A.22 The choice of whether or not to run a debt funding competition ("DFC") at the preferred bidder stage is a choice for the Authority, the sponsoring department and their advisers (financial, legal and technical). With input from advisers, the public sector should realistically assess the advantages and disadvantages of requiring a DFC at the preferred bidder stage. This is a complex judgement and Authorities should set out their chosen approach and supporting rationale in the OBC.
A.23 Factors in choosing to require a DFC at preferred bidder include:
• the novelty and complexity of the project3 or the risk allocation between project parties;
• the size of the required financing, both in absolute terms and relative to the available capacity in the market, taking into account financiers" risk appetites and client relationships;
• differences in credit standing / commercial approach between the likely bidders;
• financing market conditions;
• length of time between preferred bidder and financial close / impact of the planning process; and
• the impact on time and resources for the both the public and private sectors.
A.24 Particularly for novel/complex projects and large projects where the financing package involves (or will involve) a significant proportion of lenders in the market, early lender involvement in some form is likely to be appropriate. This does not necessarily preclude a DFC but the Authority will need to consider how the two processes will interact (e.g. structuring banks, right to match, etc.)
A.25 Where applicable, projects should also allow time and resource in the procurement plan for running the DFC. Running an effective DFC, particularly under competitive dialogue, requires the appointment of public sector advisers with a good understanding of what the financiers will ultimately require. Using a preferred bidder DFC may also impact on the approach to due diligence (see A.27 to A.33 below).
A.26 Authorities should always reserve the right to require the preferred bidder to run a DFC.
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3 Including projects with core characteristics different to the majority of PPP projects financed to date (e.g. demand / third party revenue risk, significant retained estate, challenging construction requirements, technological risk, high operational gearing or non-standard capital contributions)