The diagram below provides an overview of a typical PPP procurement timetable. On this basis, a project may take 4 years from conception to signature (and in practice longer periods are seen). It can be seen that it is quite possible for the whole procurement process to overlap political terms; for this reason it is common to see politicians pushing for timelines to be shortened, but this may not be compatible with the goal of achieving a well-structured project that stands the tests of time.

(a)        Preparatory stage

At the preparatory stage the government parties should be clarifying the objectives of the proposed scheme. This would include defining the scope and reviewing the feasibility of the project. This may also include carrying out market soundings – inviting the industry to comment on the proposed procurement on a basic level – i.e. “Do you agree with PPP as a method for procuring this new project? What problems do you envisage from an investor or lender perspective?”.

At a suitable point in advance of the contract being notified, the government will probably want to generate some interest for the project amongst the private sector contractors and advisers by issuing information in the form of a Preliminary Information Notice or Project Information Memorandum. This is in addition to hosting bidder days through which the government will make presentations on the proposed scheme.

During this period the government will also be assembling its team and making internal preparations such as:

• clarifying the funding structure;
• assessing affordability;
• working out how to communicate with stakeholders (e.g. users, unions, local authorities, utilities);
• assembling data to be provided to the bidders, e.g. data on employees who may transfer, site condition surveys, etc.;
• preparing for land acquisition, if it is not already owned; and
• preparing the tender documentation.

(b)        Pre-qualification

The project will then be advertised and the advertisement will usually clarify what type of scheme is involved and may invite expressions of interest. It may provide that a further, more detailed information memorandum is available to interested participants.

For a major scheme there will typically be a pre-qualification process. This is aimed at reducing the number of unsatisfactory bidders proceeding too far in the process and wasting valuable government time.

Based on the expressions of interest received, a smaller number of parties (usually around six to eight) may be invited to pre-qualify by completing a pre-qualification questionnaire (PQQ). This will largely be a “look–backwards” exercise to assess the financial and technical capacity of the party and the experience of the proposed bidders or bidding groups. The PCQ will also address some basic legal questions and requirements, answers to which may otherwise exclude the bidders, e.g. corruption or other criminal activity.

It is often the case – particularly in PPPs where a number of different entities need to come together to deliver a solution – that consortia are made up of a number of different entities. The bid procedure should clearly provide flexibility for the government to accept or decline any variations in the bidding groups throughout the process, provided that the government is satisfied that the bidding group would have been pre-qualified in the current makeup. This will also reduce the risk of challenge by other bidders for technical reasons.

Some pre-qualification questionnaires are more involved and also require an element of forward-looking input from the bidders. The bidders may be asked to submit some form of initial solution based on what is known about the government’s requirements from the Project Information Memorandum. This may contain indicative pricing and there may be initial interviews.

The government will then use the PQQ responses to shortlist a number of bidders to receive the Request for Proposal or RFP documents.

(c)        Request for proposals

There are a number of different names for this stage of a PPP timetable (Invitation to Negotiate – ITN, Invitation to Tender – ITT, Request for Proposals – RFP, etc), but there is no formal distinction between them.

The number of shortlisted bidders would usually be between two and four. Here there is a trade-off between simplicity of procedure and the risk of being left with a single bidder if one pulls out. For this reason, the RFP procedure should be very clear as to what the government’s rights are in the event that the procedure leaves it with just one bidder remaining (i.e. an ability to continue with the process or the right to walk away).

The RFP documents will usually contain a draft of the PPP contract and other ancillary agreements required such as forms of bid security that are to be submitted with the bid, and which may be forfeited if a bidder pulls out of the bid process before selection of a preferred bidder.

Bidders will normally be evaluated on a technical, financial and legal basis, although other possibilities are also seen. For example, for a long term joint venture project where partnering is seen as a major issue, a significant proportion of the evaluation mark may relate to the bidders’ ability to demonstrate how it will work with the government as a partner on schemes going forward. This may of course be quite a subjective question.

Bidders have been known to be put off by PPP projects where the selection process is seen as being too subjective – if the process is too random (too political) then there is not enough certainty to merit the bidder incurring considerable costs to prepare its bid. Similar concerns may arise if there is not enough certainty in the bidding documents, as experienced bidders may properly price the risk and lose, but inexperienced bidders may underprice the risk and win – but with a high risk of the project subsequently failing when the price discrepancies are discovered.

The objective is to encourage the delivery of bids of the highest quality and the weighting process between the technical, financial and legal components of the tender needs careful consideration. A minimum pass-mark may be set in each category to ensure that bidders’ proposals are acceptable across the board.

On the financial side, a PPP bid will be geared not to the capital cost of the project directly but rather its whole life cost including cost of funding. In other words, what is the lowest availability payment required from the bidder, or for a revenue-generating project, what is the highest revenue share or revenue guarantee to be offered by a bidder.

