Namibia: Public Private Partnership (PPP) Guidance Manual

Namibia - PPP Guidance Manual

Namibia: Public Private Partnership (PPP) Guidance Manual

2013

The Ministry of Finance, Namibia


ABBREVIATIONS

BAFO - Best and Final Offer

BEE - Black Economic Empowerment

BLT - Build-Lease-Transfer

BOLT - Build-Own-Lease-Transfer

BOO - Build-Own-Operate

BOOT - Build-Own-Operate-Transfer

BOT - Build-Operate-Transfer

BTL - Build-Transfer-Lease

BTO - Build-Transfer-Operate

CAPM - Capital Asset Pricing Model

DBFOT - Design-Build-Finance-Operate-Transfer

DBO - Design-Build-Operate

DBOOT - Design-Build-Own-Operate-Transfer

DSCR - Debt Service Coverage Ratio

ECB - Electricity Control Board

EOI - Expression of Interest

EPC - Engineering Procurement Construction

HIV - Human Immunodeficiency Virus

IRR - Internal Rate of Return

IT - Information Technology

KPI - Key Performance Indicators

M&E - Mechanical & Engineering

MoF - Ministry of Finance

MoU - Memorandum of Understanding

NDP - National Development Plan

NEEEF - New Equitable Economic Empowerment Framework

NPC - National Planning Commission

NPC - Net Present Cost

NPV - Net Present Value

O&M - Operating and Maintenance

OBA - Output Based Aid

PO - Project Officer

PPP - Public Private Partnership

PRA - Participatory Rural Appraisal

PSC - Public Service Comparator

QCBS - Quality cum Cost Based Selection

RFP - Request for Proposal

RFQ - Request for Qualification

SADC - South African Development Community

SLA - Service Level Agreement

SME - Small and Medium Enterprise

SOE - State-Owned-Enterprises

SPV - Special Purpose Vehicle

TA - Transaction Advisor

ToR - Terms of Reference

USP - Unique Selling Proposition

VAT - Value Added Tax

VfM - Value for Money

VGF - Viability Gap Funding

WACC - Weighted Average Cost of Capital

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Namibia – PPP Guidance Manual

TABLE OF CONTENTS

Page

I. CONTEXT SETTING 5

1 Introduction 6

1.1 Context for the Manual 6

1.2 Approach to developing the Manual 6

1.3 Coverage of the Manual 7

II. NAMIBIA PPP GUIDANCE MANUAL 8

1 General aspects of PPP models 9

1.1 Definition of PPP 9

1.2 Objectives and key principles of the Namibia PPP Policy 9

1.3 Forms of PPP models 11

1.4 Standard PPP Project Lifecycle 13

1.5 Project Conceptualization and Inception 15

2 Preliminary Study 16

2.1 Overview 16

2.2 Data Collection and Preliminary Assessment 16

2.3 Procurement Options Analysis 17

2.4 Develop Terms of Reference to appoint advisors 20

2.5 Undertake market sounding 21

2.6 Develop Preliminary Study Report 22

3 Feasibility Study 23

3.1 Assembly of resources 25

3.2 Strategic needs assessment and demand forecast 25

3.3 Undertake a financial feasibility study 29

3.4 Undertake risk analysis 31

3.5 Undertake Value for Money analysis 32

3.6 Determine Commercial Principles 35

3.7 Develop evaluation criteria for selection of private sector 36

3.8 Develop implementation plan and tasks 37

3.9 Determine project resource requirements 38

3.10 Compile and submit the feasibility study report 38

3.11 Obtain Transaction Approval 1 39

4 PPP Procurement 40

4.1 Key principles of the procurement process 40

4.2 Introduction to stages in procurement 40

4.3 Request for Qualification 41

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4.4 Request for Proposal 46

4.5 PPP Agreement Signing 62

4.6 Financial Close 62

5 Contract Management 63

5.1 Introduction 63

5.2 Contract Management Team 63

5.3 Contract Management Plan and Strategy 65

5.4 Contract Management Framework 67

5.5 Contract expiry 78

6 Exclusions from the Manual 80

6.1 Project Identification 80

6.2 Budgeting Guidelines 80

6.3 PPP audits and accounting treatment 80

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5


I. CONTEXT SETTING

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1 Introduction

1.1 Context for the Manual

The Government of Namibia is taking steps towards attracting private investments in the areas of economic, social, municipal and industrial assets1 following the creation of a national Public Private Partnership (PPP) policy.

1. The Namibia PPP Policy proposed the establishment of a PPP Committee and a central PPP Unit under the MoF. It was envisaged that these entities would be empowered with the capacity and knowledge to determine whether PPP is the most appropriate procurement option available to government and, if this is determined to be the case, to assist Project Agencies and Line Ministries to transact a given project. This PPP Manual is a structured guide containing instructions on processes and procedures to be followed during various stages of the PPP process for the PPP Committee and the PPP Unit, specifically assisting the latter in carrying out its defined core function as a technical secretariat;

2. The PPP Manual, disseminated amongst Project Agencies and Line Ministries and other PPP practitioners, would serve as the key and step-by-step reference guide on practical aspects of conceptualizing/identifying, preparing, implementing and monitoring PPP projects including obtaining treasury/transaction approvals and other decision-making through the PPP lifecycle; and

3. The existence of a long-lasting PPP Guidance Manual such as this, is envisaged to

generate the private sector’s confidence in the commitment (in the context of Government’s various National Development Plan (NDPs)2and other future development initiatives in the country) and ability of government/Project Agencies/Line Ministries in the Republic of Namibia to create an environment for PPPs and process and manage PPPs in a standardized, consistent and effective manner with specified outcomes and timeframes.

1.2 Approach to developing the Manual

The Namibia PPP Policy forms the central plank of the country’s PPP Framework and was the key reference and anchor during the development of the Manual. In drafting the PPP Manual, the consultant team drew upon relevant elements of existing PPP Manuals and PPP practitioners’ guides from various countries3. While leading international practices were studied and incorporated from other similar and relevant guides and manuals, the draft of the PPP Manual, at all times was kept in line with the objectives and key principles of the Namibia PPP Policy. The PPP Manual enables the PPP Unit to carry out its core function i.e., acting as a transaction secretariat/approval support for Namibian PPP projects. The main text of the Manual articulates development of a project within the PPP lifecycle framework. Such project development work shall include: a preliminary study, feasibility study and business case, selection process of the bidders (i.e., tender or procurement) and contract management and monitoring during the project term. The Manual provides guidelines to align with the Namibia PPP

1Economic assets including but not limited to rail, ports, roads, telecommunications, tourism infrastructure, power, etc., and social

assets including education facilities, public housing, health care facilities, prisons, court facilities etc. 2For example the NDP4 (2012/13-2016/17) of the National Planning Commission (NPC) has articulated that investment requirements

(worth N$187 billion) of the Namibian economy will require partnership with the private sector until 2017. 3 South Africa National Treasury PPP Unit, Public Private Partnership Manual; Tanzania PPP Manual; Thailand PPP Manual;

Infrastructure Australia, National Public Private Partnership Line Agency’ Guide; and PPP Toolkit, MoF, Government of India.

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Policy which states that the decision-making process during the PPP lifecycle shall entail the following stages and approvals required thereof:

1. Investment decision and decision to go ahead with the procurement by PPP (Transaction Approval 1);

2. Approval of the pre-qualification criteria and Request for Qualification (RFQ) (Transaction Approval 2A);

3. Approval of the Request for Proposal (RFP) and draft PPP Agreement (Transaction Approval 2B);

4. Approval of the evaluation and selection of the private sector (Transaction Approval 3); and

5. Approval after negotiation and of the Project Award (Transaction Approval 4). The Manual also provides guidelines to understand the implications of PPP transactions in relation to the New Equitable Economic Empowerment Framework (NEEEF) in the Namibian context. Although Namibia does not have a formalized Black Economic Empowerment (BEE) Policy (akin to South Africa), the NEEEF and the Affirmative Action Acts are both broad-based policy documents and Act that comprise favourable policies towards previously disadvantaged persons. The main text of the Manual is supported by a range of annexures and analytical toolkits that PPP practitioners’, policy makers and stakeholders may refer to for an in-depth understanding of the steps mentioned in the main text. The use of analytical toolkits is a facilitative step for those involved in developing a PPP project.

1.3 Coverage of the Manual

This Manual shall be applicable to PPP projects emerging out of any level of Government – local, regional or national – in the Republic of Namibia. There may be instances of deviation from any step or process prescribed in this Manual. In such a case, the PPP Unit and Project Agencies shall consult and take consensus for the departure (such as a material change in project objectives, its business case, risk allocation, funding requirements, affordability or public interest issues) of project plans or from previously acquired approvals from relevant approving authorities appropriate to the stage of the PPP lifecycle being addressed.

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II. NAMIBIA PPP GUIDANCE MANUAL

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1 General aspects of PPP models

This section describes the general aspects of PPP including the definition of PPP, objectives and key principles of the PPP Policy, forms of PPP models and description of the standard PPP Project Lifecycle in five stages.

