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Contracts for Public-Private Partnership (PPP) Options

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Title: Performance (or Output)-Based Procurement: Author: wb243065 Last modified by: wb148750 Created Date: 2/23/2004 3:59:25 PM Document presentation format – PowerPoint PPT presentation

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Title: Contracts for Public-Private Partnership (PPP) Options


1
Contracts for Public-Private Partnership (PPP)
Options
Patricia Baquero pbaquero_at_worldbank.org
  • The National Conference Center, Lansdowne, VA
  • March 25-28, 2008

2
Contents
  • PPP options - General review
  • Basic principles for successful procurement
  • Commonly used methods for award of PPP contracts
    - characteristics, pros and cons
  • Prequalification or postqualification?
  • Single or multiple award stages?
  • World Bank procurement policies procedures for
    different PPP options
  • Use of consultants/transaction advisors

3
Public-Private Partnerships (PPP)
Include full range of arrangements for
construction, upgrading, maintenance, and
operation of infrastructure
4
Summary of responsibilities and risks under
different PPP options
Responsibilities risks Service contracts Management contracts Lease / Affermage Concessions (incl. BOT) Divestiture
Ownership of assets State or mixed State or mixed State or mixed State or mixed Private
Investment planning regulation Parent agency or separate public authority Parent agency or separate public authority Parent agency or separate public authority State, negotiated with contractor None or state agency
Capital financing Public Public Public Private Private
Working capital Public Public Private Private Private
Execution of works Private as specified Public Public Private Private
Operation maintenance Private as specified Private Private Private Private
Management authority Public Private Private Private Private
Commercial (demand) risk Public Mainly public Private Private Private
Basis of compensation Services rendered Services rendered results Results Results Privately determined
Duration Less than 5 yr. 3-5 years 5-10 years 10-30 years Indefinite
5
Basic principles for successful PPP procurement
  • Best value for public money
  • Economy lowest cost possible on a whole-of-life
    basis considering commensurate benefits
  • Efficiency simple swift process with positive
    results without protracted delays
  • Fairness
  • Adequate promotion of opportunities among
    potential service providers
  • Impartial, objective, consistent reliable level
    playing field
  • Transparency
  • Accessible, open unambiguous procedures
  • Ethics
  • Practitioners and service providers conduct
    business with integrity ethics mutual trust
    respect
  • Accountability
  • Practitioners enforce obey rules are
    accountable for actions involving public moneys

6
Commonly used methods for award of PPP contracts
  • Competitive bidding
  • International (ICB)
  • Limited International (LCB)
  • National (NCB)
  • Direct contracting (includes renegotiation and
    unsolicited proposals)
  • Competitive negotiations

Acceptable by WB
Acceptable by WB exceptionally under set
conditions
Acceptable by WB ONLY for consultant services
7
Competitive bidding Characteristics
  • May involve prequalification of potential bidders
  • Ample advertisement of opportunities at
    appropriate level
  • ICB in media of world-wide coverage
  • LCB restricted to limited number of identified
    qualified bidders
  • NCB locally only when opportunity not likely to
    attract foreign competition or when ICBs
    administrative/financial burden outweights its
    advantages
  • Distribution of bidding documents including
  • Clear procedures for offers submission
  • Clear procedures for bid evaluation contractor
    selection
  • Draft contract
  • Public opening of bids
  • Award to qualified bidder submitting responsive,
    lowest evaluated bid (offering lowest overall
    cost to the govt.), determined upon application
    of objective criteria (generally cost or
    cost-related)

8
Competitive bidding Applicability
  • Could be used for all PPP options
  • Normally mandated by national rules for
    privatization concession of existing
    infrastructure services in some cases, for
    concession of new projects involving monopoly
    franchise

