Presentation of the “SIGMA workshop on tendering of PPP projects and contract signature”, held in Ankara on 11-12 April 2018. Presentation made by Mr. Mario Turkovic, SIGMA.

1. © OECD
Tendering of PPP projects and
contract signature
Mario Turković
OECD/SIGMA
Ankara 11/12 April 2018

2. Before launching the tender
• Are the requirements and scope of the PPP project clear
and fixed?
• Have all material environmental and planning approvals
been identified and obtained?
• Are there any unresolved issues regarding site and land
acquisition?
• Does the Authority have the powers to award the PPP
contract and enter into a long-term contractual
arrangement?
• Has the value for money assessment of the proposed
PPP investment been updated?
• Is the scope of the PPP project affordable from the point
of view of the Authority’s periodic payments required
(availability-based PPPs) or are tariff levels realistic and
affordable for the users (revenue-based PPPs)?

3. Before launching the tender
• With availability-based PPPs, have budgets and
government or parliamentary approvals been obtained
for all the Authority’s payment obligations?
• Is there enough evidence of sufficient commercial
interest from contractors, operators, lenders and
investors to justify launching the tender?
• Have project risks been identified and has a potential
risk allocation been assessed?
• Have plans to publicise the launch of the PPP project
been agreed and finalised?
• Has a project information memorandum been prepared?
• Have the bidder qualification and bid evaluation criteria
been developed?
• Has the draft PPP contract been prepared, including the
project specifications, service standards, payment
mechanism and proposed risk allocation?

4. Awarding procedures in terms of
EU Directives
Directive 23/2014/EU on the award of
concession contracts
Directive 24/2014/EU on public procurement
Directive 25/2014/EU on procurement by
entities operating in the water, energy,
transport and postal services sectors

5. Awarding procedure
Concession Directive
Procedural guarantees - the contracting
authority or contracting entity shall have the
freedom to organize the procedure leading to
the choice of concessionaire subject to
compliance with different rules:
… application of principles, publication of notices,
time limits, organization of procedure, selection and
qualitative assessments of candidates, award
criteria…..

6. Awarding procedures
Public Procurement Directives
Selection procedures – public procurement
procedures as defined by Directive 2014/24
and 25/EU:
 Open
 Restricted
 Competitive procedure with negotiations
(negotiated procedure with prior call for
competition)
 Competitive dialogue
 Innovation Partnership
 Negotiated procedure without prior call for
competition

7. Directive 24/2014/EU
Open and restricted procedures: always
available, no justification for choice
Competitive procedure with negotiation &
competitive dialogue (justification):
• Need for adaption of readily solutions
• Include design or innovative solutions
• Need for negotiations because of specific
circumstances (nature, complexity,
legal/financial set-up; risks)
• Technical specifications cannot be set with
sufficient precision by reference to standards
etc. 6
Public Procurement procedures

8. Open Procedure
• No prequalification or pre-selection is
permitted. Any interested company
may submit a bid.
• The specifications may not be
changed during the bidding process
and no negotiations or dialogue may
take place with bidders. Clarification is
permitted.
• No scope for negotiations with a
bidder after bids are submitted.

9. Restricted Procedure
• The number of bidders may be limited
to no less than five in accordance with
criteria specified in contract notice
(prequalification and short listing
permitted).
• The specifications may not be changed
during the bidding process and no
negotiations or dialogue may take place
with bidders. Clarification is permitted.
• No scope for negotiations with a bidder
after bids are submitted.

10. Competitive procedure
with negotiations
• Competitive procedure with negotiations
replaces the negotiated procedure with
prior publication
• The number of bidders may be limited to no
less than three in accordance with criteria
specified in contract notice (prequalification and
short listing permitted).
• Negotiations are permitted throughout the
process. Successive stages can be used to
reduce the number of bidders (further short
listing).
• Negotiations can continue until the contract is
agreed.

11. • identification of “core” (minimum) non-
negotiable requirements; award criteria
also non-negotiable
• all other aspects may be negotiated (e. g.
quality, quantities, commercial clauses;
social, environmental, innovative aspects)
• if technical specifications change,
information & sufficient time to all non-
eliminated
• no transmission confidential information
unless specific consent
10
Competitive procedure
with negotiations

12. Competitive Dialogue
• The same reasons for competitive procedure
with negotiations (in practice for extra
complex projects)
• The number of bidders may be limited to no
less than three in accordance with criteria
specified in contract notice (prequalification
and short listing permitted).
• A dialogue with the participants on finding the
best solution satisfying CA’s needs (they can
discuss all aspects of the procurement).

13. • When the dialogue is concluded, final
tenders must be requested based on the
solution(s) presented during the dialogue
phase
• more flexibility for final tenders (clarified,
specified and optimized)
• more flexibility with winning tender
(negotiations on financial commitments and
other terms but not modifying essential
aspects of the tender)
• only the best price-quality ratio as award
criteria
12
Competitive Dialogue

14. New procedure
 Need for innovative product, service or
works
 cannot be satisfied by solutions available on
the market
 nature and scope of required solution
 Key decision: one or more development
partners
 Basic procedural rules follow largely
competitive procedure with negotiation
 Main selection criterion: capacity in R&D
and implementing innovative solutions 13
Innovation Partnership

15. • Depends of the project (previous experience,
technical complexity, type of sector).
• More flexible procedures (competitive
procedure with negotiations and Competitive
Dialogue) in principle more appropriate for
PPP schemes.
• Competitive Dialogue was introduced as a
“PPP procurement type of procedure”.
• Different national approaches (CD in UK,
France; Netherlands, negotiate in Germany,
open in Spain, restricted in Greece)
14
What selection procedure to use?

