Technical Requirements

Technical requirements, together with other PPP structure parameters, lie at the heart of the contract. The technical requirements should provide enough technical details about the project so as to allow a precise definition of the design of the infrastructure (and the characteristics of the service) to be implemented, while avoiding being too prescriptive as explained below.

Through the technical requirements design process, costs are assessed, which are a key input for the commercial feasibility analysis explained further in this chapter.

The technical requirements are also a basic input to the other feasibility analyses, such as the environmental feasibility, economic feasibility, Value for Money assessment, and the affordability analysis.

Furthermore, a precisely designed set of technical requirements offers an essential body of data for bidders to assess the technical risks the private partner will be exposed to, as well as to price the service, which effectively contributes to a more competitive tender.

It is a good practice for the design of the technical requirements to be preceded by the identification of benchmark projects which can be a precious source of historical data, as well as of significant lessons on the design of the infrastructure and details of service delivery. These benchmark projects can be either PPPs or traditionally procured infrastructure, but they need to be comparable in terms of complexity and risks and must address a similar scope of service to the PPP project under analysis.

For example, publicly-run railways might indicate important design features of cargo stations, and a previous PPP contract can provide relevant insight on the service requirements. It is good practice to try to identify benchmark projects in the same country and geographic region, if they are available. However, in some cases, projects try to address unmet needs or they innovate in their approach, in which case benchmark projects will not be available. In this case, the project team should research projects in other countries and geographical regions.

The project team must ensure that the technical requirements comply with applicable regulatory standards and policy directives for the respective sector. For example, the policy regulations of a particular country might dictate that the minimum size of a classroom is 1.5 square meters (m2) per student, or that certain safety standards are necessary in a road such as the minimum radius of curves.

Some countries also limit the role that the private sector can play in certain PPPs. For example, some countries do not allow the private partner to deliver the correctional services in prison PPPs. These limitations must be clearly understood if they are to be incorporated in the technical description done as part of this feasibility exercise.

In practice, the exact content of the technical requirements depends upon the type of project, the type of contract, and the legal requirements of the jurisdiction. However, the technical requirements are typically composed of a project design and construction requirements, as well as the performance requirements, as explained below.

4.2.1 Project Design and Construction Requirements

The project design and construction requirements are one of the most important inputs to the feasibility analysis. Preparing these requirements is a very demanding task. It may be approached in different ways.

  • Preparing a functional design;
  • Preparing a reference design; and
  • Preparing full design and construction prescriptions.

The most frequent approaches in PPP projects are the first two, as PPP projects focus on outputs so as to provide significant flexibility for the private partner, creating opportunities for innovation and incentives for efficient life cycle management of the asset.

Providing detailed construction specifications hinders innovation and might have an undesirable effect on risk transfer to the private sector because construction issues and operational problems arising from the design might require compensations from the government (the provider of the design). So a full design approach should only be considered when: (i) the project is regarded as simple or not significantly challenging or complex in technical terms; or (ii) the procuring authority has certainty of the optimal means and methods of meeting that need. When a fully detailed design is the chosen approach, it is usually not concluded during this phase because of the considerable engineering complexity, and it will likely require further detailing during the Structuring Phase.

Despite these variations, a minimum level of detail should always be developed at the Appraisal Phase because it allows several feasibility exercises to be based on sound estimates. Hence, it is good practice to detail the infrastructure design to the level required to produce the following information with precision.

  • The identification of the key design requirements that will later be included in the PPP contract as the specification for construction of the infrastructure, including time requirements (time limit to construct and commission); and
  • A reasonably precise estimate of cost data, as indicated below, to feed into the financial model.

4.2.2 Performance Requirements and Operations and Maintenance Specifications

As described above, the other relevant part of the design of the technical requirements is the performance requirements or operations and maintenance specifications.

A detailed description of the service requirements involves indicating the level of service, its beneficiaries (who it will serve), and the main aspects of the delivery of value for users. The service requirements should contain the following information.

  • A very precise description of the scope and minimum characteristics of the content of the service to be delivered by the private sector. This should be in the form of a verifiable preliminary output specifications, as opposed to an input specifications;
  • The outputs generated by the delivery of the service in terms of effective benefits for users and the wider community;
  • The main responsibilities, related to the service to be delivered, retained in the public sector;
  • The preliminary requirements for an effective performance evaluation system that will create adequate and effective incentives during the life of the contract;
  • The minimum requirements for an infrastructure maintenance plan, noting the danger of prescribing the means and allowing space for innovation; and
  • Specific requirements, whenever they are relevant, about the service hand-over to government at the end of contract.

4.2.3 Other Technical Assessment-Related Matters and Preparatory Activities

During the design of the technical requirements, a number of additional tasks must be done, which relate to the technical preparation of the project and influence the cost assessment of the project.

  • Field surveys of the project site, which may include mapping, and topographical and geo-technical surveys;
  • A thorough identification of all the land expropriation required, including the mapping of the areas, identification of the owners, and the estimation of the costs and time needed for the expropriation procedures;
  • The assessment of potential resettlement issues;
  • The assessment of any linked infrastructure requirements, such as availability of utility services or connecting roads to the project site;
  • In some projects, it is also necessary to carry out an archaeological and/or anthropological survey to map the potential archaeological and/or anthropological findings;
  • For linear transport infrastructure, the track or the layout should be identified and defined; 
  • For linear transport infrastructure, especially in urban or suburban areas, the location of utilities should be mapped and reallocation needs should be assessed; and
  • For any project, an environmental assessment will be conducted. Due to the importance of this subject in terms of feasibility, this is explained specifically in section 13.

The ultimate responsibility for any of these matters may have to be included in the contract scope (generally with a clear risk assumption, that is, transferring the risk to the private partner or sharing and capping those risks). Some of these may be left out of the private partner’s responsibilities, but even in that case the costs and uncertainty should be assessed so that the liabilities can be incorporated in the VfM analysis as well as in the affordability analysis.

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