2.1 Project selection

The ultimate objective of a project selection process is to ensure that it represents "Value for Money". Value for Money refers to the best available outcome for society taking account of all benefits, costs, and risks over the whole life of the project.<2> A necessary condition for a project to represent Value for Money, irrespective of the procurement option chosen to deliver the project, is that the benefits to be derived from the project outweigh the costs. This is normally tested by undertaking a cost-benefit analysis of the project and its requirements.

A distinctive feature of PPP projects is that their requirements are defined in terms of outputs rather than inputs. Conventional project procurement has usually focused on inputs. In this regard, PPPs involve fundamental changes in the way projects are prepared and in the information that the public contracting authority needs to provide to private sector investors. While the typical set of feasibility studies used in the public procurement of transport projects focus on inputs, PPP projects demand a clear set of output requirements and service quality standards which are reflected in the PPP contract (see step 3.2.6, Prepare draft PPP contract).

In the project selection step, the public contracting authority and its advisers will review alternative project definitions in the context of a PPP policy, sometimes following guidelines that the public sector will use to assess all PPP projects. These guidelines normally specify who approves what and when throughout the process of project selection, preparation, and procurement.

Once a project specification is selected, the public contracting authority and its advisers will undertake feasibility analyses and project preparation, including traffic demand analysis, cost analysis and a preliminary environmental assessment of the potential impacts of the project.

In the project identification phase, and in order to consider the PPP procurement option, the public authority and its advisers need to answer a set of key questions:

□ Is the project affordable? Will users or the government, or both, pay for the project? How will they pay? (user charges, operating subsidies, EU grants, government guarantees, etc.).

□ What are the key sources of risk in the proposed project? What is the optimal risk allocation and risk management strategy?

□ What are the financing sources for the proposed project? Will the project be bankable (capable of raising debt finance) and attract investors and comply with the requisites for EU funding?

□ Even if the project is affordable and bankable, does the project represent Value for Money?

□ For many countries, the issue of the balance sheet treatment of the project (ie will it score as a public sector investment for purposes of the Debt and Deficit Procedure) is also important.

Stage 2.1 identifies a list of issues and considerations for the attention of the public authority and its advisers. It does not however offer a comprehensive catalogue of recommendations, as the assessment of the PPP choice will be dependent on the specific situation of each country, notably in terms of legal and institutional context. The TEN-T Executive Agency, DG MOVE and EPEC may develop these considerations and provide more tailored guidance in a future document.