Even governments with significant PPP experience do not have the in-house expertise and skill needed to develop PPP projects, and almost without exception they will hire advisors to support them in designing, structuring, and tendering each PPP transaction. Experienced advisors bring international best practice and depth of skill. These qualities enhance the project's credibility and increase investor confidence.
Governments usually hire lead transaction advisors after the general parameters of the project have been determined: that is, the government knows what the problem is that it is trying to solve. Officials have thought about various delivery models and decided PPP is the best approach, and they have incorporated the project into a broader planning process so that it has broad-based support (note that some of this work itself may have required external advice).
The lead advisor will in turn hire sub-contractors, depending on the needs of the project. More often than not, this will include financial, legal, technical, environmental,and social advice (crucial if the project faces labor retrenchment or resettlement). Communications and stakeholder engagement advisory services are increasingly important to understand and engage with all project stakeholders and ensure ongoing public support.
Working with advisors
Appointing advisors is typically followed by an official project kickoff where the full advisory team and government team meet at length to determine the work program in detail and the project governance structure.
The advisors go on to work closely with government through each stage of the transaction cycle: due diligence, project structuring, tender, award, and negotiation. Best practice is for advisors to be involved through financial closure of the project.
Most advisors do not provide ongoing advice after this point, during construction and/or contract management. This is beginning to change, as it is recognized more and more that there are real challenges that lie in the implementation of the PPP.
Advisors usually work on a combination of a retainer fee paid by the client and a success fee paid by the winning bidder. Pushing a large portion of the payment to a success fee ensures aligned incentives.