VfM is a fundamental requirement of the PPP process, particularly in the Procurement Phase of a Project. The importance of this is stressed in the SE VfM Assessment Guidance for PPPs.
If at Preferred Bidder selection one senior debt solution, based on the above assessment, offers clearly appropriate VfM and deliverability, that route should be selected to proceed to financial close with. If the bond route is chosen, there may be scope to "vary" the final bond type up to 6 weeks prior to financial close. For example by adjusting from fixed gilt to and index linked product, subject to payment mechanism requirements in order to provider the overall lowest cost solution. Similar situations can arise on bank deals through alerting RPI swap arrangements and introduction of private placement providers.
PAs may take the view that it will enhance VfM and deliverability / robustness of the funding route by conducting the final funding route selection post formal Preferred Bidder appointment. However, care must be taken to ensure that the preferred bidder appointment is robust and defensible on this basis, and that the factors likely to change after preferred bidder stage are clear and unambiguous. It is expected that this final funding route selection would involve existing consortia funding sources and not be opened to other external funders. The following points should be considered -
When this approach is taken, PAs should consider:-
i. impact on timetable of this process
ii. cost to PA and to consortia
iii. impact on Preferred Bidder letter (requiring to agree process and protocol for final funding route selection within it, including impact of sign up to SOPC3 / SSSC including Payment Mechanism and related calibration)
The final funding route selection process should:-
1. allow funders to re-price and reconsider funding terms and conditions BUT ensuring that contractual terms and risk transfer are not altered from PB letter
2. ensure the final / near final scope of the project is reflected in what is priced
3. ensure that PAs take account of pricing requirements and reference terms of both Bank and Bond solutions as detailed above for individual funding routes
4. ensure qualitative and quantitative areas are assessed in evaluation
5. select the final funding route circa 12 weeks prior to financial close
6. if a bond route is selected, there may be flexibility to confirm final bond type as close as 6 - 8 weeks pre bond launch
As well as monitoring VfM (for example if a funder fixed the funding cost at the funders risk at the time of selection), Procuring Authorities must carefully analyse any remaining risks relating to funding that could emerge up to financial close, and to the extent possible consider mitigation strategies in respect of these.