The central step of procuring PPP projects is the management of the bid process. The bid process ends with the selection of a preferred bidder, with whom the implementing agency then works to execute the contract and reach financial close.
The primary steps are:
- Preparing and issuing request for proposal (RFP) documents
- Interacting with bidders during proposal preparation
- Receiving bids
- Evaluating bids
- Finalizing the contract with the selected bidder
Preparing and issuing request for proposal documents
The bid process begins when the government issues RFP documents to participating bidders. These documents set out the project structure and requirements, and the details of the bid process. High-quality, detailed, and clear RFP documents are important to ensuring a competitive process and a PPP that responds to the government’s objectives.
RFP documents typically include the following information on the PPP opportunity:
- An information memorandum describing the key features of the project and the commercial terms of the PPP
- Draft project contract
- Copies of any permits or approvals
- A description of the detailed technical information amassed during the project preparation stage provided to bidders in a data room
- Information on the bid process:
- Detailed bid rules and instructions, including a timetable and how and to what extend bidders can interact with government
- Evaluation criteria
- Bid bond requirements (if any)
Interacting with bidders during proposal preparation
After the RFP documents have been issued, bidders will prepare detailed proposals responding to the requirements of the RFP. During this preparation process the RFP usually allows for controlled interaction between the bidders and government. At a minimum, this interaction involves providing information to bidders, and responding to requests for clarification on the RFP. In some cases, the government may consider updating the RFP documents as a result. Channels for these types of communication include:
- Data room: physical or virtual, where bidders can find all available information relevant to the project.
- Question and answer iterations: where bidders submit questions in writing and the implementing agency responds in writing to all bidders (ensuring that all bidders have access to the same information).
- Bidders’ conferences: where the implementing agency presents the project and respond to questions from bidders.
Some governments use an interactive tender or competitive dialogue process, which involves more extensive engagement with bidders as they prepare their proposals. Under this type of process, bidders submit technical proposals, which are then the subject of feedback and discussion with the contracting authority, to refine the proposed solutions to meet the authority’s needs, before submitting a final proposal.
A reliable and credible system to ensure bids are handled confidentially is important. This prevents any opportunity for bid tampering, and protects commercially sensitive information in bids.
Often bids are delivered in hard copy in sealed envelopes. Typically financial and technical bids are delivered in separate envelopes—financial bids are only opened for bidders that pass the technical assessment, and are often opened publicly to avoid any possibility of bid tampering—although an electronic system can be considered as an alternative. One advantage of an electronic system is that it prevents bidders from monitoring or interfering with physical bid delivery.
The evaluation process involves:
- Assessing bid completeness, and compliance with minimum requirements of bid process
- Bid clarification, which can involve a bidder presentation and a Q&A session
- Detailed review by evaluation teams, following the pre-defined evaluation criteria
- Preparation of evaluation reports, detailing the process followed and the analysis of the evaluation teams
Evaluation criteria should be decided in advance, and set out in the RFP documentation. Evaluation criteria typically incorporate technical and financial elements. These may be evaluated separately—typically with a pass/fail technical evaluation, followed by ranking on financial criteria or combined and weighted to rank bids. Where technical requirements have been clearly set out in the proposal, technical evaluation requires checking compliance with those requirements.
Many PPPs are ranked on the basis of a financial criterion, subject to passing other technical and financial requirements. The most common option for a financial evaluation criterion is the remuneration of the private sector. This could be the lowest tariff to users, or lowest cost to government (whether as a government-pays PPP, or as a subsidy in addition to user charges). Related criteria can include length of concession, or amount of investment.
Finalizing the PPP contract with the selected bidder
Once the preferred bidder has been selected, governments sometimes enter into further discussion with the bidder to finalize the PPP contract. While extensive negotiation at this stage can undermine the competitive tender process, some level of negotiation may be necessary to clarify elements of the proposal or contract, particularly when the bid process has not included significant interaction. If financing arrangements have not already been finalized, lenders may also have demands at this stage that create pressure to negotiate on elements of the contract and risk allocation. Governments should define and limit the extent of negotiations possible at this stage.
If only one bid is received, this can raise concerns about whether that bid will provide value for money. There are two broad options in this case, depending on the reason for only receiving one bid:
- Re-package and re-tender: this may be the best approach if the low turnout seems to be because of deficiency in the tender
- Conduct thorough due diligence and select the sole bidder: may be a better option if it appears that the bidder believed the process would be competitive, and is in full compliance with the requirements
In some cases, despite multiple bids being received, there may not be a clear preferred bidder. This could be because no bids conform to requirements or because a non-conforming bid appears to present a better value-for-money option than conforming bids.
One option if no bids conform, and none appear to be of high quality, is simply to re-package and re-tender the project. The alternative is to extend the procurement process, to identify a preferred bidder: typically through discussions with the higher-ranked bidders on the points where the bids do not conform, often followed by asking for a revised bid.