A PPP is a complex form of project and sufficient time needs to be left for the parties to consider the issues in detail. Many current projects now have a “dialogue phase” whereby the government sits down with each of the bidders in turn and explores issues in more detail. In principle the government can take advantage of this dialogue during the competitive stage to encourage the bidders to propose solutions, such solutions could be tested in detail against the other bidders, subject to confidentiality issues. The government can then continue with a single solution on which all remaining bidders bid on, or alternatively it can ask different bidders to bid on different solutions. It can also consider inviting bidders to make variant bids alongside fully compliant bids, which may give the government more options to consider. As a result of the complex nature of PPP projects, which often have partially undefined solutions at the RFP stage, such dialogue or negotiation phases are extremely beneficial – it would be an unusual PPP project if it could be procured without any dialogue or negotiation (i.e. here is the specification and contract, the best price wins).

(d)        Bidding phase

The bidding phase may proceed in a single round or it may consist of multiple rounds. For example, after the receipt of initial bids, the government may decide that one or more of the initial bidders is too far behind the remaining bidders to provide any meaningful competition and/or may continue to be a drain on the government’s time and resources (as well as the bidder’s own), so there may be a deselection process. This usually drops the number of bidders to two.

The remaining bidders will then be required to submit their final bids, sometimes termed BAFO (Best and Final Offer). If negotiations continue, this may be followed by a LAFO (Last and Final Offer). The culmination of this phase will be the selection of the Preferred Bidder (PB).

It is essential at this stage that the bidders have:

• accepted the key contractual terms of the tender;
• shown that they have access to private finance, through executed term sheets from lenders; and
• demonstrated a solution that meets the government’s output specification.

It is also of fundamental importance at this point in the process that the government is satisfied that:

• the price is affordable;
• the whole life solution is value for money;
• the bidding group is a cohesive entity;
• the bidder has sufficient arrangements in place with its supply chain (e.g. signed heads of terms with EPC and O&M contractors); and
• if required, the project would achieve off-balance sheet treatment.

The final terms may sometimes be captured in a detailed “preferred bidder letter” which summarises what has been agreed and committed to date as well as providing a summary of any outstanding issues in the run-up to contract signature. The bidders would be required to sign the preferred bidder letter as a condition of final bid validity, upon which the government will make its final selection. If a preferred bidder letter has not already been signed, the government will seek to capture the same terms through an “award letter” given to the preferred bidder.

(e)        Final stages

Following preferred bidder selection, the government may need to negotiate any outstanding issues with the preferred bidder.

It is sometimes the case that some of the bidders’ due diligence can only be carried out at this stage. The bidder may have made provisos in its bid as to how these would be dealt with at the final stage. Nevertheless, the preferred bidder – or award letter – should contain the strongest possible language to ensure that the preferred bidder does not resile from the commitments previously made. Failure to comply with these commitments can usually result in the government being entitled to cancel the process, and/or open up discussions with a reserve bidder. However, a reserve bidder will only remain interested for a short period of time as, following the award of the project to a preferred bidder, the team will likely have disbanded and moved on.

If a bid bond has been requested this will help secure the preferred bidders’ commitments until financial close. Failure to enter into a final contract on the terms previously agreed will entitle the government to call the bond and use the funds to re-procure the project.

During this final period the preferred bidder will also finalise its supply chain and funding arrangements (moving from term sheets / heads of terms to fully negotiated and drafted contracts). These discussions are complex, so the final negotiation period will usually be at least six months and for complex projects can be longer.

Strong project management is required by the successful bidder to bring these projects to a close given the number of parties involved and the complexity of the documentation. A typical project will contain hundreds of documents for signature.

Conditions precedent will be finalised in these final stages, which will include legal opinions as well as financial and technical reports on the viability of the project. Central government approvals will also be satisfied.

Following preferred bidder award and contract signature, the concessionaire (a special purpose vehicle) will be established. There will usually be a period between signature and effectiveness of the contract, during which final conditions precedent are obtained.

Financial close is the point at which the contracts become effective from a financial point of view, this is when all conditions precedent are concluded and satisfied, at which point funding will be drawn down from the lenders to repay all private sector costs to date (bid costs and design costs) and funding starts to pay for construction activities.

On some projects the government will ask the successful bidder to use part of this initial funding to make payments of certain design costs to the unsuccessful bidders. This is to encourage bidders to put in credible design proposals.

The legal framework should be clear as to the treatment of unsuccessful bidders. Some countries’ PPP programmes have suffered due to a tendency of unsuccessful bidders to bring (perhaps spurious) claims against the making of the award. The programme is often delayed while these are resolved. Ideally the time to challenge the government’s decision to award the project to a specific entity should be carried out at the stage of selecting the preferred bidder itself and not financial close, this provides a period of time for any dispute to take place and be resolved while negotiations continue to take place.