1.1 Definition of PPP

PPP is defined as a contractual arrangement between a Public Agency and a private sector, whereby the private sector performs a public function, in accordance with an output-based specification for a specified period of time in return for a benefit, which is normally in the form of a financial remuneration. The Public Agency retains a significant role in the partnership project, either as the main purchaser of the public services provided, or as the main enabler of the project, through a PPP Agreement/Agreement or Concession Agreement. PPP projects are characterized by the following aspects:

1. They involve a contractual arrangement between the Line Agency and the private sector to perform a public function (for instance, provision of a hospital building);

2. They involve substantial risk transfer from the Line Agency to the private sector; and 3. They involve output-based financial rewards to the private sector.

1.2 Objectives and key principles of the Namibia PPP Policy

The Namibia PPP Policy document describes its objectives as follows:

1. Encourage private sector investment in infrastructure and other projects/services where Value for Money (VfM) can be effectively demonstrated;

2. Encourage innovation in the provision of infrastructure and other projects/services with a view on whole life cost of the project and efficiency;

3. Ensure rigorous oversight and governance on the projects to be selected for PPP, thus ensuring competition for the awarding of contracts;

4. Provide the principles, framework and guiding procedures that will assist agencies in applying PPPs across Namibia;

5. Identify responsibility centres and enunciate accountability for outcomes; 6. Achieve capacity development and focused skill transfer in the delivery of projects; 7. Ensure that pro-poor development and focus on service delivery, poverty reduction,

employment creation and inequality reduction are woven into the design of PPP projects thereby forming an important consideration in their evaluation; and

8. Ensure continued monitoring, review and revision of the Policy as circumstances demand.

The Namibia PPP Policy document states that in achieving the above objectives, the partnership with the private sector shall be grounded on key principles as follows:

1. Value for money, which will be a combination of the service outcome to be delivered by the private sector, together with the degree of risk transfer and financial implications for government. In considering VfM the following principles shall apply:

a. The risk allocation and related financial implication to the government shall be geared towards delivering the greatest net economic benefit to the country;

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b. The benefits of private sector expertise, risk management, project management, capital, flexibility, and innovation shall be maximized;

c. The partnership offers greater VfM for the government on a whole-of-life cost basis than conventional procurement or other procurement approaches; and

d. PPPs shall be underpinned by rigorous evaluation of a business case consistent with the government’s existing and future fiscal policies and guidelines.

2. Public Interest, consideration of which shall require:

a. Ensuring that procuring the project as a PPP is not contrary to public interest; and

b. After a decision has been made to procure a project as a PPP, ensuring that the procurement process is structured to ensure that the project continues to be in the public interest.

3. Competitive pressure, which shall form the basis of the selection and shall include:

a. The competitive procedure and process of selection of private partners shall be through a competitive tendering process using a variety of selection criteria focused on both quality of delivery (technical) and price (financial) considerations;

b. The policy shall also address the treatment of unsolicited proposals; and c. The tendering process for PPPs shall adhere to the Government’s applicable

procedures, policies and guidelines as set out in the national PPP Policy and subsequent Regulations.

4. Transparency, which shall imply that:

a. Transparency and accountability shall be ensured in the procurement of partners and subsequent delivery of services;

b. Private sector intellectual property and commercial confidentiality shall be protected as appropriate;

c. Formal approvals of projects shall form part of the government process; d. Disclosure policies and public consultation shall protect public interests in PPP

projects; e. Performance measures shall be clearly established to ensure transparency in

the quality of services and project outcomes; and f. Government’s interest with regard to land and other government assets shall

be protected.

5. Risk Allocation, which shall recognize that: a. The principle governing risk transfer is one of optimal risk allocation; and b. Risk shall be allocated to whoever is best placed to manage it, taking into

account public interest considerations, so that the resulting efficiency gains are optimal.

6. Affordability, which shall gauge the demand of the project on the budget and

technical capacity of the relevant institution over the entire PPP project life and determine impact on government’s resources. User fees shall also be subjected to the test of affordability by the end-users.

7. Output-oriented, which shall imply that:

a. Focus shall be on specification of what services are to be delivered rather than how they shall be delivered in order to maximize the opportunity for innovation; and

b. Performance measures shall be established to ensure that the required services are delivered in accordance with the output specification.

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8. Accountability, which shall imply that: a. Project/Line Agencies shall be responsible for the delivery of their outputs

including where PPPs are used to deliver those outputs; b. Project/Line Agencies shall not transfer this accountability to the private sector;

and c. The conduct of the public sector shall always be such that confidence in the

probity of the partnership model and the way in which it is implemented can be maintained at all times.

1.3 Forms of PPP models

The various forms of PPPs which could be considered by line/project agencies when making a PPP-based decision are described below. At the same time, further variations on each form and hybrids thereof are possible and common.

1. Management Contract - where most or all of the operations and maintenance of a public facility or some specific services are contracted out to the private sector, with requirement of either little or no capital investment by the private sector;

2. Management Contract (with rehabilitation/expansion) - where limited investments

for rehabilitation or expansion of the public facility is required from the private sector in addition to the operations and management of the public facility;

3. Build Lease Transfer (BLT) or Build-Own-Lease-Transfer (BOLT) - which involves

building a public facility, leasing it to the Public Agency and transferring the public facility after recovery of investment;

4. Build-Transfer-Lease (BTL) - which involves building a public facility, transferring it

to the Public Agency and leasing it back. Here the private sector delivers the public service and collects user charges;

5. Design-build-operate (DBO) - which involves design, construction, management,

and maintenance with the financing obligation not retained by the private sector; 6. Build-operate-transfer (BOT)/Design-Build-Finance-Operate-Transfer (DBFOT) -

which involves design, finance, construction, management, and maintenance by the private sector;

7. Build-operate-transfer (BOT) Annuity - where the private sector undertakes design,

finance, construction, management, and maintenance and the Public Agency pays a stream of annuity revenue or a unitary charge to the private sector;

8. Build-own-operate-transfer (BOOT) or Design-build-own-operate-transfer

(DBOOT) - which involves design, construction, management, maintenance, ownership, and transfer by the private sector;

9. Build-own-operate (BOO) - where the private sector owns the public service/facility

and the responsibility of the provision of this public service/facility is also with the private sector; and

10. Build-transfer-operate (BTO) - where the Line Agency contracts out an infrastructure

project to the private sector on a turn-key basis, assuming cost overruns, delays and specified performance risks. Once the project is commissioned, the private sector is granted the right to operate the facility and collect user levies.

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For the purpose of clarity and common understanding, the following types of arrangements ought not to be construed as PPPs, hence are not covered in this Manual:

1. Any Engineering Procurement Construction (EPC) contract, where payments are deferred or on percentage completion of work or other terms, and where the management or operations and maintenance of the asset is not retained by the private sector after three years from completion of construction;

2. Any arrangement for supply of goods or services for a period of up to three years; 3. Any arrangement or contract that only provides for a hire or rent or lease of an asset

belonging to a Public Agency without any performance obligations and other essential features of a PPP;

4. Any typical traditional/conventional design and construction public procurement

arrangement (typically of two to four years); and

5. Any outsourcing or privatization arrangement primarily characterised by increasing private sector delivery and reduction of government service delivery.

Other government guidelines or standard operating procedures exist for the above exclusions.

A typical PPP project structure is depicted below: (However, depending on specific PPP structure adopted one or more elements as described below may not apply)

Figure 1: Typical PPP Project Structure

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1.4 Standard PPP Project Lifecycle

The standard PPP project lifecycle and the associated transaction approvals in the context of Namibia are represented in the diagram below:

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Namibia – PPP Guidance Manual

Figure 2: Standard PPP Lifecycle and associated Transaction Approvals in Namibia

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This Manual sets out in detail the above steps:

1. Step 1 – Project Inception, is covered in this Section; 2. Steps 2 is covered in Section 2: Preliminary Study; 3. Step 3 is covered in Section 3: Feasibility Study; 4. Steps 4 to 7 are covered in Section 4: PPP Procurement; and 5. Steps 8 and 9 are covered in Section 5: Contract Management.

1.5 Project Conceptualization and Inception

The Line Agency / Line Ministry at any level of Government (municipal, state or national) shall put forth the project concept and commence the project inception stage of the PPP lifecycle. In this stage the Line Agency / Line Ministry shall conceptualize or identify4 the project that may be concluded as a PPP, register the project with the PPP Committee (relevant registering authority) and seek relevant internal approvals. The Agency shall also appoint a Project Officer (PO)5 from within or outside its set-up, if required. This Manual focuses on the evaluation and implementation of PPP projects and is not intended to provide guidelines on identification or inception of projects. Each Line Agency/ Line Ministry would identify projects in alignment with objectives and sector plans. This Manual may be referred to once the proposed PPP project has been identified by the Line Agency.

