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Contribution to People First PPP Definition and the Particulars of People First PPP Procurement – JUSCOOP
ACCUEIL > Uncategorized > Contribution to People First PPP Definition and the Particulars of People First PPP Procurement
Contribution to People First PPP Definition and the Particulars of People First PPP Procurement
Par Centre d'Excellence International PPP 'Bonnes Pratiques, Lois et Institutions'
Le 06/04/2018

Within the PPP spectrum, which does not include performance based global contracts such as Design & Build, EPC and turnkey paid upon completion of the construction or  of the infrastructure, the role and particulars of “People First PPP” (PfPPP) deserve to be well appraised.

Broadly speaking, PfPPP mean in most cases PPP for the delivery of essential public services to the people having a maximum transformational effect and which are in many low and middle income countries a prerequisite to meet the SDGs[1].

Based on lessons learnt internationally, the actual development of pipelines of PfPPP projects needs to comply with a structured and transparent process of planning and preparation followed by competitive procurement. The related procedures and fulfillment of the selection criteria often necessitate exchanges or negotiation with the bidders. This increases substantially the corruption risks at different stages. Those risks often discourage serious bidders to make the costly effort to bid for a PfPPP projects. It is important to keep in mind that the bidding costs for such projects are much higher than bidding costs for the same projects providing for a public building or infrastructure paid for upon completion and delivered either under traditional remeasurement methods or under global and often lump sum contracts such as DB, EPC, DBO and others.

Public Contracts

PfPPPs belong to the category of public contracts. As such, the core principles underlying the procurement of public contracts are also applicable to PfPPP procurement. This includes competitive bidding, transparency and non-discrimination. The UN Commission of International Trade Law (UNCITRAL) Model Law on Public Procurement provides that a well-designed procurement a) maximizes economy and efficiency, b) fosters and encourages participation in the process, c) promotes competition for the subject matter of the procurement, d) provides fair, equal, and equitable treatment of those involved, e) promotes integrity, fairness and confidence in the process by stakeholders, and f) achieves transparency in the process.[2]

Those principles need to be adapted to distinguishing characteristics of PfPPP which impact on procurement. The main one is to aggregate in one single composite contract, the financing, design and construction or rehabilitation of a public infrastructure together with the delivery of part or of a full public service by the private partner. In addition, most public services need to accommodate changing needs of the people during the long period of the venture. This triggers a “partnership situation” which has to include several rights and obligations aiming at maintaining within certain limits the economic equilibrium over the lifetime of the project. This means a fair and equitable approach to future contingencies and opportunities uncommon or of a much different magnitude from any other type of public contracts. The procurement challenge of PfPPP is to evaluate and anticipate issues and risks of various natures and to select a private partner able to make global commitments for financing and designing an infrastructure including the delivery of a service meeting performance parameters and providing for a real partnership where interest of the people is the paramount. Arguably the most important distinguishing characteristic is to bring the public and private sector together in a lasting partnership that is not a short term ‘deal’.

This translates in legal terms to a contractual approach sometimes closer to company law than traditional contract law. Well-designed PfPPP contracts including appropriate procedures structuring a “partnership behaviour and decision making process” can be rather simple since several template clauses of more or less universal nature can be used, especially when the particular conditions provide for an agreed economic and financial scenario based on a transparent business case and updated on a regular basis.

The impact of this situation on public procurement is many folds. For instance one of the main selection criteria in traditional public procurement is the price to be paid upon acceptance of the works or after checking key performance parameters. By contrast, in the majority of cases, the price to be paid for the works or the infrastructure is not the main criterion PfPPP. Indeed, there is no price for the infrastructure to be paid upon completion, and the price for the service to be rendered is only one of the criteria among many others which include an optimum design commensurate with innovation, improvement, adaptation of the service, limited maintenance costs, robust asset replacement plan, limited impact on public budget etc. In practice, a “Basket” of performance criteria with appropriate weighting ratio, including the above elements, is a recommended procurement approach to select the private partner.

The above considerations explain that the framework and procedure of the procurement process of PfPPP contracts remain to be well-formulated and optimised in many jurisdictions.

This situation by itself leads to more corruption risks in PfPPP than in traditional public procurement.

 The Three stages of PPP procurement

Since pipelines of PfPPP can play a leading role for economic development, they need to be designed and developed in an integrated manner at local, regional or national level in order to maximise their transformational effect and chance to meet the SDGs.

As a result, PfPPP should be developed in three main stages starting by planning and prioritisation (stage 1), followed by the development of the project feasibility, choice of the procurement process and design of bidding documents (stage 2) and by an appropriate  procedure for selection of the bidder including contract signature (stage 3):

  • Stage 1 planning and prioritisation: This stage involves several layers of evaluation and approval at micro and macro levels starting by an evaluation of the needs of the users, including public consultation and relevant NGO on the scope of the possible service, and contributing capacity. At various levels, it must also consider the relationships between this service and other public services and local, regional level, the impact on the environment, on economic development, on externalities, the SDGs etc. The next step is to appraise the order of magnitude of the investment and operation costs with a prima facie analysis of existing regulations and procedures in compliance with the government vision on development. This stage necessitates an iterative approach “top down” and “bottom up” concluding with a justification of the PfPPP route over other delivery methods using various criteria such as minimum funding, financing guarantees from public authority or government, social economic impact, best value for people, environmental and SDGs compliance and others.

