5. Time to Prepare and Submit Offers: Requirements for Proper Assessment and Preparation by the Prospective Bidders

As introduced in section 2 of chapter 5, it is essential to give the bidders sufficient time to prepare a sound and high quality offer. Especially in open tender models, one of the common pitfalls in a PPP procurement is that the procuring authority allows bidders insufficient time for this work.

This project failure may take different forms. It may result in there being no bids because bidders did not have time to prepare a reliable offer in sufficient detail to be acceptable to their board(s). It may be due to the submission of hurried, poor quality bids that will be disqualified — or worse still, it may result in the submission (and selection/awarding) of an inadequate offer by a bidder that assumes it will have the ability to re-negotiate what is initially considered as an unfeasible project.

It is good practice for the framework to establish a minimum time for bid submissions, which in most jurisdictions is at least 30 days. However, even the specified minimum time may not be sufficient, depending on the complexity of the project (in technical, financial, and even legal terms) and the degree of advance preparation required. Therefore, a decision must be made on a project-by-project basis as to whether a longer period is required than the minimum specified in the framework.

When defining the period/time limit for bid submissions, it is essential to grant to the bidders sufficient time for a proper analysis and assessment of the project and the contract from several different fronts.

The technical bid and construction contract will be delivered in a more risky context than a traditional procurement. The “contractor” (here the private partner) is assuming more significant risks regarding construction (both in terms of costs and time). These will need to be meaningfully assessed and managed by transferring them (or most of them) to the sub-contractor (even if the construction contractor belongs to the very same company group as the investor and prospective bidder). Financial or commercial feasibility is a particular dimension of the practicality of a PPP route. It requires bidders to assess the feasibility of the project in overall terms. The revenues projected in a user-pays project or in a government-pays project must be sufficient to cover all costs and recover investments. Bidders must also test whether the bid will be bankable (the risk perception of the bank or lender may not necessarily be the same as that of the bidder). The capital costs estimated by the bidder (including debt and equity in terms of minimum target economic internal rate of return [eIRR]) may not be in accord with the original assumptions made by the government when the project was initially appraised and structured. A bidder’s perception of risk and its value (in terms of risks premiums) may also differ. Assuming that the project as structured, including any government payments or support, is commercially feasible from a bidder’s perspective (that is, there is some room for competition in terms of price), the bidder needs time to optimize its cost structure: negotiating with suppliers/contactors and refining the financial structure to optimize capital costs. Usually the bid is submitted by a group of companies using a joint venture or consortium approach. This requires complex agreements (shareholder agreements) that demand time for negotiation and implementation in advance of the offer. Bidders will usually require approval from their boards. Time must also be allowed for this approval process. When the government requires bidders to develop the financial package in advance of the bid submission, additional time is needed to allow for the lender’s due diligence and approval processes. Finally, the proposal itself, in terms of documenting a response that meets the government’s submission requirements, needs significantly more time than in a conventional procurement (see chapter 5.8.1).

At the same time, it may also be dangerous to allow too extensive a time period for bid preparation. A PPP bid is more demanding than a conventional procurement in terms of resources (internally dedicated, plus advisers), and time is in essence a matter of costs. Looking for the right balance is therefore a tricky issue, which is often solved within a range of 30–90 days for open tender processes, although in many projects 90–120 days may be preferable to ensure good quality responses (see table 6.1 below).

Also, a common mistake is to initially rely on unrealistically short periods for submission, while planning to correct the situation later by providing an extension. Extensions should generally be the exception to the rule because changes to the time table are perceived as a lack of reliability and may adversely affect the PPP reputation of the procuring agency. However, it is better to give an extension if the alternative is project failure because no bids are received.

This is less of an issue in dialogue processes where dialogue occurs before the procuring authority issues the final RFP because the time allowed for dialogue is designed to allow the prospective bidders to assess the project and prepare their offers.

In some two-stage processes, where the government requires bidders to submit comprehensive proposals (for example, extensive designs and committed finance), a longer period between the issuing of the RFP and the receipt of bids is appropriate. For example, in Australia this period is typically in the realm of 150 days.

Table 6.1 sets out examples of the actual bidding periods (including extensions) for a variety of projects in a number of countries.