4 Identified projects may appear in the Annual Sectoral Execution Plans (ASEPs) in line with priority areas within Namibia’s five-

yearly NDPs or other development plans in the future. 5Project Officer – implies a person identified by the accounting officer (such as the Minister) of a Line Agency. This person is

capable of managing a PPP and is appropriately qualified and experienced to manage a PPP to which that Line Agency is party across all stages from inception to expiry or termination.

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2 Preliminary Study

2.1 Overview

The following sections detail the steps required in undertaking the Preliminary Study:

Figure 3: Schematic for Preliminary Study

2.2 Data Collection and Preliminary Assessment

At this stage the Line Agency is required to collect basic data on the project to undertake a preliminary assessment of the project and its suitability as a PPP. Basic data collection shall include:

1. Articulating project objectives and expected outcomes; 2. Gathering basic project information and characteristics. For example: Is it an asset or

non-asset based project concept? Which sector does it belong to? What are the likely/estimated size, scale and scope of the project in terms of costs? etc.

3. How is the facility/service/infrastructure being currently provided – in-house, outsourced or contracted;

4. Establishing the initial reasoning for exploring different delivery models. For example: What is the need for the project? Is the need driven by the Line Agency’s limited financial resources to fund the facility/service/infrastructure? Is the need driven by a cap on Government borrowing that is preventing the public sector from provision of further services or infrastructure? etc.

At this stage, the Line Agency may choose to apply the PPP Suitability Filter6 (which scores and provides weights to a variety of project-related questions as above or similar) to assess whether a PPP is indeed the most suitable delivery mode for the project under consideration. A view on the viability of the project although desirable, is not mandatory at this stage. The appointment of external advisors (Transaction Advisors (TA)) is also typically not required at this stage. However, on a needs basis, particularly for complex projects, external advisors may be warranted. This assessment stage shall typically take two to four weeks of effort. The objective at this stage is only to get a broad overview of the project and its suitability as a PPP rather than structuring of the PPP or the conduct of a detailed feasibility study.

6 The PPP Suitability Filter is available as a MS Excel based tool

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2.3 Procurement Options Analysis

The data collection stage above sets the tone for this stage. Procurement Options Analysis is an assessment of the various delivery options that may be considered suitable for the proposed project. These delivery methods could be PPPs, Design & Build, and Management Contracts etc. The methodology for this analysis is given below.

2.3.1 Methodology for Procurement Options Analysis

The Procurement Options Analysis stage concludes whether or not PPP delivery is the most appropriate procurement option. It ensures mitigation of project-related problems at a later stage, enhances the possibility of achieving project objectives, improves risk management and optimizes project outcomes. Initially, the Line Agency’s task is to verify the project characteristics to ascertain the suitability of PPP per se as a procurement option. It does not recommend the precise delivery mechanism at this stage, which will only be addressed during the Feasibility Study stage. The following criteria set out the guidelines/framework for the Line Agency to verify whether the project is appropriate to be delivered as a PPP vis-à-vis other procurement options that the Line Agency may consider such as construction contracts, Design & Construction, Design, Construct & Maintain, Construction Management, Project Alliancing or Managing Contractor model. Evaluation criteria used for selecting delivery models for the proposed project: 2.3.1.1 Potential to deliver Value for Money

1. Scale of the project: A project is more likely to offer VfM if its Net Present Cost (NPC)7 of the investment exceeds a certain substantial threshold value. Below this threshold, the likely level of preparation and transaction costs for both the public and the private parties may make it difficult to realize a VfM outcome. It is important to note that procurement under the PPP route is usually more time-consuming and entails higher transaction costs. Hence, it is recommended that in the context of smaller projects i.e., less than the threshold value, instead of procuring them stand-alone, they could be bundled or aggregated or packaged with related projects. This approach may create the efficiencies needed to achieve VfM outcomes of a PPP.

2. Duration of the project: Contracts for PPP procurement are long-term in nature. Infrastructure projects with duration of greater than 20 years, usually in the range of 25 to 30 years, are considered suitable for PPP. A longer duration project facilitates the private sector party to recover its investments over a longer timeframe, and also enhances VfM proposition for the Line Agency. However, while assessing the merit of involving a private sector party, the Line Agency shall consider whether, in the first place, the service/ facility is required to be contracted for the long term.

3. Potential for innovation: Straightforward and established project designs may have

greater predictability, however, complex projects tend to offer greater VfM due to their in-built wider scope for innovation and challenges (such as design flexibility including modification or upgradation during the construction phase of the project enhances the VfM prospects of a PPP project). The absence of complexity and innovation does not

7NPC-The equivalent cost at a given time of a stream of future net cash outlays (calculated by discounting the actual values at

the appropriate Discount Rate).

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mean that the project is unsuitable for PPP. However, features such as complexity and innovation make PPPs more attractive because the private sector is usually better placed to add value in cases where there is notable scope for efficiency gains through innovation.

4. Whole-of-life costing: Full integration, under the responsibility of one party, of up-

front design and construction costs with ongoing service delivery, operational, maintenance (including upgrades), environment, and refurbishment costs has the potential to deliver improved efficiency.

5. Measurable, clearly specifiable and realizable outputs: Outputs shall be clearly

definable and measurable to facilitate the structuring of a robust payment mechanism. The benefits of the project must ideally lead to savings in real terms and/or result in actual reduction in costs.

6. Opportunities for risk transfer: Allocation of project risk to the private sector party is

a primary driver for the VfM outcome. Where opportunities to transfer risks to the private sector are limited, the potential to deliver VfM vis-à-vis a publicly-owned asset approach is reduced. Refer to Annexure 4 for a risk identification table.

7. Market capability and appetite: Commercial merit of the project shall produce a

higher level of market interest in the project. The assessment of each of these matters may require preliminary market sounding including discussions with potential bidders, developers, financiers and advisers. In planning such discussions, measures shall be taken to ensure that no potential bidder is advantaged and that no improper use is made of others’ intellectual property. All market-sounding activities shall be documented in records to be made available to a probity auditor if and when a project eventuates.

8. Potential for supplimentary revenues: A PPP project provides an opportunity for the

private sector party to plan, offer and utilize the full capacity of available assets, such as lease/rent unused land area for commercial purposes or advertising. Such factors tend to enhance private interest in the project.

2.3.1.2 Type of solution:

1. Existing asset solutions - This involves upgrading or refurbishment of existing infrastructure already owned by a Line Agency.

2. Non-asset solutions - This does not involve creation of additional assets, but is instead focused on reconfiguring means of service delivery, developing initiatives to manage demand more effectively or increasing the use of existing assets.

3. New asset-based solutions - This involves development of new infrastructure. PPP format is more suitable for asset-based projects, including those that involve major refurbishment. A Procurement Options Analysis Form is available at Annexure 1.

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2.3.2 Delivery Model Options

Various delivery model options for project procurement are available. A decision-support tool - the ‘PPP suitability filter’ may be used by the Line Agency at this stage to analyse shortlisted delivery model options and arrive at a preferred delivery mode. However, to begin with, delivery models may be assessed for their suitability and their VfM drivers by referring to the figure below:

Procurement Option When to use

(suitability criteria) Value for Money Drivers

PPP – a contractual arrangement between The Line Agency and private sector for the latter to deliver and/or operate and/or maintain public infrastructure/ facility and related services to specified standards over an agreed the long term tenure. For example 20 to 35 years or more. In most cases, ownership reverts back to Line Agency at the end of the agreed tenure.

Complex and long-term

infrastructure projects

Outputs can be clearly

defined, measured and

monitored

Scope for innovation

Whole-of-life asset

management is

achievable and cost-

effective

Market interest

Opportunities for

appropriate risk transfer

Potential for third-party

revenue

Sufficient scale and

long-term nature

Complex risk profile

and opportunity for

lifecycle risk transfer,

thus encouraging

efficient design and

quality in construction

Whole-of-

life approach from

integration of design,

construction,

operation and

maintenance over the

life of an asset, in a

single project package

Innovation

Appropriate

supplementary use of

facilities, reducing net

cost to the Line

Agency

Efficiency of contract

management

Construct only (Lump sum or fixed price) – an arrangement whereby the Line Agency attains entire responsibility for the design and deploys a construction contractor to develop the design documentation that forms part of the tender for the works. The private sector is only responsible for construction work.

The scope is defined and there is small likelihood of scope creep or blanket changes to requirements

Modest incentive or need

for innovation from the

contractor

It is desirable and allows

sufficient time to complete

design documentation

before tendering

Limited opportunity for

bundling

Larger pool of

potential bidders,

resulting in increased

competition

Greater scope for

competitive prices

owing to design

certainty

Contract value is set

before construction

starts.

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Procurement Option When to use

(suitability criteria) Value for Money Drivers

services/maintenance

and creating whole-of-

life efficiencies

Design and Construct – an arrangement, in which the Line Agency prepares a design brief outlining the functional and key user requirements for the works, however is less developed and detailed than under a construction-only arrangement. Thereafter, the Line Agency conducts a tender to choose the most suitable design. The private sector is responsible for detailed design in line with specifications and construction based on the approved design.

