Engaging Advisors in Asset Recycling

Advisory Services for an Asset Recycling Project

Figure 1: Advisory Services for an Asset Recycling Project

The engagement of advisors should consider three considerations: (i) Setting up a coherent multidisciplinary team, (ii) ensuring independent advice and (iii) value for money in engaging the advisory services. Key aspects that should be considered are:

Selection of advisors

• Terms of reference should set out the context and objectives of the transaction, how the transaction is to be managed, the role of the advisor, and the required deliverables and deadlines.
• Scope of work should be clear, specific, and time-bound and should not be open-ended.
• The size requirements of the advisor's team over the transaction phases should be carefully considered. The team may need to scale up or down to adapt to the workload over the transaction phases.
• Asset-recycling and sectoral experience should be an important selection criterion and should be evidenced by a credible set of credentials.
• Evaluation should focus on the skills of the nominated individuals and the firm. The quality of an assignment depends on the quality of the people involved. The firm’s reputation and track-record of relevant mandates and the credentials of the individuals proposed should also be carefully considered.
• There should be sufficient flexibility to allow for contingencies such as extension of scope or time in delivering the transaction.
• In evaluating the potential advisers, the Relevant Authority should ensure a balanced approach in evaluation to ensure that sufficient consideration is given to the track record and ability of the adviser so that the lowest price proposition is not always favored.

Structuring advisor’s contract

The Relevant Authority should determine if advisors should be engaged through an integrated contract or separate contracts. The decision must be taken case by case by considering (i) the local advisory market (ii) resources available within the Relevant Authority to manage the transaction and (iii) the features and complexity of the proposed transaction. Description of the procurement models are provided below:

• Integrated contract – A single procurement procedure is launched to appoint a consortium of advisors.
  • This presents a more streamlined approach to the Relevant Authority; requiring less involvement in coordinating separate advisors and should have lower interface risks amongst the various advisors. The head or lead contractor will be responsible for coordinating the inputs and deliverables under such a contract.
  • A disadvantage is that the Relevant Authority may not be able to engage the best advisor in each respective field as the consultancy team determines the make-up of the advisory team. This can be mitigated by Relevant Authority setting clear criteria and the skills required for selection and for each specific advisor.
• Separate contract – Procurement procedure is launched for each advisor required for the project. This will require the management of different sets of advisers if there is no project management firm or lead advisor appointed.
  • Given separate contracting required, the procurement and the contracting processes may require more resources and time.
  • A disadvantage is that Relevant Authority may not be able to leverage the synergies among the advisors.
  • The government entity will need to not only manage various advisors, but also integrate advice from the separate workstreams. This may be the responsibility of the Relevant Authority, or it may need to appoint one of the advisors (typically the financial advisor) to do so (for a fee).
• Mixed – It is possible to use a mixed approach by mandating a separate contract for a specific advisor, for example where a specific workstream is very critical or where availability of good advisors seem rather limited and appoint the others as a consortium.

Optimum length of advisory contracts

The advisor’s terms of engagement should include (i) the phase covering due diligence, the preparation of business case and advising on the optimal asset recycling project structure, (ii) the procurement phase including the preparation of the tender documents, the running of the bid process and evaluation of bids, (iii) negotiations with the preferred bidder and up to contract and financial close, and (iv) preparation of contract management plan, including reporting requirements and training workshops for the Relevant Authority to build capacity on monitoring performance and contract administration.

Payment structure

The fees should provide effective incentives for the advisors to meet the Relevant Authority’s objectives for the transaction. Advisors should be remunerated based on delivering the prescribed work packages that cover identifiable phases of the project’s development with remuneration commensurate with effort and complexity of the transaction. There should be some flexibility that allows the Relevant Authority to implement some changes in scope and extensions.

Key Elements in Drafting Terms of Reference

The following key elements in drafting the terms of reference for the advisors should be considered:

Table 2: Key Elements in Drafting Terms of Reference