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Body of Knowledge:
Structuring and Drafting the Tender and Contract
BOX 5.14: Clarifications regarding the Scope of the Risk Concept assumed in this Chapter
Risk from a financial perspective
This chapter deals with risk matters from a financial perspective. As such, it is centred on risks affecting the infrastructure asset and the economic business related to...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Risk allocation: definition and rationale
Risk allocation is the exercise to define which party will assume each risk, identifying which risks the private partner will be (or remain) responsible for and to what extent, and identifying which risks the public partner will be responsible for and to...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
An exact definition for risk is hard to find and its measurement is controversial as well. In literature, the word "risk" is used with many different meanings. The Oxford English Dictionary defines risk as "chance or possibility of danger, loss, injury, etc.”.
In the context of an infrastructure...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
The risk management process starts with the identification of risks. Identification of risks refers to defining a comprehensive list of risk events, usually grouped in consistent categories, and then describing them so as to understand clearly how those risks will impact the project outcome if they...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
5.4.1 Quantitative Assessment and Appraisal
As noted, a quantitative assessment (estimating or defining values of the possible outcomes or “expected values”) is usually applied during appraisal for financial analysis and VfM. This is also referred as “adjusting values to risk”, and it is also...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Many risks can be mitigated through appropriate action by the procuring authority during the Screening, Appraisal, and Structuring Phases of the project. This can be done by optimizing the scope of the project, the planning process, and through robust investigations that provide information about...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Default Situation and General Rules
When allocating risks, the government should be clear that risk transfer is defined by the contract scope and the PPP contract structure. Subject to the refinement of risk allocation, all risks inherent to the scope of the contract, and those appropriate to the...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
From the standpoint of contractual risk allocation (that is, the reflection of the risk allocation into the contract), there are different categories of risks.
Compensation events – this refers to risk events for which the private partner is entitled to receive financial compensation if the event...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
This subsection introduces a list of the most relevant risks as they are commonly identified in different guides and protocols (while acknowledging that there may be material differences in the classification of risks from some country practices to others).
Appendix A provides a deeper explanation...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Risk allocation is implicit in the revenue regime of the contract and in the scope of the obligations. The private party shall construct in the form and time defined (by the contract or as committed to in its proposal), and it shall provide the service as prescribed in the contract (the performance...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
The project should have been sounded out during the Appraisal Phase (see chapter 4.9.1).
It is good practice to conduct further market testing during the Structuring Phase to collect reactions, suggestions, and concerns from the industry (investors, contractors, and lenders following the options...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
The objective of a qualification process is to set a minimum bar of capability for the bidder company or group of companies (bidding consortium[63]) entering into the PPP contract. Setting qualification criteria will reduce the risk of project failure caused by a lack of capabilities and capacity....
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Legal qualification relates fundamentally to the legal conditions that must be satisfied for a bidder to submit a bid according to the local/market or country’s common regulations.
Therefore, legal qualification refers to the formal regularity of the bidder, particularly with respect to its legal...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Financial or economic capacity criteria are intended to guarantee that the company or group of companies (consortium) that are candidates for the project have a healthy financial situation. The criteria provide evidence that they will be capable of meeting the financial needs of the project, which...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
The technical capacity or experience criteria are essential for project success. Many projects fail because the successful bidder lacks the skills and experience required to manage the challenges and complexities of the particular infrastructure project. Failure can also occur if the successful...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
In some projects, the pre-qualification process is accompanied by the selection of a short list from the pre-qualified bidders. The pre-qualifying bidders are ranked on the strength of their pre-qualification responses, and a limited number of the highest ranking bidders are short listed to proceed...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
The RFP governs the bid requirements (what documents must be presented and how, which is developed further in section 8.1 below), the evaluation (rules and methods to evaluate and select – section 8.2), and other relevant matters such as protection for the government (for example, the right to...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Deadline – Time to Submit
Due to the complexities of the PPP, it is essential to grant to the bidders sufficient time for proper due diligence and analysis/assessment of the project and the contract from different points of view. Time is also needed for the preparation of a sound and high quality...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Evaluation criteria
Broadly speaking, there are two main types of processes in terms of evaluation criteria.
Processes based only on price (also referred to as least cost selection) in which the technical factors are evaluated on a pass/fail basis. This is sometimes called an auction; however it...
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Body of Knowledge:
Structuring and Drafting the Tender and Contract
Where and when used. Dialogue and interactive processes
Dialogue types of procurement and other negotiated and/or interactive processes are an option in some jurisdictions (for example, in the EU in general) and are the standard in some others (for example, in Australia, New Zealand, and the UK)....