9
Competitive bidding Pros and Cons
  • PROS
  • Stimulates interest among broader range of
    potential service providers/operators/investors
  • Market mechanism for selecting best proposal
    results in lower costs
  • Ensures transparency in contract award (reduced
    claims/protests)
  • Easiest to design when
  • Services fairly standard
  • Technical parameters definable with reasonable
    accuracy
  • Limited room for innovation creativity
  • Favored by MDBs
  • CONS
  • Does not allow for objective evaluation of
    proposals quality aspects
  • Complying with required stages time frames may
    delay award
  • Not suitable for non-standard services or
    inaccurate technical parameters
  • Does not encourage bidders innovative creative
    solutions (except in case of two-stage bidding)
  • Requires sufficiently high performance securities
    to discourage unreasonably low tenders

10
Direct contracting - Characteristics
  • Contracting of single source without competition
  • Efforts should be made to determine
  • Price fairness reasonableness (e.g.,
    benchmarks, prior tendered prices for similar
    services, detailed cost analysis, etc.)
  • Benefits of not carrying out a competitive
    process
  • Parties bilateral negotiations prior to contract
    signing involve price, requirements, and contract
    terms and conditions
  • Renegotiation (negotiation with incumbent
    contractor of issues outside scope of original
    contract) award without competition based on
    unsolicited proposal are forms of direct
    contracting

11
Direct contracting - Applicability
  • May be appropriate acceptable under most
    national and MBD rules when
  • There is only one possible bidder capable of
    providing the required service (e.g., due to
    proprietary rights, patented technology, or
    unique know-how) there is no reasonable
    alternative or substitute
  • Competitively awarded existing contract needs to
    be extended for additional services of similar
    nature
  • There is urgent and compelling need for
    uninterrupted service provision
  • Justified by national defense or security reasons
  • Suitable at pilot level in countries w/o proven
    legal regulatory PPP framework to gain
    experience build record with investors
  • Used for management contracts, concessions, BOT,
    BOO, or privatization

12
Direct contracting Pros and Cons
  • PROS
  • Only suitable economic efficient method under
    certain set circumstances
  • Saves time and costs associated with preliminary
    studies competitive process
  • Provides more space for technical innovation from
    private sector
  • Provides maximum flexibility to public
    authorities
  • Private sector more willing to invest in proposal
    preparation due to better chance of success
  • CONS
  • Inexperienced public authority at risk of unequal
    negotiation
  • Lack of transparency may lead to accusations of
    corruption by the community media
  • Private firms bear risk of capturing efficiency
    gains
  • May require periodic bidding to help ensure
    longer-term economic efficiency
  • Not favored by MDBs for general use

13
Unsolicited proposals Characteristics and
applicability
  • Presented by private entities/JVs for development
    of infrastructure projects in any sector for
    which no selection procedures have been publicly
    opened
  • Most common unsolicited proposals
  • Claiming to involve the use of new concepts or
    technologies to address public authoritys
    infrastructure needs (though two-stage bidding
    could be used instead if project has already been
    identified by authorities)
  • Claiming to address an infrastructure need not
    already identified by public authority
    (insufficient justification for direct
    contracting)
  • Not allowed under many national and MDB rules,
    especially if projects require significant public
    financial commitments (e.g., guarantees,
    subsidies, or equity participation)

14
Handling of unsolicited proposals
Usual procedures when national rules allow for
unsolicited proposals
Initial proposal requested assessed
Is project possible w/o involving proprietary
rights?
Is project in the public interest?
15
Competitive negotiations Characteristics and
applicability
  • Authorities may combine elements of competitive
    bidding with direct negotiation to promote
    transparency while preserving proposals
    innovative or proprietary aspects
  • Most common procedures
  • Step 1 Authority uses competitive process to
    solicit proposals (RFP) in response to broad
    output specifications to narrow number of
    potential proponents
  • Step 2 Authority negotiates directly with
    preferred proponent ( with fallback proponents
    if negotiations with preferred one fails) to work
    out detailed terms conditions
  • Alternative Step 2 Authority negotiates
    simultaneously with technically responsive
    proponents to enhance competitive aspects of
    negotiated transactions
  • Competitive negotiations suitable for projects in
    which
  • There is scope for innovation and/or different
    approaches
  • Financing on basis of standardized contract
    documents difficult to secure

