Providers of debt and equity should be fully committed at the binding bid stage.
For debt, this is likely to take the form of a firm credit approval or a term sheet signed by authorised officers with clearly defined conditions that government can assess and evaluate. The financiers are required to acknowledge their offer and the fact that government is relying upon it in considering the bid, so that any resiling from the offer (where the conditions precedent have been met) will be equivalent to the financier resiling from an offer to government. A bid supported in this way is considered to be a 'fully funded bid', although the funding is not strictly 'cashed up'.
It is important to ensure that any conditions precedent in a financier's term sheet is limited as much as possible and readily capable of fulfilment, to restrict the risk that the expected cash funding will not eventuate.
Fully funded bids give government assurance that the proposal submitted by the bidder is financeable. They also limit the scope for the preferred bidder's financiers to delay project commencement by reopening the range of issues for negotiation after the preferred bidder has been selected.
Government may also request additional, more direct forms of assurance from the private party (and in turn from the sub-contractors), including guarantees (such as parent guarantees), indemnities and provisions for contractual damages claims.
Where debt and/or equity instruments are to be sold into the capital markets, it is appropriate for a capable and reputable institution to underwrite the funds to be raised.
A bond or other financial commitment may be sought as security that financial close does in fact take place.