16. The keys to a successful
PPP procurement procedure
• Maturity of the project (land issues, specifications)
• Establishment of a competent procurement team
and feedback from the market
• A complete series of tender documents that provide
an adequate degree of information about the project
and the procedure
• A balanced & thoroughly drafted PPP contract
• Transparency and openness of the procedure
• Clear, precise and proportional selection / pre-
qualification criteria & short listing methodology
• Objective and quantifiable bid evaluation and
award criteria

17. Content of the PPP Contract
- main elements -
1. Conditions precedents
2. Payment Mechanism
3. Change in Law
4. Supervening Events
5. Early Termination
6. Dispute Resolution
7. Direct Agreement

18. Conditions precedents
After the signature of the contract
(commercial clause), usually there are
different activities to be conducted as for
PPP contract to enter into a force:
 establishment of the SPV,
 resolving of all land issues,
 environmental studies,
 access roads and similar obligations of
public partner
 equity payment,
 financial agreement(s) concluded, ect.

19. Payment mechanism
User charges
Concession model (service based)
Payments received by the Contractor directly
from End Users of the infrastructure or service
Private partner takes the construction, demand
risk and availability risk!
Private sector investors are willing to take the
demand risk:
• when the object can be used on the open
market or
• in cases of consistent demand for services
18

20. Payment Mechanism
Availability based payments
Availability based model (PFI)
Payments from the Public Authority to the Contractor
for making infrastructure or services available for
use at an acceptable standard
Private partner takes construction and availability
risk, demand risk is taken by the Public Authority!
Payment mechanism has two main characteristics:
1. Deductions for Service Performance Failure
(Performance based payments)
2. Deductions for Unavailability

21. Change in Law
Two types of Changes:
1. “Discriminatory” / Specific Changes
Changes in law which are related to:
 the Project
 the Contractor or
 the type of Service provided
Costs (e.g. operating costs, lost revenue) arising from
specific/ discriminatory changes are paid for by
Authority.
2. “Non-discriminatory” /General Change
 any change in law which is not Discriminatory or
Specific
 basic principle is: costs generally paid for by
Contractor.

22. Supervening Events
• There are circumstances where the contractor should be
relieved from liability failure to commence or provide the
service
• Balance should be maintained between a) encouraging
the contractor to manage the risk and b) protecting the
Authority from non-performance
Compensation
Events
Relief
Events
Force Majeure
Events
Risk Managed
by
Authority Contractor -
Action
“time and
money” to the
Contractor
“only time” to the
Contractor
Relief from
liability
Triggers rights
of termination
No No Yes

23. Compensation Events
Compensation events are at the Authority’s risk and
result in a delay to Service Commencement and/or
increased costs to the Contractor
 Authority changes in service (PPP Contract)
 cases that are not caused by actions of Public
Authorities, but Authority takes responsibility for
them
 “discriminatory” or specific changes in law
Consequences
 The Planned Service Commencement Date may
have to be postponed, usually by the length of any
delay caused
 The Contractor should be compensated for any
delay to Service Commencement or increased costs
resulting directly from a Compensation Event

24. Relief Events
Relief Events („temporary force majeure”) are events
which prevent performance by the Contractor of its
obligations, in respect of which the Contractor bears
the financial risk in terms of increased costs and
reduced revenue but for which it is given relief from
penalties for failure to provide the full and timely
Service (it is given extra time).
 Contract termination should not follow a Relief
Event
 Consequences are not expected to be severe
and will usually last for a finite period
Relief Events normally do not allow an extension of
time to which the PPP contract was awarded!
Financial effects are borne by the Contractor.

25. Force Majeure
“unforeseen events that are beyond the
control of the contracting parties which occur
and materially affect performance under the
contract”.
Circumstances usually explicitly specified in
the contract such as war, nuclear danger.
Usually, there should be extended effect of a
Force Majeure event (min 6 months).

26. AjointinitiativeoftheOECDandtheEuropeanUnion,
principallyfinancedbytheEU
Early Termination
Four main categories:
• Voluntary Termination by the
Authority
• Public Authority Default
• Contractor Default
• Force Majeure

27. Compensations in Early
Termination Cases
The same level of Compensation on termination for
Authority Default and on a Voluntary Termination
(both the lenders and the equity investors should be
fully compensated)
• In the event of Contractor default, the lenders
should be allowed to Step-in to rescue the PPP project
and protect their loan. In these cases the Investors
equity will be lost and no compensation will therefore
be payable
Compensation would, however, normally be owed to
the Project Company’s (SPV) lenders.
• In case of Force Majeure termination compensation
is based on principle that neither party is at fault and
financial consequences should be shared.

28. Dispute Resolution
Authority and Contractor consult with each other for a fixed time period
Parties come to agreement
Parties follow
the Experts
decision
Expert Consultation
Either party finds the Experts
decision unsatisfactory
Arbitration
Parties
cannot agree
Courts
OR

29. Direct Agreement
An agreement between the Public Authority and Senior
Lenders which defines the relationship between these
parties if there are some difficulties in project
implementation (threatened termination for Contractor
default).
Advantageous to the public sector, in that they give
senior lenders an opportunity to “revive” the Project and,
therefore, to avoid the disruption that follows termination.
In Direct Agreement can be set different possibilities of
Lenders actions:
1. Notification of Lenders
2. Rectification Period
3. Lenders Step-in
4. Replacement of Project Company (SPV)