Line Agency's

requirements are tightly

specified before tender or

do not change

The Line Agency is best-

placed to manage most

operating stage project

risks

Limited opportunity for

bundling

services/maintenance

and creating whole-of-

life efficiencies.

Single point of

accountability for

design and

construction

Fixed price contract

Potentially reduced

overall project cost as

the Contractor has the

opportunity to

contribute

construction

experience into the

design, resulting in

innovation and

efficiencies

Table 1: Delivery Model Options

The next step is to register the project with the relevant treasury and appoint a project team. The Line Agency shall also develop the Terms of Reference (ToR) for external Transaction Advisors (TA), who may be appointed at either the feasibility stage or the procurement stage or both.

2.4 Develop Terms of Reference to appoint advisors

Where the preliminary assessment by the Line Agency demonstrates that the project is suitable for PPP and the investment size is above a substantial threshold value, then the Line Agency shall progress to the next step to conduct the feasibility assessment and structure the project as PPP. In doing so, the Line Agency may appoint TAs relevant to the Project in order to conduct a Feasibility study and subsequently to manage the transaction process. The Line Agency is required to make a realistic assessment of its capacity and the need for resources for project development. Based on this assessment, the Agency shall articulate the need of a list of advisors including Financial, Technical, Legal, Surveyors, Sector Experts, Structural Engineers, Architects, Environmental Impact Assessors, Social Impact Assessors and such others. The Line Agency is then required to develop the ToR for the appointment of the TA (individuals or firms). The specifications that shall be included in the ToR, among other aspects are:

1. Project background; 2. Detailed scope of work; 3. Key deliverables and initial timelines; and 4. Payment milestones.

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The Line Agency should also define the eligibility criteria and procurement process depending upon the specifics of each project. The eligibility criteria shall be clearly laid out with a combination of technical and financial parameters. The technical parameters may include the following:

1. The TA/ Consultant’s credentials; 2. Experience of the team; 3. Approach and Methodology; 4. Financial Capacity (threshold in terms of Turnover);and 5. NEEEF Rating (or similar), if a Namibian firm.

The financial parameter shall be the fee quoted by the TA. The procurement process for appointment of advisors shall ideally be a single stage process with RFPs from both Technical and Financial advisers. Only after the evaluation and scoring of Technical Proposals, shall the Financial Proposals be opened. While the weightings for the Technical and Financial Proposals would depend upon the complexity of each project, the weighting for the Technical Proposal shall ideally be in the range of 60 to 80. It is recommended that where the project is complex, greater weighting should be placed on the Technical Proposal. Also, the Line Agency shall estimate the project development expenses for the appointment of Advisors. At this stage the Line Agency is ready to put together the Preliminary Study Report, including a list of approvals that may be required going forward and highlight any risks in obtaining any approvals. As a few approvals may be time-consuming, it would be prudent for the Line Agency to set timelines and initiate any related processes early on. For example, the Line Agency may choose to begin environment impact assessments and related approval processes as these can be time-consuming.

2.5 Undertake market sounding

The purpose of undertaking the Market Sounding exercise is to understand the level of market capability and appetite for the project. The Line Agency requires reliable data on which to base a decision on whether to offer a project to the market as PPP project, or to deliver it by traditional means. This decision, which is based on practical grounds, necessitates an examination of whether:

1. The private sector has the capability to deliver the project; and 2. The private sector has the requisite level of appetite, or motivation, to do so.

Discussions with the market in industry forum can assist in resolving and identifying issues. Specialist advice may be needed regarding some issues. Some of the information gathering can be undertaken through market sounding sessions. The examination of capability to deliver the project shall involve an assessment of:

1. If there is capability within the private sector to deliver the required services as set out (or desired) by the Line Agency;

2. If the service delivery would be sufficiently reliable; and 3. If such delivery would provide value for money.

Discussion of service delivery capability and reliability would focus on observable strengths and weaknesses of the particular sector. Major constraints to take into account are likely to be

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those arising from consideration of the public interest and from any necessity to exercise flexibility over time. The figure below provides a snapshot of the key stakeholders relevant to a typical PPP Project and the perspectives required from them:

Figure 4: Understanding stakeholders' perspective through market sounding

2.6 Develop Preliminary Study Report

Having pursued the steps in the Preliminary Study stage, the Line Agency shall prepare a report to document the findings. The report shall comprise the following:

1. Project information; 2. Results of the Procurement Options Analysis and PPP mode selection tool (separately

available); 3. Detailed scope of work, eligibility criteria, key deliverables and payment milestones for

TAs/ ToR and procurement process for TAs (if applicable); and 4. Filled out Preliminary Project Assessment Form as provided in a template in Annexure

2. Note that although there are no treasury or transaction approvals required at this stage, the Line Agency / PO shall submit all information and reports created at this stage, to the PPP Committee. At this stage the Line Agency shall complete a checklist for ensuring that the required processes have been followed in the Preliminary Study stage. A template of a checklist for the Preliminary Study is available at Annexure 3. The following section explains the next stage in the PPP Process i.e., the Feasibility Study.

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3 Feasibility Study

The PPP Feasibility Study stage is a critical input to the PPP procurement stage. The main functions of a Feasibility Study shall be:

1. Conduct a strategic needs assessment to establish a firm need for the service/infrastructure (be it Brownfield or Greenfield);

2. Scope the project from output and cost perspectives; 3. Confirm the contribution of the project to government policy objectives; 4. Identify funding sources and mechanisms for the proposed project; 5. Examine the financial impact of the project to the Line Agency including affordability; 6. Analyse costs and benefits of the project and demonstrate that it expresses net benefit; 7. Determine VfM prospects of the project; 8. Allow for appropriate risk mitigation and risk transfers including technical, operational

and financial risks to the private sector; 9. Develop an overview of the structure of the proposed arrangements; 10. Research and consider the likely level of market interest (for example, lenders opinions)

for the project and whether it represents a commercially viable business opportunity; 11. Demonstrate that public interest is well-protected; and 12. Demonstrate readiness to enter the procurement or tender stage.

This stage is not a theoretical exercise to obtain Transaction Approval 1. Instead, each element of the PPP feasibility report closely ties in with PPP procurement stages. The stronger the relationship between the PPP feasibility and PPP procurement stages, the greater the likelihood of achieving a genuine VfM PPP. Thus, the output of this phase is the PPP Feasibility report that will form the basis to obtain Transaction Approval 1. The Line Agency may choose to appoint a TA to conduct the feasibility study, on the basis of the ToR developed in the Preliminary Study stage. The purpose of the Feasibility Study is to investigate authentically and in detail whether the project is a desirable, viable and an achievable investment, given that such a decision is likely to have long-term implications starting from the choice of the procurement option. The Feasibility Study shall, therefore, assess and describe the technical (engineering, social, environmental, legal etc.) financial, economic and risk characteristics of the proposed project and prepare a project implementation schedule. Findings shall be documented in the Feasibility Study Report. There may be a few overlaps on the issues covered between the Preliminary and Feasibility Study stages. However, despite the overlap, at the Feasibility Study stage all issues are investigated and reported in an in-depth and in a detailed manner as compared with the Preliminary Study stage. The key components of a comprehensive Feasibility Study Report are as below:

1. Strategic needs assessment based on an assessment of the Government’s current and future needs and service/ infrastructure gaps;

2. Scope of the project, the expected outputs from the project and objectives of the

project;

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3. Technical feasibility and technical parameters based on the market analysis, including specification of required facilities and scenarios of project size, for use in preliminary project design;

4. Financial Feasibility incorporating projected revenue structure (e.g. Proposed tariff,

required annuity) and costs to assess project returns and need for financial support from the Line Agency;

5. Social and environmental feasibility, including the requirements for impact

assessments and associated mitigations;

6. Legal framework assessment to examine the suitability of existing legislative environment for the execution and running of the project;

7. Stakeholder consultation findings including users, developers, EPC contractors,

community participants, citizens likely to be affected, financers, other relevant Public Agencies, etc.;

8. Risk Assessment, identifying material risks associated with the project, specifying the

external and project development risks for the Line Agency, the project risks to be allocated to a private sector and those to be retained by the Line Agency;

9. Key Commercial Principles including payment mechanisms, relief, compensation

and force majeure events, default events, termination payments, Line Agency step-in, cure rights, insurance etc.;

10. public sector Comparator (PSC) computation including raw PSC, Competitive

neutrality, value of risks etc.;

11. Confirmation of PPP as a procurement option including Value for Money analysis;

12. Evaluation Criteria for selection of private sector; and

13. Implementation Plan and Project Team.

Feasibility Study Report shall provide crucial information for drafting of key tender documents and shall help with evaluation of bids. All supporting reports and studies such as detailed projected financial statements on the project, detailed environment and social impact assessment studies, detailed technical assessments and detailed review of legal framework, may be included as Annexures to the Feasibility Study Report. The Report shall be submitted to the PPP Committee to obtain Transaction Approval 1. However, should the report require any modifications on review, the PPP Committee shall communicate the same to the Line Agency. The modified report will then be reviewed again by the Committee/Unit’s experts, and be recommended for obtaining Transaction Approval 1. Components of a Feasibility Study Report are detailed below:

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3.1 Assembly of resources

The Line Agency shall normally appoint a Project Manager/ Officer (PM/PO), who shall run the project on a day-to-day basis and shall be in charge of managing resources for the project. The PM/PO shall be supported by an internal Project Team and possibly a team of external advisors / TAs, depending on the need, size and complexity of the project. The PM/PO shall establish a resource budget before embarking on a project and develop a work plan (such as GANTT charts) wherein roles and responsibilities of each team member (including that of TAs) in the project shall be articulated in terms of activities, timelines and persons/organizations responsible and contingency measures.

