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Union, principally financed by the EU
A joint initiative of the OECD and the European
Ensuring Good Quality
PPP Projects
Martin Darcy
United Kingdom
« Concessions and Public-Private Partnerships »
Ankara, 10-11 March 2008
© OECD
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Union, principally financed by the EU
A joint initiative of the OECD and the European
Potential Projects
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Water/Sewerage
Power provision
Airports / Seaports
Highways / Bridges / Tunnels
Hospitals
Prisons and Court Buildings
Schools / Colleges / Universities
Libraries and Museums
Government Buildings (National / Municipal)
IT / IS / Telecoms
Waste Management
Car parking
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
How a PPP project is created
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Three main phases
1. Project preparation and
development
2. The bidding and negotiation
phase
3. Implementation and operating
phase
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
1. Project preparation and
development
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Define project objectives, need and business case
Create the team (including external advisers)
Risk assessment and strategy
Technical Dialogue ***
Procurement strategy and realistic timetable
Develop bid evaluation criteria
Draft contract documentation
Approvals and marketing
Without proper preparation the project will
probably fail (before or after award process )
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
Technical Dialogue
Current position is confirmed:
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Before launching a procedure for the
award of a contract, contracting
authorities may, using a technical
dialogue, seek or accept advice
which may be used in the preparation
of specifications, provided such
advice does not have the effect of
precluding competition.
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
2. Procurement and negotiation
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Advertisement and calls for expressions of interest
Prequalification and selection of bidders
Issue of tender documents to selected bidders
Return of bids
Evaluation of bids
Select ‘Preferred Bidder’
Contract negotiations
Commercial / financial close
At least 12 months
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
3. Implementation,Operation
and Regulation
Creating a working partnership
 Managing contractual
obligations
 Extracting the efficiencies
 Delivering / improving the
services
 Change management
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© OECD
Financial Adviser
Union, principally financed by the EU
A joint initiative of the OECD and the European
Contractual Organisation Example
Government
Client
Legal Advisers
Financial Advisers
Project Agreement
Specialist Advise
Legal Advisers
Special
Purpose
Company
Financed
by
Equity
Specialist Advisers
Principle
Long Term
Debt Finance
subcontracts
Design and
Construct Contract
Design
Construction
Subcontracts
Operating Contract
Operating Subcontracts
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
Simple Funding Principles For
A PPP Project using Private Finance
100%
20%
Investment
cost
EQUITY
Long term
80%
Borrowings
More risk
more equity
Debt is
cheaper
than equity
0%
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
Risk Management –
at the heart of the matter
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Identify
Analyse
Allocate
Mitigate
‘The risk should be borne by the
party best able to manage it or to
manage the financial
consequences’.
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
Treatment of Risk
Key to Lenders and Investors
 Will affect the overall value for
money of the project
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© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
‘Gateway Reviews’
Mandatory in the UK and aimed at improving the
quality and outcomes from public investment
programmes / projects
To identify and prevent mistakes that may only
materialise when it’s too late
Gives confidence and assurance to decision makers
Idea based on the concept of ‘Peer Review’ in
common and widespread use in the private sector
for decades.
Must be independent
Must not be burdensome or bureaucratic
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
Each Gateway….
…has a team of usually three people all independent of the
outcome
…team will meet for a briefing followed by the review itself.
Total time and commitment usually less than two weeks per
stage.
…need not delay anything. They are usually run in parallel with
other activities
…should not be costly
…produces a draft report to the senior official for comment
followed by final report.
…report uses a ‘traffic light ‘ system for evaluating specific
issues:
Green = no problem – go
Amber = issue identified - proceed with caution
Red = major problem identified – do not proceed without
immediate remedial action
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
Differing motivations between
public works contracts and PPPs
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Public Works Contracts
• Often an in-built motivation towards
cost over-run and delay
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Concessions/PPP
• In-built motivation towards on time and
on budget completion
© OECD
Union, principally financed by the EU
A joint initiative of the OECD and the European
Learning Lessons
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Value For Money (VFM) Audit (ex
post evaluation)
Provide Parliament with independent
info, advice about how
• economically
• efficiently
• effectively public bodies use their
resources
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Help bodies improve VFM
performance
© OECD