16
Competitive negotiations Pros and Cons
  • CONS
  • Require a formal process with safeguards to
    ensure transparency and efficiency
  • Evaluation of different approaches requires
    technical financial expertise not always
    available at govt. level (external experts
    needed)
  • Subjective merit-point evaluation system
    susceptible of corruption, manipulation
    protests, delaying award
  • Not favored by MDBs except for employment of
    consultant services
  • PROS
  • Proponents may be more creative tailor projects
    to particular needs of public authority facility
    during negotiation stage
  • Allow for comparative evaluation of quality
    attributes of proposals (e.g., work methods,
    investment plan, staffing plan, etc.)
  • Remove potential incentives created by
    price-based competitive bidding for bidders
    offering unrealistic offers

17
Prequalification or Postqualification?
  • Rationale for Prequalification (PQ)
  • High cost of bid preparation for PPP projects may
    discourage competition
  • Only bidders with adequate capabilities
    resources to perform particular contract
    satisfactorily need to engage in proposal
    preparation
  • Usual PQ criteria (to be applied on a pass-fail
    basis)
  • Experience in similar works/services (how many?)
  • Past performance in similar contracts (how well?)
  • Capabilities with respect to key personnel,
    equipment, etc.
  • Financial position to face projects
    investment/cash flow demands concurrently with
    any other financial commitments
  • PQ criteria should be stringent but sized to fit
    required services
  • PQ not to be used to restrict bidders to a preset
    number
  • Postqualification of prospective contractor
    required in cases where PQ may not be possible or
    desirable, such as
  • Smaller projects attracting few
    interested/qualified bidders
  • Time constraints

18
Single or multiple award stages?
  • If due to PPP project simplicity, technical
    performance requirements can be clearly defined
  • ? Single Stage Bidding
  • If due to PPP project complexity, determining
    complete technical performance requirements in
    advance may be undesirable or impractical
  • ? Two-Stage Bidding
  • Single-stage Bidding
  • Tenders include offered (or requested) price and
    documents demonstrating technical proposals
    responsiveness to bid requirements

19
Two-Stage Bidding process
  • Employer issues bidding docs. including
    objectives sought and performance specifications
  • Bidders asked to submit technical-only proposals
  • Employer evaluates technical proposals
    responsiveness to objectives/performance specs.
  • Employer verifies continued bidders qualification
  • Bidders may be invited to discuss content of
    tech. proposals and tech./commercial changes
    required
  • Employer prepares minutes of required changes and
    may amend bidding documents based on discussions
  • Bidders invited to submit 2nd stage bids
    including final technical proposals and priced
    bids
  • Employer evaluates 2nd stage bids per evaluation
    criteria
  • Award to qualified bidder with responsive, lowest
    evaluated 2nd stage bid

Invitation to 1st Stage Bidding
Evaluation of Technical Proposals
Clarification/Feedback Meeting with Qualified
Bidders
Invitation to 2nd Stage Bidding
Technical/Financial Evaluation and Award
20
WB procurement policies procedures for service
contracts
  • WB finances fees and incentives (when applicable)
  • Selection procedures per Procurement Guidelines
    (similar to those applicable to goods and works)
  • WBs Sample Bidding Document for non-consultant
    services
  • Encourages expressing technical requirements in
    terms of results
  • Requires submission of performance security
  • Contemplates lump-sum payments according to
    payment schedule linked to outputs delivery
  • Provides for optional performance incentive
    compensation, liquidated damages lack of
    performance penalty
  • Prescribes award to qualified bidder with lowest
    evaluated, responsive bid

21
WB procurement policies procedures for
management contracts (1/2)
  • WB finances fixed base fee and performance-based
    payments sometimes rehabilitation, improvement
    or emergency work and operations investment funds
    managed by the contractor
  • Sample doc. for Output- and Performance-Based
    Road Contracts (OPRC)
  • Most payments based on measured outputs
    reflecting specified service levels
  • Allows for inclusion of rehabilitation,
    improvement emergency works
  • Includes annex with sample technical
    specifications