3.2 Strategic needs assessment and demand forecast

The aim of this phase is to thoroughly investigate the needs analysis initially conducted in the Preliminary Study stage and clearly delineate the project need in terms of output and scope the project in line with the Line Agency’s mandate. This phase would thus establish the real strategic need of the project. Steps at this stage shall include:

1. Needs analysis; 2. Definition of outputs; 3. Scoping the project; 4. Forecasting demand for the project; and 5. Undertake market sounding.

3.2.1 Needs analysis

The level and quality of existing services (and associated facilities) should be reviewed and any shortcomings identified. Gaps may be found in existing or new activities. Hence, new or improved services may be warranted. The needs analysis should also identify potential users by a geographical location or a socioeconomic segment etc. For instance, in the case of a water distribution project, needs analysis shall include: review of coverage and reliability of existing water distribution services, level of unaccounted-for water (losses), and interruptions to supply. Government mandate may also stipulate, for example, that all households be within an influence area must get clean water supply. Stakeholder consultation is central to identification of gaps. Stakeholders may include other government departments, third parties and the public. Stakeholder’s discussion should describe the nature of each relationship and the project’s impact on each respective stakeholder. The scope for direct consultation with the community may be limited before the Line Agency has approved the project. The results of consultation undertaken, including necessary consultation with other government departments, should be included in the Feasibility Study. In particular, impacts on the funding, resources or processes of other departments or agencies must be identified. A consultation plan should be included in the Feasibility Study to ensure that the needs and requirements of the key stakeholders are taken into account and the project remains relevant throughout its life. The objective of the project and its alignment with the agency’s strategic plan should be re-affirmed.

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This consists of a review of the project scope in relation to portfolio policy, wider government policy and future strategic direction. It is also important to examine current service provision and gap analysis to better define the scope of the project. However, project objectives should be reviewed regularly in the wider social and economic context. The objective and scope should be re-examined at each significant milestone throughout the project development process.

3.2.2 Definition of outputs

Once the service gaps and project objectives are identified, the desired outputs of the project can be defined. Unlike a conventional procurement process where a project’s scope is specified in terms of the asset(s) to be developed, a typical PPP project defines the output as the public service that needs to be provided. Such an output definition facilitates better alignment of project outcomes to the service need. Additionally, it allows bidders of the PPP project to provide alternative and innovative solutions to meet the service requirements. Thus, in defining outputs, the Line Agency shall articulate what it envisages to achieve as follows:

1. Description of the service that the Line Agency aims to deliver; 2. Detail of output specifications required to deliver the identified service and assess

whether it meets the Agency’s ongoing service need. The output shall provide a flexible solution that can be expanded and enhanced over time;

3. Detail of minimum standards for the output to prevent a mismatch between the service delivered by the project and the Agency’s expectations;

4. Detail of performance measures for the project to allow for effective costing to meet output specifications;

5. Identification of service interface expectations, detailing the interface between the project and the Agency’s other services; and

6. Identification of critical success factors for the identified output.

3.2.3 Scoping of the project

The project scope is outlined based on inputs from the previous steps of the strategic needs assessment. The project scoping exercise shall result in the following information:

1. The services to be provided by the private sector (and thereby the services that are to be provided by the public sector);

2. General approach towards delivering these services; 3. A description of key resources required for the project, including details of Government

assets that shall form a part of the proposed project (including equipment and land); and

4. Indicative features of the contract structure (such as length of contract, high-level commercial principles, parties to the contract etc.), envisaged timelines or schedules of the project’s development.

3.2.4 Forecast of the demand

This involves forecasting the potential demand for the defined outputs amongst target users, and of expected growth in demand over the life of the project. This would usually require an estimate of the demand levels or gaps that are not being currently met owing to insufficient coverage or quality. The ability and willingness of the target users to pay for the service shall also be estimated.

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Reputable independent forecasters shall add value to this study and subsequently to the procurement phase. Demand analysis is a key input to the technical feasibility study of the project and to the financial and economic feasibility of the project. Forecasts shall present several scenarios that allow for various outcomes. This shall include the most likely scenario as well as a range of alternative scenarios, including the worst-case scenario. The scenarios shall also take into consideration qualitative aspects such as change in government policies and a possible resistance to user charges. Pitfalls of forecasting shall be avoided. For instance, internationally, initial forecasts for new toll roads have known to be overly optimistic with actual traffic often being much lower than the expected forecast. Such a scenario could potentially have a serious impact on the project’s viability and result in an unrealistic picture of the project’s lifecycle performance.

Lower than forecasted traffic at toll motorway in Hungry The Hungary M1/M15 was the first toll motorway tendered and implemented in Central and Eastern Europe. Construction of the motorway was completed on schedule and within budget in 1995. However, traffic volumes were about 40% lower than anticipated, although the forecasts were made by independent experts. The main reason for low traffic was the presence of a free alternative nearby which took longer but the extra travel time did not outweigh the level of tolls. As a result, the concessionaire of M1/M5 was unable to service its debt and eventually the government had to take over the concession at a high cost. Hence, a practitioner should be mindful of overly optimistic forecasting at the project development stage.

An ‘optimism bias’ shall be avoided as it may be with the mind-set of securing project funding or for obtaining transaction approvals. Optimism bias and the associated project risks could be reduced by being attentive to critical factors underlying the forecast. Hence, good practice includes:

1. Reviewing the modelling and forecasting methodology – both internally and by independent experts;

2. Reviewing inputs and outputs, comparing with trends over time, also across results of precedents, if any. Wherever possible use historical data to test the reasonability of results; and

3. Performing sensitivity testing (a ‘what-if’ analysis) on key parameters holding uncertainty, for example, future population growth and location, fuel prices, and competition from other roads and transport modes.

The results of the demand analysis shall be a range of options for the level of service based on the potential market size. Based on this, the project can be refined and further developed with the associated technical parameters.

3.2.5 Technical Feasibility Study

Due diligence on engineering and non-engineering aspects of the project comprises the Technical Feasibility Study. The service definition and sizing of the project scope decide the technical description. Should a physical site be involved in a project, the Line Agency shall indicate whether it intends to

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specify a preferred site, nominate a definite site, or leave the choice of site open to bidders. Should the Line Agency nominate a particular site, it shall be required to identify, compile and verify all related approvals. This step would reveal any concerns that may impact the project’s affordability and VfM proposition, or cause regulatory delays in project implementation. Furthermore, related to the site, the Agency shall establish the following:

1. Ownership of land; 2. Availability of land and any title deed endorsements; 3. Claims on land, if any; and 4. Lease interests on the land, if any.

The Line Agency may need to appoint experts and surveyors to undertake surveys of:

1. Topographical issues; 2. Geo-technical issues; 3. Zoning rights and town planning requirements; 4. Regional/ local development plans etc.; and 5. Other applicable surveys and studies for the project.

For a PPP procurement to be made possible, the resolution of all site issues during the course of the Feasibility Study is vital and preferably prior to obtaining Transaction Approval 1. Results of above activities are expected to feed into a project implementation programme. They help design the least-cost solution to meet the projected demand, standards and other objectives. The results shall also assist the Line Agency in appraising proposals received later during the procurement phase. Although at this stage the technical design is not finalized and is not typically completed to the level of detail required for the final specifications, it determines the minimum technical requirements to be specified in the Request for Proposal (RFP), and on providing a design benchmark to estimate project costing (to be used in the economic and financial analysis during Feasibility analysis).

