The process of selecting a PPP partner is one of the best opportunities for the Regulator to get things off on the right foot and greatly increase his opportunity for a successful outcome. In designing the PPP bidding process the regulator:
- Should encourage the bidder's creativity. This is one of the key benefits that the private sector partner can bring to a PPP process. The proposal must allow bidders to express their views, to apply their know-how and to offer variants. Unsolicited proposals should be encouraged.
Two step bidding processes with a strong filter on the proposer's capability and experience as the first step helps ensure effective use of limited regulatory resources and increases the interest in bonafide players to participate in the process.
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- Judge all proposals received by carefully assessing the capabilities, credibility and commitment of the proposers and carefully respecting the intellectual property rights that are inherently represented in their efforts.
- Reserve the right to choose a proposer on the basis of known and qualitative abilities. Financial criteria cannot be sole selection criteria. At first glance one offer may seem superior to another based on the size of an up front payment for concession rights, but once the "strings on the money" are better understood, differences in concession term accounted for, ownership of upside benefits inherent in uncertainty of modeling considered, the full economic picture may be completely different.
- Recognize that the concessionaires capital contribution is determined by financing community requirements and should not be artificially capped
- Establishe the clear legal framework required, comprehensively addressing authority, process and interrelationship with other levels of government including overlapping areas of legislative coverage
- Provide clear definition of environmental process and an unambiguous commitment to move aggressively forward
- Implement a well defined and transparent concession process with clearly defined selection criteria
- Clearly define the obligations of concessionaire to:
- Build
- Maintain in good condition
- Operate
- Hand over the works at end of period
A key area of focus by the Regulator in the design of the bidding process is identifying rights of the concessionaire. These must be clearly defined in a number of areas including:
- Counterparty rights which arise from financial agreements, including subsidies and tariff guarantees included in the contract.
- Rights to operate the service and the degree of independence of those rights from the granting authority
- De facto monopoly rights
- Rights with respect to third parties
- State rights transferred to concessionaire (eminent domain)
- Rights to use the facility and receive fees
In the design of the bidding process the regulator must also consider the rights of government to repurchase concession at an early date and basis for any such repurchase.
The procurement process itself should be carefully conceived and:
- Should not be built around competing on toll levels or expected usage (increase risk to government from increased likelihood of concession company default)
- Should have adequate preliminary studies complete to define project scope and facilitate advancement of the environmental process
- Rely on careful pre-selection of qualified bidders to ensure capability to meet financial commitments
- Carefully define government's role and obligations at outset of process
- Provide an opportunity to comment on tender documents and negotiate contract form in advance of proposal submission
- Clearly define the evaluation criteria
- Establish a realistic timetable for the negotiation process.
A draft contract where the client sets out its preferred risk allocation and payment mechanisms will also facilitate conclusion of a successful PPP process. The draft contract should build heavily on the dialogue the regulator is encouraged to have with the private sector.
Throughout the design and implementation of the bidding process, the regulator must keep several issues front and center in order to ensure ultimate success. Specifically:
- Ensure that the problem the PPP project is intended to address is clear and agreed on. PPPs will only make sense when the actions of both parties, government and the private sector PPP provider, are necessary to
solve the problem
- Don't underestimate the transaction process
- Continue to invest executive management time and energy. This is a high level, strategic transaction that requires sustained involvement throughout the entire process.
- Get the fundamentals right. Management skills, especially project management skills, are important to ensure that the critical path is aggressively managed
- Assure that the objectives, deliverables and definition of success remain clear to all stakeholder groups.
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