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Managing PPP Transactions

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In the transaction stage, the government selects the private party that will implement the PPP. This process will also determine the effective terms of the contract. This stage follows the structuring, appraisal, and detailed preparation of the PPP described in the previous sections of this module. It concludes when the PPP reaches financial close—that is, when the government has selected and signed a contract with a private party, and the private party has secured the necessary financing and can start deploying it in the project.

Transaction Stage of PPP Process

Transaction Stage of PPP Process

The aim of the PPP transaction stage is twofold:

  • To select a competent firm or consortium
  • To identify the most effective and efficient solution to the proposed project’s objectives—both from a technical, and value for money perspective

To the latter end, the process typically establishes some of the key quantitative parameters of the contract, such as the amounts the government will pay or the fees users will pay for the assets and services provided. Achieving these objectives generally requires a competitive, efficient, and transparent procurement process, as outlined in the PPIAF toolkit for PPPs in roads and highways procurement section (WB 2009a) under competitive bidding; in the Caribbean PPP Toolkit (Caribbean 2017, Module 5); and by Farquharson et al (Farquharson et al. 2011, 112) in describing the outcome of the procurement phase.

Since most governments use a competitive selection process to procure PPP contracts as the best way to achieve transparency and value for money, this section assumes a competitive process is followed. In practice, there may be a few circumstances where direct negotiation could be a good option. However, many reasons put forward to negotiate directly are spurious, as described in Competitive Procurement or Direct Negotiation.

Competitive Procurement or Direct Negotiation

A competitive selection process is the recommended route to procure PPP contracts. Key advantages are transparency and use of competition to choose the best proposal—the mechanism most likely to result in value for money. The alternative to a competitive process is to negotiate directly with a private firm.

There can be good reasons to negotiate directly, but these are relatively few—see for example Kerf et al’s guide to concessions (Kerf et al. 1998, 109–110) and the World Bank report on the Framework for Unsolicited Proposals' (WB 2017d) sections on direct negotiation. These reasons include:

  • Small projects with known costs, where the costs of a competitive process would be prohibitively high given the level of expected returns;
  • Cases where there is good reason to believe there would be no competitive interest—for example, small extensions of an asset for which a contract is already in place; and
  • The need for rapid procurement in the case of emergencies and natural disasters, where speed may outweigh value for money considerations, although this is often not the case when dealing with PPPs, better able to deal with long-term needs than with urgencies.

Whenever a government allows for direct negotiations under specific circumstances, these circumstances and their associated criteria should be clearly specified in the procurement legal framework. Direct negotiations should only be pursued once suitable safeguards for value for money, transparency, accountability, and public interest have been established and operationalized.

On the other hand, several reasons commonly put forward to negotiate directly with a private proponent of a PPP can be misleading—see the section in PPIAF’s toolkit for PPPs in roads and highways (WB 2009a), Module 5: Procurement on overall principles for procurement. For example, some argue direct negotiation is faster—though in practice, challenges often make the process longer. Often, direct negotiation is also considered when a PPP idea originated from an unsolicited proposal from a private company. However, there are ways to introduce competition in this case that help ensure value for money from the resulting project, as described in Dealing with Unsolicited Proposals. Based on these considerations, some countries do not allow non-competitive procurement processes at all,such as Brazil, under the Federal PPP Law of 2004 (BR 2004a). Elsewhere, direct negotiation may be allowed in particular circumstances. For example, Puerto Rico’s PPP Act allows for direct negotiations if the investment value is under $5 million, there is lack of interest after issuing an RFP, the normal procurement process is burdensome, unreasonable, or impractical, or the technology required is only available from a single company (PR 2009, Article 9.(b).ii).

Direct Negotiation of Unsolicited Proposals outlines several preparation requirements for those procuring authorities that need to directly negotiate an unsolicited proposal.

Transaction Steps

Transaction Steps

The transaction stage typically includes the following five steps, as shown in Transaction Steps:

  • Deciding on a procurement strategy, including the process and criteria for selecting the PPP contractor
  • Marketing the upcoming PPP project to interest prospective bidders (as well as potential lenders and sub-contractors)
  • Identifying qualified bidders through a qualification process, either as a separate step before requesting proposals or as part of the bidding process
  • Managing the bid process, including preparing and issuing a Request for Proposal, interacting with bidders as they prepare proposals, and evaluating bids received to select a preferred bidder
  • Executing the PPP contract and ensuring all conditions are met to reach contract effectiveness and financial close—this may require final approval from government oversight agencies

Managing PPP Transactions describes each of these steps, and provide further resources and tools for practitioners interested in managing PPP transactions.

Subsections

  1. Deciding the Procurement Strategy
  2. Marketing the PPP
  3. Qualifying Bidders
  4. Managing the Bid Process
  5. Achieving Contract Effectiveness and Financial Close

 

Key References

Managing PPP Transactions

Visit the PPP Online Reference Guide section to find out more. 

 

Note(s):

Find in pdf at PPP Reference Guide - PPP Cycle or visit the PPP Online Reference Guide section to find out more. 

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