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Appraising PPP Projects

44.5 Outputs of Scoping the Contract and the Design of the Technical Requirements

The further detailing of the scope and the design of the technical requirements provides fundamental outputs for the Appraisal Phase and, indeed, for the whole of the PPP process, since it provides the technical description of the project used as a basis for other feasibility exercises. See box 4.2.

The scope definition and technical requirements are used, to the extent they are relevant, to specify the private partner’s obligations in the contract, to design the instruments to assess performance, and to build the mechanisms to translate them into effective incentives (including the penalty scheme). Thus, the project design and the service specifications will be adapted to assume forms of contractual directives responsible for regulating many aspects of the relationship between the government and the private party.

It is important to recognize that the scope and technical requirements should be designed to meet the needs identified at the Screening Phase. In other words, over-specification — which may induce unrealistic service levels — should be avoided as it may increase the cost of service and hinder the affordability assessment, described later in this chapter.

Several aspects of the technical details reached at this stage, however, will not be included as binding directives in the contract. For instance, many aspects of infrastructure design can be left to the decision of the contracted private sector entity. In reality, many PPP contracts allow a relatively large discretion to the private partner as to technical solutions and operational procedures to be adopted during the execution of the PPP contract.

This is not to say that the technical details reached at this point are useless. On the contrary, they play a fundamental role in filling in the blanks, in that they represent the baseline assumptions for the construction of the base case (see section 6.10) that will be used during the Commercial Feasibility Assessment and other financially related appraisal exercises.

Furthermore, a very important output of this phase is a clear estimate of the costs of construction and other related costs, adjusted for risk. This data represents some of the most important inputs to the financial model (section 6) and to all of the feasibility assessments.

BOX 4.2: Key Points on Project Scope, Technical Requirements, and Cost Assessment

The exercise of detailing the scope of the contract, designing the technical requirements, and assessing costs sets up the conditions to be met by the private sector for the asset and the service to be acceptable. In this process, it provides the following:

  • The construction and design requirements that will be included in the contract;
  • The performance requirements that will be included in the contract;
  • Other information and technical details used as the base case for the project;
  • An assessment of technical risks; and 
  • Costs of construction and related costs, adjusted for risk when appropriate.

All the above information provides an essential description of the project from a technical perspective, and is used in the feasibility assessments during the Appraisal Phase.

 

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