22
WB procurement policies procedures for
management contracts (2/2)
  • New PQ Sample documents Technical Note for
    Management Contracts
  • TN provides guidance for using other 2 docs.,
    choosing appropriate selection method
    understanding characteristics modalities of
    management contracts
  • PQ document based on that for Procurement of
    Works
  • Bidding document includes alternative selection
    approaches to chose from depending on nature of
    services
  • Option A Single-Stage Bidding process, with 3
    possible selection methods
  • Lowest Evaluated Cost (governed by Procurement
    Guidelines) - Suitable for management services
    focused to OM, with or w/o investment fund mgmt.
  • QCBS Fixed Budget Selection (governed by
    Consultants Guidelines) - Suitable for management
    services leaning toward technical assistance
  • Option B Two-Stage Bidding process
  • Model contract based on GCCs for Works enables
  • Clear definition of expected services, including
    responsibilities for know-how transfer, training
    (where relevant) managing capital works
    finance
  • Clear delegation of management authority
  • Clear and appropriate contractors remuneration
    distinguishing between service obligations
    performance targets
  • Improved mechanism for preserving the
    relationship in the face of changes and disputes
  • Appropriate limits on contractors risk

23
WB procurement policies procedures for
concessions
  • WB finances public owner-committed contributions
    (e.g, equity, assets) subsidies (OBA)
  • Policies apply to BOO/BOT/BOOT, concessions
    similar arrangements
  • Concessionaires selection method linked to way
    it will have to procure Bank-financed goods,
    works, services
  • If selected through Bank-acceptable ICB
    procedures
  • Concessionaire free to procure G, W S required
    for facility or for producing promised outputs,
    using own procedures
  • Loan Agreement to specify type of expenditures to
    which Bank financing will apply
  • If not selected through Bank-acceptable ICB
    procedures
  • G, W, S required for facility or for producing
    promised outputs to be financed by WB to be
    procured through Bank-prescribed ICB procedures
    (unless OPCS Nov. 7, 2005 OM apply)
  • ICB procedures acceptable to the Bank
  • Not necessarily Bank-prescribed ICB procedures
    but assessment required to ensure they meet
    procurement principles
  • NCB appropriate in special cases when conditions
    for NCB are present
  • No WB standard/sample bidding documents available
    for lease or concession contracts

24
Key aspects of contract design for
concession-type contracts
  • Risks (e.g., commercial, political, exchange
    rate, etc.) to be allocated to party which can
    best manage each
  • Potential bidders to be consulted in areas of
    uncertainty on private sectors appetite for
    assuming different risk levels
  • Technical specifications
  • Input-based specification may reduce costs to
    bidders but transfers more risk to the government
  • Performance- or output-based specification gives
    bidders a scope for innovation in design and risk
    taking but require definition of performance
    indicators experienced team to supervise
    concessionaires performance
  • Important points to include in final concession
    contract
  • Definition of services to be provided, concession
    area contract duration
  • Rights and obligations of the parties
  • Meaningful uncontestable performance indicators
  • Regulations to be applied definition of
    regulators powers
  • Penalty for noncompliance with concession
    agreement
  • Tariff regime, adjustment mechanisms, process
    for resetting tariffs
  • Process for concession termination/renewal/rebiddi
    ng
  • Dispute resolution mechanisms applicable law

25
Use of consultants/transaction advisors
  • WB finances employment of consultants/transaction
    advisors
  • Role of Consultants
  • Provide government with technical assistance
    advice on procurement and economic, regulatory,
    legal, financial technical issues
  • Can support several government activities
  • Road Shows
  • Conferences
  • Data Rooms
  • Review of potential bidders suggestions to
    improve selection process
  • Types of Consultant Contracts
  • A firm or consortium of firms under a single
    contract to deal with all issues
  • Separate specialized advisors under individual
    contracts

26
Thank you! Any questions?
Patricia Baquero pbaquero_at_worldbank.org
  • The National Conference Center, Lansdowne, VA
  • March 25-28, 2008
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