The completion of the planning and prioritisation phase should generally take the form of a list of PfPPP projects to develop as a part of a national, regional or local infrastructure development.

  • Stage 2 development of project feasibility including choice of the procurement procedure and bidding documents: This stage should generally be developed by the public authority in charge of organising the procurement and signing the PfPPP contract.

In order to limit costs before the tender and to limit transaction costs during the selection process, the development of project feasibility should be divided in 3 steps starting by prefeasibility, followed by feasibility and decision to tender which must be itself based on a clear and simple conceptual economic and financial scenario and concluded by the preparation of the tender documents.

Step 1 – Prefeasibility: It includes an analysis of all the important factors to be taken into account for the decision to tender but only up to a certain level of detail or certainty. This is at the same time much simpler and less costly and much more comprehensive than studies and specifications necessary in traditional procurement of public construction contract. In practice, this means to review, update and develop some of the analysis and studies carried out during the planning and prioritisation stage including a deeper evaluation of the needs and contributing capacity and of the investments, operation and maintenance costs, the possible financial sources for different stages of the project etc.

The outcome of prefeasibility is generally to provide several options on the scope of the service and on general characteristics of infrastructure needed, including the related technology together with the funding or financing possibility for the various options which will impact on the delivery method and scope of participation of the private partner to the public service. A prefeasibility report should summarize the situation for evaluation by relevant authority or institutions.

Step 2 – Feasibility: When the conclusions of a prefeasibility report are positive, the public authority should develop a well-structured feasibility phase deepening some studies in order to reach a higher degree of certainty and carry out additional studies and analysis. The objective is to select one or more preferred option in terms of scope of the service, functionality, technology, funding or financial possibility and real appetite from lenders. This should include market sounding of potential bidders in order to attract serious bids.

Feasibility generally concludes by a report including a conceptual economic and financial scenario including a reasonable rate of return (IRR) over the lifetime of the venture. A project feasibility report should be drawn up and evaluated by the public authority and relevant institutions, leading to a decision to prepare a tender or not.

The report should also indicate the proposed procurement process with reasonable justifications: public payment (or PFI PPP) or PPP from the Concession family where the private partner must deliver a full public service and recover entirely or mostly from the users etc. This will affect the prequalification/pre-selection, the one or two stages procurement and/or the organisation of a competitive dialogue or competitive negotiation process.

Step 3 – Tender preparation and tender documents: Tender preparation should focus on the identification of the main characteristics of the service to be delivered and to its key performance parameters. An initial conceptual design shall be prepared together with minimum requirements and norms. Since in most cases, with the exception of simple and repetitive projects, a pre-selection including only the prequalified bidders having the best composite score is recommended, the prequalification documents should be clear and intangible for fundamental conditions and requirements but remain as open as possible on design, construction, operation and financing options in order to attract as many expressions of interest as possible for prequalification or pre-selection.

Preparation of the tender documents which cannot deviate from the intangible requirements and conditions indicated in the prequalification should be adapted to the proposed procurement process. It is recommended that an important part of the tender documents summarizes the objectives of the venture in relation to public service delivery and satisfaction of the people for due consideration and integration in the tender and contractual documents.

A term sheet of main risks and opportunities together with a list and template of key contractual clauses is recommended in order to guide efficiently the bidder or to clarify the scope of any possible dialogue or negotiation.

  • Stage 3 procedure, selection of bidders and contract award: procurement procedure should be organised in compliance with best practices and norms taking into account inter alia UNCITRAL Model Law and latest developments on the matter.

Several principles and standards which are further developed in the UNECE draft standards towards Zero Tolerance to Corruption in PPP procurement are recommended. For instance, unless duly justified, the selection of bidder should not take place if important contractual clauses remain to be negotiated or if the private partner is not able to provide sufficient guarantees of funding and financing.

[1] The growing consensus on the definition of “People First PPP” meeting the SDGs in low and middle income countries is rather straightforward. It relates essentially to PPP having the following characteristics:

  • At macro level: PPP project which are part of a national or regional public infrastructure development plan providing inter alia for pipelines of essential public services projects to be developed in PPP with a maximum transformational effect and minimum drain on fiscal budget.
  • At project level: A physical infrastructure which is the support of a public service is designed, financed, built or rehabilitated and operated by a commercial company selected by way of competitive bidding and operating the service in accordance with the provisions of a contract, entered into with the public authority in charge of delivering such a service.

The contract, based on functional specifications and performance criteria provides for a compensation of the company by the public authority or by the end users (or a combination of both). The service is rendered for a time period calculated in such a way that the company may amortize all costs and make a reasonable profit.

At the expiry of the term, the infrastructure is transferred in good operating conditions to the public authority, generally without compensation unless, such compensation is provided for the contract.

[2] UNCITRAL Model Law on Public Procurement , January 2011, available here:  http://www.uncitral.org/pdf/english/texts/procurem/ml-procurement-2011/2011-Model-Law-on-Public-Procurement-e.pdf