3.2.6 Social and Environment Impact Study

Most infrastructure projects tend to have significant social and environmental impact, both positive and negative, owing to their construction and operation. Furthermore, the impact could have cascading effects beyond the immediate project area and beyond the persons directly associated with the project i.e., secondary impact. Social impact on communities affected by the project includes, for example, requirements for resettlement and rehabilitation and the associated impact on quality of life and livelihoods. Environmental impact on the project location and in associated areas (i.e., downstream, ground water or ambient air) includes effects on environmental resources owing to alterations or increased pollutants. Often, a mandatory regulatory requirement for assessments of social and environmental impact may apply to infrastructure projects. These shall be complied with during project development and the scope of social and environmental studies shall cover the following:

1. Quantifiable social and environmental costs and benefits; 2. Non-quantifiable social and environmental costs and benefits; 3. Options to mitigate adverse impacts and the costs of mitigation;

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The secondary effects should be included in the assessment. Public consultation is often a part of the social and environmental feasibility process. The analysis should identify what type of social and environmental impact studies are needed, and the type of permits and licences required, and should take into account health and safety standards. This information will assist the Line Agency with the preparation of tender documents if the project is taken to market, and will assist bidders with the preparation of risk minimising bids. The final assessment of environmental and social costs and benefits shall be inputs to economic assessment of the project. Therefore, in addition to being a requirement from a legal and regulatory perspective, the social and environmental analysis is a vital component of the assessment of the project’s overall viability and welfare impact. The Line Agency is now ready to conduct a financial feasibility study, elaborated in the next section.

3.3 Undertake a financial feasibility study

In this stage the financial analysis for undertaking the project as a PPP is conducted. The objective is for the Line Agency to understand the financial viability of the proposed project. This stage also facilitates an assessment of any proposed government financial support requirements for the project. The Line Agency shall conduct the financial analysis using a financial model. The quantitative inputs in the financial model shall be the information gained from various studies such as demand forecasts, technical feasibility study etc. These inputs would help generate financial outputs such as Net Present Value (NPV), Internal Rate of Return (IRR), and relevant Debt Service Coverage Ratios (DSCR) etc. A financial expert from within the Line Agency or the TA shall be responsible for the development of a reliable financial model for the proposed project and shall tailor the model to the particular characteristics of the project. The following Figure depicts the key inputs and outputs in a financial model:

Figure 5: Key inputs and outputs in a financial model

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The inputs to the financial analysis shall include the following:

1. The life-cycle costs of the project and their timing. These shall include the estimated capital costs and Operating and Maintenance (O&M) costs identified in the costs assessment and a depreciation schedule for physical assets;

2. Revenue options and the associated forecast revenue stream. This shall include tariffs (where user-charges are possible), and secondary revenue sources from the project;

3. Forecast demand including various scenarios; 4. Capital structure (debt-equity mix) for the project; 5. Debt and repayment schedule; 6. Discount rates based on the capital structure and allocation of project risks; and 7. Project specifications (investment timing, lifetime etc.).

The outputs to the detailed financial analysis shall include the following:

1. Expected returns from the proposed project illustrated by the NPV, IRR (see below); 2. An assessment of subsidy or any form of government financial support where there is

a gap between the revenue requirement and revenues that can be raised from users; and

3. Summary financial information including ratio analysis.

Outputs shall provide a quantitative assessment of the financial viability of the PPP. Subsequently, sensitivity analysis shall be conducted to understand how input parameters affect the financial outcomes of the project. Typically, sensitivity analysis is conducted with the following variables:

1. Capital Expenditure (construction costs); 2. Operating Expenses; 3. Revenues; 4. Interest rate variations; 5. Inflation variations; and 6. Exchange rate variations.

In addition to the sensitivity analysis, the Line Agency shall conduct scenario analysis in which outputs of the financial model are observed when two or more variables are modified concurrently.

3.3.1 NPV and IRR

Financial viability is usually expressed as the project’s NPV or IRR. These are two useful guides to project-related decision making. Financial viability shall be analysed in present value terms. This implies that the costs and revenues over the life of the project shall be expressed in terms of today’s money. This aids in making meaningful comparisons of costs and benefits that occur at different times and to compare different projects. The NPV expresses the difference between the project’s financial benefits and costs. It has the benefit of summarizing a lifetime of cash flow values into a single figure and allows easy comparison of value between different projects. Only projects with a positive NPV shall be developed further.

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A project which carries a negative NPV implies that its costs are greater than the ensuing benefits. Although such a project shall not be continued in its current form, it may be possible to redesign it to reduce costs or increase benefits. The Line Agency shall attempt the re-designing at this stage. The IRR represents time-adjusted earnings over project life. It is that rate that equates the present value of cash inflows to the present value of cash outflows of the project. In other words, it is the discount rate that sets the NPV of cash flows to zero. In the calculation of IRR, a distinction is made in Project IRR and Equity IRR. As the name suggests, project and equity IRRs differ in terms of cash inflows. Project IRR signifies returns to all investors in the project. For the Project IRR, the cash flows considered would be the ones directly benefiting the project. Equity IRR measures the financial returns to the shareholders of the entity undertaking the PPP project, after debt has been paid off. Therefore the latter is based on the free cash flow to equity holders. The Project IRR must be able to cover the weighted average cost of capital (WACC) of the project. The WACC is calculated as the post-tax weighed average cost of the mix of funds employed for the project which shall include debt and equity components. Hence, when studying the financial feasibility of the project, the Line Agency shall compare its Project IRR with its WACC. Only when the Project IRR is greater than the WACC of the project, then the project shall be considered as feasible. Similarly, Equity IRR should be able to cover the cost of equity, for the project to provide adequate returns to the equity holders.

3.4 Undertake risk analysis

Risk analysis includes assessment of which of the parties, public or private, would be best able to bear a particular project risk due to their experience and skills, thus enabling risk allocation to that particular party. The following factors shall be considered:

1. The party that is best placed to assess information about the likelihood of a risk’s occurrence;

2. The party that is best placed to control a risk’s occurrence and consequences; and 3. The party that can manage and mitigate risks at the lowest cost.

The Line Agency could deal with the identified risks in three ways as below:

1. Retain the risk - risks that will be retained by the Line Agency; 2. Transfer the risk - risks that will be transferred to the private sector; and 3. Share the risk – risks that both parties shall bear.

Irrespective of which of the above ways is attained; the goal shall be to reduce total risk in the project, to the best extent possible. This is not necessarily the same as transferring as much risk as possible to the private sector. There will usually be some risks that the Line Agency can manage better which it ought to retain. For example, the Line Agency is often better placed to control delays associated with land acquisition issues and with obtaining certain permissions and approvals. The risk management process continues throughout the project’s life and seeks to prevent, contain and mitigate risks pertaining to the project. There are five stages in this cycle as below:

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Figure 6: Risk Management Lifecycle

1. Risk identification – identifying risks relevant to the project; 2. Risk assessment – determining the likelihood of identified risks materializing and the

magnitude of their consequences. should they arise; 3. Risk allocation – allocating responsibility to deal with consequences of each risk to

one of the contracted parties, or agreeing to deal with the risk through a specified mechanism, which may involve risk sharing;

4. Risk mitigation – attempting to reduce the likelihood of the risk occurring and the degree of its consequences for the risk-taker; and

5. Monitoring and review – monitoring and reviewing identified risks and new risks as the project develops and its business environment changes. This process continues over the contract term.

Further details relating to risk analysis and management are available at Annexure 4.

3.5 Undertake Value for Money analysis

The Value Assessment stage is an important stage of the Feasibility Study. In this stage the Line Agency establishes the appropriateness of PPP as a procurement choice and within that the solution that would offer the best value to the Line Agency, in terms of VfM8. Procurement choice is determined by comparison of value to the Line Agency of delivering the same service through the conventional public procurement benchmark (Public Sector Comparator- PSC) as against procurement through PPP.

3.5.1 Public Sector Comparator

The PSC aids the quantitative assessment of the VfM. A PSC, expressed in terms of Net Present Cost (or value), is a hypothetical, whole-of-life risk-adjusted9 cost benchmark of a public sector project if delivered (i.e., financed, owned and implemented in the most efficient form of government delivery) through conventional public procurement according to the specified outputs. Key functions of the PSC model are as follows:

1. Promotes full cost pricing at an early stage of the project lifecycle; 2. Acts a management tool during the procurement process, allowing the Line

Agency to remain focused on output specifications, comprehensive costing of project, and risk allocation;

3. Encourages bidding competition by creating confidence in the financial robustness and integrity of the feasibility process; and

4. Functions as a decision tool to assess if the project service should be procured conventionally (non PPP mode), if at any stage the PPP fails to demonstrate VfM.

8 VfM is the key principle of PPP projects, the determination of which is the basis for deciding what procurement solution offers

the best value to the Line Agency. 9Note that the public sector does not usually cost these risks (say for conventional public procurement); however it is necessary

to attain an understanding of the full costs to government of the proposed project.

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Key components of a PSC model are as follows:

1. The Raw PSC; 2. Competitive Neutrality; 3. Transferred Risk; and 4. Retain Risk.

These components are depicted in the below figure:

Figure 7: Key Components of the PSC Each component of the PSC model is explained below:

1. Raw PSC – It is an estimate of raw costs to the Line Agency of delivering the reference project based on the output specification through conventional public procurement, before taking into account adjustments for competitive neutrality and the value of project risks. This cost computation includes the NPC of construction, O&M costs and any other project costs adjusted for any third party revenues over the reference period;

2. Competitive Neutrality – It is the adjustment for the net competitive advantages that accrue to a government business by virtue of its government ownership. This would typically include taxes levied on the private sector but not on the Line Agency. Taxes (such as land tax, local municipal or council tax, stamp duties etc.) become additional cost to bidders but not to the government. This component is included to neutralize any competitive advantage that the Line Agency may have due to its government-linked status.

