Ensuring Good Quality PPP Projects Martin Darcy
Potential Projects • Water/Sewerage • Power provision • Airports / Seaports • Highways / Bridges / Tunnels • Hospitals • Prisons and Court Buildings • Schools / Colleges / Universities • Libraries and Museums • Government Buildings (National / Municipal) • IT / IS / Telecoms • Waste Management • Car parking
How a PPP project is created • Three main phases • Project preparation and development • The bidding and negotiation phase • Implementation and operating phase
1. Project preparation and development • Define project objectives, need and business case • Create the team (including external advisers) • Risk assessment and strategy • Technical Dialogue *** • Procurement strategy and realistic timetable • Develop bid evaluation criteria • Draft contract documentation • Approvals and marketing • Without proper preparation the project will probably fail (before or after award process )
Technical Dialogue Current position is confirmed: • Before launching a procedure for the award of a contract, contracting authorities may, using a technical dialogue, seek or accept advice which may be used in the preparation of specifications, provided such advice does not have the effect of precluding competition.
2. Procurement and negotiation • Advertisement and calls for expressions of interest • Prequalification and selection of bidders • Issue of tender documents to selected bidders • Return of bids • Evaluation of bids • Select ‘Preferred Bidder’ • Contract negotiations • Commercial / financial close • At least 12 months
3. Implementation,Operationand Regulation • Creating a working partnership • Managing contractual obligations • Extracting the efficiencies • Delivering / improving the services • Change management
Financial Advisers Government Client Legal Advisers Financial Advisers Project Agreement Specialist Advisers Legal Advisers Special Purpose Company Equity Financed by Specialist Advisers Long Term Debt Finance Principle subcontracts Operating Contract Design and Construct Contract Design Construction Subcontracts Operating Subcontracts Contractual Organisation Example
100% More risk more equity 20% EQUITY Investmentcost Long term Borrowings Debt is cheaper than equity 80% 0% Simple Funding Principles For A PPP Project using Private Finance
Risk Management – at the heart of the matter • Identify • Analyse • Allocate • Mitigate ‘The risk should be borne by the party best able to manage it or to manage the financial consequences’.
Treatment of Risk • Key to Lenders and Investors • Will affect the overall value for money of the project
‘Gateway Reviews’ • Mandatory in the UK and aimed at improving the quality and outcomes from public investment programmes / projects • To identify and prevent mistakes that may only materialise when it’s too late • Gives confidence and assurance to decision makers • Idea based on the concept of ‘Peer Review’ in common and widespread use in the private sector for decades. • Must be independent • Must not be burdensome or bureaucratic
Each Gateway…. • …has a team of usually three people all independent of the outcome • …team will meet for a briefing followed by the review itself. Total time and commitment usually less than two weeks per stage. • …need not delay anything. They are usually run in parallel with other activities • …should not be costly • …produces a draft report to the senior official for comment followed by final report. • …report uses a ‘traffic light ‘ system for evaluating specific issues: • Green = no problem – go • Amber = issue identified - proceed with caution • Red= major problem identified – do not proceed without immediate remedial action
Differing motivations between public works contracts and PPPs • Public Works Contracts • Often an in-built motivation towards cost over-run and delay • Concessions/PPP • In-built motivation towards on time and on budget completion
Learning Lessons • Value For Money (VFM) Audit (ex post evaluation) • Provide Parliament with independent info, advice about how • economically • efficiently • effectively public bodies use their resources • Help bodies improve VFM performance