6. Property rights effectively enforced, and compensation for expropriation is fair (including history of expropriation, which when necessary must be limited to cases that can be justified with reference to specific criteria and must employ fair compensation)
7. Local courts demonstrate competence, independence and efficiency
8. Procurement practices are fair and transparent
9. Effective political commitment to eradicate public sector corruption (in contrast with a reaction that borders on resignation and acceptance)
10. Political commitment to public and private financial transparency (including an adequate level of disclosure and independent auditing)
11. Government addressing problems of corrupt corporate practices (including purchasing kickbacks)
12. Community and stakeholder participation in government policy making (especially the practice of consulting with communities and integrating community inputs)
13. The press/media is free, formally and in practice
14. Environmental protection adequate
These indicators are meant to be contained in questions and to be answered using a performance rating scale, such as a scale of 0-4 with 4 being the highest score. For instance, for the indicator "Possible to register and get permission to start up a new business quickly and easily," the following scaling guide may be applied for the time spent in setting out to apply for permits up to the receipt of all required permits:
4 - Average time is less than 1 month
3 - Average time is 1 month to 2 months
2 - Average time is more than 2 months up to 4 months
1 - Average time is more than 4 months up to 8 months
0 - Average time is more than 8 months
Note however that utter readiness is not a requirement in undertaking PPP transactions. They do not present absolute thresholds but are used for ranking to indicate the level of risks, marketability and possibility of success of PPP projects.
LGUs are however advised to heed two best practices in promoting PPPs, namely:
1. Ring-fencing of the service offered for PPP implementation into a distinct economic enterprise. It is not uncommon among LGUs to operate their public services, including those with user fees as part of their regular administration, budgeting and resource utilization process. The water service, for example, has no separate account. Its funds co-mingle with general funds. It co-shares the services of the engineer, accountant and treasurer. There is no transparent accounting of the cost of providing the service and no performance indicators are set. Hence it is difficult to assess the financial and technical performance of the service. Ring-fencing is recommended as a means to separate the accounts of the service and to make the service provider accountable for achieving performance targets and overall viability of the service. It is the first critical step in ensuring good governance, particularly by mimicking a corporatized structure. It includes the separation of financing accounts, consolidation of financial accounts across different products and services within the organization and its branches/subsidiaries, effecting physical and procedural internal divisions (Chinese walls) to contain certain information and activities, assigning protocols for disclosure and exchange of information between internal units of the LGU, and consistent application of rules for cost/ revenue attribution and an appropriate allocation of common or joint costs, including overhead costs. LGUs are allowed to set-up Special Accounts for their economic enterprises, separate from the general fund.
2. Clarifying regulatory framework, particularly principles and guidelines for tariff setting, and performance standards. For most of its basic services, LGUs are not subject to regulatory oversight by an independent body. Rather, LGUs exercise economic regulatory function through their respective Local Sanggunians, which adopt their own guidelines or adopt decision rules on an ad-hoc basis, ungrounded by sound economic principles. Given the lack of guidelines, the recourse of the Local Chief Executive is regulation by contract. Specifically, the contract that will be approved by the Local Sanggunian should include in explicit and unequivocal terms the process, parameters, methodology and formula for tariff setting and adjustment; and performance standards expressed in key performance indicators. The parameters for the rate adjustment should be indexed to independently and objectively derived factors, for example, consumer price index, interest rates, etc.