PSC = Raw PSC + Competitive Neutrality + Transferred Risk + Retained Risk

Risk and Competitive Neutrality Adjusted

PSC

PPP mode of procurement

Exp

ecte

d C

ost

Transferred Risk

Retained Risk

Competitive Neutrality

Raw PSC

Value for Money

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3. Transferred Risk – It is the NPV of the risks that are likely to be transferred to the private sector should the project proceed as a PPP; and

4. Retained Risk – It is the NPV of the risks that are likely to be retained by the

Line Agency.

A detailed description of the estimation of VfM and computation of the PSC is provided in Annexure 7.

3.6 Determine Commercial Principles

The commercial principles determine the main provisions of the PPP Agreement and shall be developed based on the risk allocation and specific requirements of a project. Typically, commercial principles shall address the following issues:

1. Conditions Precedent to financial close - The conditions required to be satisfied prior to the project agreement becoming effective;

2. Contract term - Conditions pertaining to the duration of the contract; 3. Site issues and environmental conditions - The method of dealing with the

proposed infrastructure project site shall vary with each project. However, subject to tax implications, the Line Agency shall generally look to possess freehold title to the project site that it shall eventually provide to the contractor on a leasehold basis. Such a structure shall provide higher certainty to the Line Agency, should step-in be required to ensure service continuity, as per contract terms;

4. Design, construction and completion - The proposed arrangements in the event of time and cost overruns, change in design, project requirements, construction milestones and monitoring shall be determined. Generally, each party shall bear the risk for events caused by it, or within its control, or it shall be the party best placed to manage a risk;

5. Performance, O&M requirements and monitoring - The proposed standards of service, which the private sector is expected to deliver, as well as guidelines for reporting, monitoring and cure regime, shall be developed. Failure to comply with the requirements shall typically result in abatement of availability payments or result in penalties as the case may be;

6. Relief and compensation events - Generally, these are the events that fall outside the definition of Force Majeure events, however limit the ability of the private sector to perform its obligations under the contracted services. The events that shall result in temporarily relieving the private sector from its obligation under the contract and events that shall entitle the private sector to receive compensation, as well as principles of computation of the compensation, shall be determined;

7. Force Majeure – These events are a limited category comprising events of exceptional severity outside the control of either party. If a Force Majeure event occurs, the private sector's obligations shall be suspended. If a Force Majeure event persists beyond a specific period of time or if the parties are unable to reach an agreement on the course of action, either party shall be allowed to terminate the PPP Agreement;

8. Termination and termination payments - Various contract termination scenarios before the end of the term and payment arrangements in the event of contract termination, shall be determined. These principles shall also address the treatment of external financiers, in such instances;

9. Step-in rights - In situations where the private sector cannot perform its obligations under its contract despite the cure measures, or there is a serious threat to the national

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interest or a need to discharge a statutory duty, the Line Agency may step in to operate the project; and

10. End of term arrangements -The proposed arrangements at the end of the contract period in relation to assets owned by the private sector shall be determined. These arrangements could vary from a scenario where the Line Agency and the private sector are not subject to any predefined arrangements, to a defined transfer price for which the Line Agency can purchase the assets. This matter gives rise to a range of commercial, accounting and taxation issues.

Commercial Principles shall also include details of the payment mechanism, which in general shall meet the following principles: (Annexure 8 provides details on payment mechanisms)

1. Payment shall only be made for services delivered. The payment mechanism shall never be formulated such that the private sector will be guaranteed a fixed payment that covers its debt service obligations, irrespective of the level of its performance;

2. The payment mechanism shall provide for deductions for substandard performance and, where appropriate, for bonuses for performance exceeding standards. Deductions shall reflect the severity of the failure i.e., complete failure to deliver a service shall lead to no payment, while partial shortfalls, shall lead to proportionate deductions dependent on the severity thereof. In the event of repeated minor shortfalls, the quantum of penalties may be increased; and

3. The payment mechanism shall also reflect revenue collection and tariff-setting assumptions as well as service outcomes.

Specifically, in case of availability-based unitary payments, the following considerations shall be assessed:

1. The amount of each unitary payment; 2. If sub-division of payments and apportioning them to discrete services or aspects of a

service is appropriate; 3. Key areas of availability and performance of the services; and 4. Calibration of the payments to ensure the appropriateness of any incentives payable

or any penalties imposed.

In cases where usage varies (e.g., waste collection or treated water), the following considerations shall be addressed:

1. The payment amount per unit of usage; and 2. Where the private sector has no control over demand risk, whether it is appropriate to

have a take-or-pay component, which guarantees payment for a minimum usage, or whether it is appropriate to have elements of fixed and variable components.

3.7 Develop evaluation criteria for selection of private sector

The evaluation criteria for selection of the private sector shall be developed at this stage. Evaluation criteria shall be established for:

1. Request for Qualification (RFQ) process; and 2. Request for Proposal (RFP) process.

Further details on the guidelines for developing evaluation criteria are provided in the ‘PPP Procurement’ section of this Manual.

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3.8 Develop implementation plan and tasks

At this stage, project outputs shall be translated into identifiable deliverables with specific milestones and schedules. Project phasing is outlined at this stage as well. Once the schedule is known, resource planning can commence. The checklist (sample implementation plan) below indicates the stages that shall be followed in a typical procurement plan or implementation schedule. The stages included for individual projects would vary depending on its focus i.e., capital expenditure or operating expenses and also depending on the sector to which the project belongs. A sample procurement plan is as follows (procurement components of this table are further elaborated in the PPP Procurement section below):

SN Information to be covered in the procurement schedule

Timeline (Weeks)

Start Date

End Date

Responsibility centre

1 Transaction Approval 1:

1a Feasibility analysis

1b Sign-off from Accounting Officer, Application for Transaction Approval 1, to the PPP Unit

2 Transaction Approval 2A and conduct first stage of bid process:

2a Prepare and submit RFQ for obtaining Transaction Approval 2A

2b Final draft of RFQ, issuance of RFQ to bidders

2c Evaluation of responses to RFQ and qualification of bidders.

3 Transaction Approval 2B and second stage of bid process:

3a Approval of the RFP and draft PPP Agreement


4a Approval of the evaluation and selection of private sector preferred bidder


5a Approval after negotiation with preferred bidder

5b Briefing of the Accounting Officer regarding the procurement choice and taking approval

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SN Information to be covered in the procurement schedule

Timeline (Weeks)

Start Date

End Date

Responsibility centre

5c Signing of PPP Agreement with selected bidder

6 Technical and financial closure timelines:

6a Detailed technical studies and planning.

6b Obtaining clearances

6c Arranging and finalizing finance

7 EPC activities and timeline (for projects with a capital expenditure component)

7a Detailing each major milestone through the EPC process

8 Post-construction activities

8a Example: surveys and commissioning facilities

9 Expected date for commencement of operations (COD)

10 Major milestones identified in the operating lifecycle of the project

Figure 8: Sample Project Plan

3.9 Determine project resource requirements

The Line Agency shall evaluate the project resource requirement and identify key individuals for the Procurement Committee10, Negotiations Team and the Contract Management Team. In envisaging the project resource requirements, the Feasibility Study shall provide names, designation, qualifications, experience and skills of all team members. Further requirements for additional (external) advisors shall also be highlighted.

3.10 Compile and submit the feasibility study report

Once the above analysis has been undertaken, the Line Agency shall compile a Feasibility Study Report. Annexure 9 has Typical Table of Contents for the Feasibility Report. A checklist for the Feasibility Study Report is provided at Annexure 10. The Line Agency shall fill this checklist to determine its readiness for the PPP procurement process. The filled out checklist shall be submitted along with the Feasibility Study Report to the PPP Committee/ Unit. On review and approval, the report shall be submitted to obtain Transaction Approval 1 from the relevant treasury/approving authority.

10 The term Procurement Committee has been adopted from Namibia’s Public Procurement Bill, 2013 (Draft 4) as at 27 June

2013. The composition of the PPP Procurement Committee may closely follow the composition of the Committee that is recommended for public procurement in the Bill.

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3.11 Obtain Transaction Approval 1

Once the Feasibility Report has been prepared and reviewed, the Line Agency should approve the Feasibility Report, and thereafter submit it to the PPP Committee for obtaining “Transaction Approval – 1”. The PPP Committee11 may request the Line Agency to make a presentation on the report submitted. This presentation shall include an executive summary of the findings, analysis and highlights of the Feasibility Study.

11 PPP Committee – approval authority constituted at the Ministry of Finance

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4 PPP Procurement

This section details the procurement processes of a PPP. The procurement process begins after Transaction Approval 1 is obtained and its key aspect is selection of a private concessionaire for undertaking the PPP project that is under development. The process shall aim to minimize the complexity, duration and costs to both the government and private parties, while facilitating strong competition for the project in order to obtain the best VfM for the PPP.

