As mentioned in Section 9.3.4 , the pricing of public bonds (and in some cases private placements) is only confirmed a few days prior to actual issuance and final public bond pricing is largely market-driven, so there is a risk of price fluctuation between final offers and financial close. In order to help eliminate any potential uncertainty in price between the bid stage and final pricing, at an early stage of the procurement process the Contracting Authority and the bidders should discuss a risk sharing mechanism for allocating the risk of price fluctuations. Depending on the jurisdiction, this will often result in bidders providing a firm upfront commitment, with the fluctuation risk being assumed as agreed - usually by the Contracting Authority but sometimes by all (or a combination) of the sponsor, the bidder, the investors and the Contracting Authority. Such mechanisms may also be left to the bidders' discretion as part of their bid strategy.
Following appointment of preferred bidder, the Contracting Authority should also require the preferred bidder to track pricing movements and inform it on a regular basis up to financial close.
Contracting Authorities should also ensure that the mechanics of the closing fit with national (public) law rules on budget approvals (as the preferred bidder announcement or award may take place for a price that will only be determined after the award and may need to be conditional).
| CIVIL AND COMMON LAW DIFFERENCES France's public procurement rules oblige the Contracting Authority to agree on a total cost of the PPP Project at an early stage - an approach generated by practice rather than law. This may steer the transaction towards bank financing and private placements because the price in a public bond issue is only set at the 'pricing' stage (a few days before issuance) which creates uncertainty in the exact total cost of the PPP Project. Belgian market practice, and to a large extent public law, is in many ways similar to that in France, but a bond financed road project proved possible through a combination of innovative tender and contract rules, including measures whereby the Contracting Authority could assess and approve maximum expenditure prior to contract award. |