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Structuring and Drafting the Tender and Contract

5Introduction

This chapter covers the period from the preliminary decision to invest in a PPP, once the project has been appraised, to the official launch of the tender for the project contract.

It corresponds to two main tasks and areas of knowledge.

  • The structuring and design of the project contract; and 
  • The structuring and design of the procurement process.

In both cases the tasks include detailing the structure in the tender documents, that is, the process of drafting those documents so as to have them finally approved before launching the tender process.

However, these are not the only tasks to be carried out during this phase. Some analysis undertaken during appraisal may need to be updated during this phase (especially financial analysis), and the scope of the contract will usually be refined or finalized during this phase (for example, the definition of the technical requirements, including construction specifications and service performance requirements).

This chapter describes the scope of work to be done during this phase, defining all the main steps of work (section 3). It will focus on and provide more detailed information regarding the essential work required during this phase (sections 4 to 8). It involves defining the complete structure of the contract (especially in the financial and risk fields), and the structuring or designing of the tender process, before drafting both the contract and the request for proposal (RFP).

Some guides and papers suggest that project appraisal tasks can be done in parallel with the structuring of the project contract. Although this may be technically possible, it is better practice to separate the Structuring Phase, even though this phase includes the refinement or confirmation of the pre-structure set out in the appraisal. This is the case for three main reasons: (i) to avoid unnecessarily consuming resources on a project-contract that is not feasible; (ii) to enable the publication of the investment decision, taking into account that the public (in the form of environmental groups or any affected members of the public) may challenge the technical solution — the sooner the project solution is published, the more certain the timing of the procurement process will be; and (iii) for better management of each set of activities, that is, to concentrate all initial efforts on a sound appraisal, and then to dedicate them to the structuring and drafting of the contract and tender.

It is not only the contract that has to be designed during this phase. The tender process must also be structured and designed because it should be tailor-made to fit the characteristics of the project. The tender process (when there is more than one option in the respective country) will have been selected at the end of the Appraisal Phase, but many details will now be defined according to the project specifics[1]. For example, this includes the bar for the pass/fail qualification criteria, specific evaluation criteria and relevant features of the tender process as bid bond requirements, the deadline granted to bidders to submit the proposal and detailed regulations for dialogue or interaction in these types of tender processes.

The task of designing the tender package (that is, qualification rules, proposal requirements, evaluation criteria, and the contract) may be developed and published at different stages depending on the procurement route or tender modality, as described in appendix A to chapter 4. Therefore, the timing of this work will be influenced by legal and policy framework variations as explained below.

Different procurement procedures and tender routes

Potentially, there are different timings in drafting and closing tender documents, as well as different stages in qualification and bid submission.

As described in chapter 4 appendix A, in one-stage processes the project contract will be tendered out after the final versions of the request for proposal and contract are drafted and approved. The qualification conditions are included in the same document and form part of the RFP. In these processes, the tender package is one single package covering qualifications and selection requirements, requirements to submit proposals, evaluation criteria, and contract regulations.

Even if the tender package is published in a sequential way under a two-stage process (first the request for qualification [RFQ] and later on the RFP and contract), it will include all these aspects, which are explained in respective subsections of this chapter.

It is good practice in two-stage procurement processes to have already defined the foundations of the proposal requirements, the evaluation criteria, and especially the contract at the time of formally launching the process (that is, issuing the first stage of the process, the RFQ). The period between the launch of the qualification and receiving the submissions is time that is available for the authority to refine and finalize the RFP.

In two-stage processes that include a dialogue or interactive phase, it is good practice to include a description of the proposed key terms of the project contract together with the RFQ package. This is the basic structure and fundamental features that are being considered, as well as a brief description of the selection process (appendix A to chapter 4 further explain these differences, and figure 5.1 shows the different timing in document production and issuance).

Therefore, this PPP Certification Guide assumes that structuring is done in full before initiating the tender process, regardless of which type of process is selected. The PPP Certification Guide also explains the structuring and drafting matters based on that supposition for convenience.

FIGURE 5.1: Different Tender Process Routes

 

Note: EU= European Union; RFP= request for proposal; RFQ= request for qualification; SoQ= Submission of Qualifications.

BOX 5.1: Learning Objectives

Readers of this chapter will be able to do the following.

  • Understand the interactions between the Appraisal Phase and the Structuring Phase (section 1).
  • Understand the structuring concept and the importance of allowing sufficient time to design the project contract (section 2).
  • Understand the composition of tasks that are covered during this phase (section 3).
  • Understand the need for the refinement of other analysis — affordability, financial, economic, and so forth, and how preparation may be expanded during this phase (section 3).
  • Understand the concept of financial structuring from the public perspective (section 4).
  • Define public financial support mechanisms that can be implemented without compromising Value for Money (VfM).
  • Understand specific structuring matters depending on the revenue regime (user-pays versus government-pays) and the most relevant payment mechanism systems.
  • Understand the main elements of a payment mechanism based on availability payment.
  • Understand payment mechanisms and their processes, and assess which may best fit the project.
  • Understand the concept of risk structuring and risk allocation, and the most common approaches to allocating risks (section 5).
  • Understand the importance of marketing the project and re-testing the project with the market before launching (section 6).
  • Understand how to incorporate the risk allocation, financial structure, and payment mechanism into the contract (sections 4 and 5), and develop other fundamental provisions of the contract (section 9).
  • Define prequalification or qualification requirements, the concept of short listing, and other issues when designing an RFQ (section 7).
  • Define awarding/evaluation criteria, especially when the jurisdiction allows different criteria (qualitative and quantitative), and other issues when designing the RFP (section 8).
  • Understand the relevance of managing approvals and authorizations, and getting ready for launching the tender (section 10).

 

 

 

[1] A certain degree of standardization in contract conditions and tender features is, however, highly desirable to provide consistency in analysis and decisions as well as showing consistency to the market. Box 27 in this chapter discusses standardization issues.

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