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Introduction to PPP in the infrastructure sector 6
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Lecture1.1
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Lecture1.2
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Lecture1.3
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Lecture1.4
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Lecture1.5
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Lecture1.6
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Chapter 2: Structuring a PPP project 5
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Lecture2.1
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Lecture2.2
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Lecture2.3
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Lecture2.4
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Lecture2.5
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Chapter 3: Financing an infrastructure PPP project 6
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Lecture3.1
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Lecture3.2
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Lecture3.3
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Lecture3.4
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Lecture3.5
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Lecture3.6
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Chapter 4 :Documenting the transaction: anatomy of a PPP concession agreement and key risk allocation issues 11
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Lecture4.1
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Lecture4.2
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Lecture4.3
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Lecture4.4
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Lecture4.5
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Lecture4.6
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Lecture4.7
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Lecture4.8
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Lecture4.9
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Lecture4.10
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Lecture4.11
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Chapter 5: Documenting the transaction: finance documents 8
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Lecture5.1
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Lecture5.2
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Lecture5.3
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Lecture5.4
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Lecture5.5
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Lecture5.6
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Lecture5.7
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Lecture5.8
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Chapter 6:Documenting the transaction: other project documents 2
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Lecture6.1
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Lecture6.2
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Chapter 7:Procurement arrangements 2
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Lecture7.1
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Lecture7.2
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Chapter 8:Introduction to key sector issues 7
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Lecture8.1
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Lecture8.2
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Lecture8.3
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Lecture8.4
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Lecture8.5
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Lecture8.6
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Lecture8.7
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Unsolicited proposals
An unsolicited proposal is one where a private sector entity reaches out to the government directly with a proposal to develop an infrastructure project. Usually, the project identified by the private entity is not one that was included in the project pipeline developed by the government and is generally off of the government’s radar. Depending on the policy regulations that guide the implementation of PPPs, unsolicited proposals might be expressed as simple project summaries or a new concept that is developed jointly with the government. Some countries have gone down the route of formalising the process; requiring private entities to submit pre-feasibility studies with technical, financial, economic, social and environmental due diligence studies to support their offer.
The key benefit of an unsolicited proposal is that it allows governments to take advantage of the knowledge and ideas of the private sector without having to invest in project development activities themselves. While this might be classed as a benefit from an administrative resource perspective, paradoxically, a lack of capacity is the most significant obstacle for implementing unsolicited projects successfully. Governments with capacity constraints and no framework to assess unsolicited proposals often struggle to implement projects procured in this way.
Unsolicited proposals can be problematic because of:
- A lack of transparency and corruption
- A lack of competition
- A lack of clarity on procedures
- Constraints in performing thorough due diligence
- Risks not being properly allocated
- Poor structuring
- A lack of perception of future liabilities
- High transaction costs
Evidence shows that many countries have attempted to overcome these challenges. However, it requires additional procedures and rules to strike the difficult balance between incentivising the private sector to develop projects and ensuring sufficient transparency and competition to achieve value for money for the government.
The process of dealing with unsolicited proposals can differ from country to country. The advantage of having a clearly-defined process that is represented in a PPP policy framework is that is creates a sense of predictability and establishes clear steps in the procurement process, this then standardises each submission, helping to create more transparency in the process.
(a) UNCITRAL guidance
Some key pieces of advice – based on UNCITRAL guidance – are set out below:
- Proposals should not relate to a project for which selection procedures have been initiated or announced.
- The government should inform the proponent whether there is any potential public interest within a reasonable amount of time.
- If there is public interest, the government should invite the proponent to submit a formal proposal with sufficient detail.
- The proponent should retain title to submitted materials and these should be returned if the proposal is rejected.
For proposals that do not involve proprietary concepts and/or technology, the UNCITRAL guidance suggests that:
- The government should initiate a competitive selection procedure and invite the proponent to participate.
For proposals that do involve proprietary concepts and/or technology:
- The government should seek to obtain elements of comparison.
- The government should identify the output and invite interested parties to submit alternative proposals.
- The government can initiate negotiations if no alternative exists.
- If alternatives exist, other parties should be invited to participate in negotiations.
(b) Evaluation
The evaluation of unsolicited bids is perhaps the most complicated aspect of the process. Since the private sector has initiated a project proposal in an uncompetitive environment, the government must find a way to ensure that the project is priced in a manner that delivers value for money for the public. This means introducing competition into the process after the initial submission from the private entity, this is ultimately a key feature of the benefits of PPPs.
The tension in the process arises from trying to introduce competition, for competitive pricing and innovative technical solutions, while at the same time rewarding the initial private entity who submitted the proposal to begin with. Several different approaches have been developed to resolve this issue:
(i) Swiss Challenge: An open tender process is held in which the unsolicited proponent is permitted to match the winning bid.
(ii) Bonus System: An open tender process is held, in which the unsolicited proponent receives bonus points during the evaluation (5%-10%), as a means to reward them for their initiation of the project.
(iii) Automatic Short-listing: This option applies to tender processes that have multiple stages (e.g. pre-qualification and request for proposals). In essence, the unsolicited proponent does not have to pass the preliminary stages of the process and is automatically invited to the last stage where they will submit their best and final offer.
(iv) Regular procurement: An open tender is held in which the unsolicited proponent competes on equal terms with the other interested bidders.
There is consensus amongst PPP practitioners that the best option for the government to pursue for procuring an unsolicited proponent is a simple Swiss Challenge process. The primary advantage of the Swiss Challenge approach is that it can be clearly defined. The original proponent’s “advantage” is based solely on the project bidding criteria and the bar is set by the competitive process. Since no further definition or negotiation is needed, like in the case of bonuses or bidding costs, it does not create additional work for the government, nor provide room for subjective decision making that could be perceived as unfair.
SUMMARY OF KEY POINTS |
Unsolicited proposals
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