4.1 Key principles of the procurement process

The Line Agency shall consider the following key principles while structuring and conducting the procurement process:

1. Timeline management - Efficiency of the procurement process shall be best ensured when the proposed timeline is adhered to the best extent possible;

2. High-quality tender documents - The Line Agency shall invest sufficient time and effort to develop a well-thought through procurement process and related tender documents;

3. Project resourcing - A project requires sufficient resources to be run efficiently in order to select a solution offering high VfM for the Line Agency;

4. Clarity of communication of the Line Agency’s requirements - The requirements of the Line Agency and any challenges regarding the project that may constrain the Agency to proceed, shall be deliberated, efficiently communicated and held consistent throughout the process; and

5. E-procurement12 - Line Agencies shall adopt e-procurement for PPP projects and substitute written communication by e-communication, where possible, to improve competition, efficiency and transparency without compromising the sanctity, security and recording of such communication and the information.

4.2 Introduction to stages in procurement

In case of PPP procurement, distinct stages and associated approvals are at play including the following:

1. Request for Qualification (Transaction Approval 2A); 2. Request for Proposals and Draft PPP Agreement (Transaction Approval 2B); 3. Approval of evaluation and selection of preferred bidder (Transaction Approval 3); 4. Approval after negotiation and award of contract to the preferred bidder (Transaction

Approval 4); and

Procurement stages are depicted in the Figure below:

12 In accordance with Section 98 of the Draft Public Procurement Bill, 2013 (Draft 4) as at 27 June 2013.

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Figure 9: Stages in Procurement

Given the above stages, this section explains how to plan, execute and manage the PPP procurement process including the necessary documentation that would form the basis of obtaining Transaction Approvals 2A to 4. The procurement process, described in the sub-sections below, consolidates best practises in procurement and is not meant to be strictly prescriptive. This implies that since PPPs are in their nascent stage in Namibia and in the absence of precedents and/or complex projects, the procurement process described below may be amenable to refinement as larger and more PPPs and their practical knowledge come to the fore.

4.3 Request for Qualification

The objective of the Request for Qualification (RFQ) stage in the PPP procurement process is to qualify a manageable number of bidders / or bidding consortia that technically and financially qualified, and are experienced, skilled, and committed to submit bids for the project. Such qualified bidders would become eligible for further stages in the PPP procurement process. The key purpose of RFQ is thus to:

1. Disseminate project information to the market including services/infrastructure that the Line Agency seeks to obtain;

2. Communicate to the market the proposed timeframes, evaluation criteria, potential key issues and constraints faced by the project and set out clear rules of participation;

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3. Ascertain the level of market interest13 in the project, provide an avenue through which potential bidders/respondents/ bidding consortia can comment on the proposed project structure, and provide verifiable information to the Line Agency; and

4. Obtain RFQ responses from the bidders which allow the Line Agency to shortlist (qualify) respondents to proceed to the RFP phase that are assessed to be most capable of meeting project objectives over the project term.

The RFQ process comprises the following main steps:

Figure 10: Steps in the RFQ process

4.3.1 Set up the Procurement Committee

At this stage a Procurement Committee shall be formed at the Line Agency in line with provisions of the appropriate PPP legislation in force. Its functions would include the following:

1. Finalize bid documents, including approval of evaluation criteria, process and outcome; 2. Evaluate bids; 3. Approve pre-qualification results; and 4. Manage the private sector selection process.

If required, the Procurement Committee may be sub-divided into functional teams to focus on the evaluation of specific aspects of the bidders’ proposals, such as technical, financial and legal aspects. However, this shall largely depend on the size and complexity of the proposed project and the requirement of specialist skills and experience.

4.3.2 Develop RFQ documents

The Line Agency should bear in mind the following considerations when drafting the RFQ document:

1. The RFQ is not intended to set out detailed service delivery specifications. However, it should contain sufficient information to allow potential RFQ respondents to form a view on whether they have sufficient capabilities, identify potential partners for the project and identify potential project risks;

2. The information requested from the bidders should be such that the Line Agency can confidently shortlist bidders most capable of delivering the project/services on a sustained basis over the term of the contract; and

3. The RFQ should not require bidders to spend significant time or resources to prepare the RFQ response.

4.3.2.1 Information to be provided to applicants

The RFQ should provide the following information to the bidders:

13The Line Agency would have once tapped market interest in the ‘Market Sounding’ stage early on during the Feasibility Study

Stage.

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1. A brief reasoning for the Line Agency to undertake the project and the past steps (feasibility studies, pre-bid activities etc.) taken in this context

2. High-level definition of the project, including the following details: a) Project description, background, purpose and overview; b) Overview of project objectives and its fitment into the strategic plan of

the Line Agency; c) Land / site issues, if any; d) Defined performance parameters and services that the private sector is

expected to deliver(for example, for an airport project, the private sector may be expected to provide terminal operations, but not expected to provide air traffic control and airport security services);

e) Defined legal requirements and statutory regulations related to the PPP; f) Commercial principles, including the proposed payment mechanism

(where developed); g) Identified financing requirements and issues; and h) Proposed risk allocation and risk transfer.

3. Details of method of evaluation of submissions and a timeframe after which

submitting parties shall be notified of the evaluation results. This section shall include the following information:

a) Details and the basis of evaluation of RFQ responses; b) Line Agency’s requirements for consortium partnership c) Formats for submission, including compulsory forms of response as an

aid to evaluation; d) Grounds for disqualification; e) Line Agency’s contact details; f) Identity of the public authority that will contract with the private sector;

and g) Other general terms and conditions of RFQ.

4.3.2.2 Information to be sought from applicants

There shall be specific formats and adequate narratives to explain the form and nature of

information sought from RFQ applicants. This shall include:

1. Applicant/bidding consortium details, capability and strength;

2. Proposed consortium composition and structure with clarity on roles of the members;

3. Skill/experience/track record of relevant organizations and subcontractors in projects

of a similar nature;

4. Financial and market standing of each member of the bidder or the bidding consortium,

including assessment of ability to raise adequate debt and equity for the project;

5. Overview of bidder’s proposed approach to the project (if considered relevant);

6. Capacity to meet service delivery needs to specified output levels as per the project

implementation timetable; and

7. Information regarding any conflict of interest, whether actual or potential.

4.3.2.3 Evaluation criteria and methodology

Prior to release of the RFQ documentation, the Line Agency should also develop the evaluation criteria and methodology, which is submitted together with the RFQ documentation for the approval of the PPP Committee.

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Evaluation criteria and methodology should provide the following information: 1. Objectives of the evaluation process; 2. Structure of evaluation team, and information on protocols on interaction with

specialist advisers and bidders during the evaluation process; 3. An evaluation methodology that covers how proposals will be assessed and the

relative importance of each evaluation criterion; and 4. A clearly-documented approvals process, including the role of the Line Agency

and any other involved bodies (such as the PPP Committee). The key evaluation criteria applied for RFQ processes typically include:

Evaluation criterion

Description Example of documents

required

Track record/ Knowledge/ capability of working in similar conditions

Applicant’s experience and track record in delivering projects of similar nature. This criterion takes into account the applicant’s ability to deliver against the physical aspects of the project (for example, development of hospital facilities) and also the ability and track record in delivering outputs under long-term contractual arrangements. Due weightage shall be placed on the single applicant/consortium’s past experience in local Namibian conditions. However, lack of demonstrated track record in delivering projects of similar nature shall not automatically disqualify an applicant. Instead, in the absence of relevant experience, the applicant’s broader experience in delivering projects under long-term contractual arrangements shall be considered.

Past credentials, CVs of personnel etc. in a prescribed format

Financial position and financing

Projects normally require the successful applicant to finance the capital cost of the project. An applicant shall be evaluated from the perspective of its ability and experience in accessing external funding. Affirmation of the applicant’s ability to secure funding requires an examination of the financial position of the consortium members, consideration of financiers’ perception of the applicant and the risks associated with their operations. For instance, a private sector party with marginal profit and a weak balance sheet is unlikely to secure the required finance on competitive terms to drive VfM outcomes.

Audited financial statements, letters of parent’s support etc.

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Evaluation criterion

Description Example of documents

required

Composition of consortium

The composition of the consortium proposing to deliver the project is a vital consideration. The RFQ should request for information regarding experience and financial strength and track of each member. RFQ responses should define roles of each participant and demonstrate how relationships between the parties shall operate. To the extent that the proposed members may not have worked together previously, the evaluation team shall consider how members of the consortium shall collaborate to deliver the necessary outcomes.

Organization chart, Memorandum of Understanding (MOU), past collaboration records etc.

Conflict of interest

An applicant shall confirm absence of conflict of interest.

Statement of absence of conflict of interest

NEEEF considerations

A single applicant/consortium shall demonstrate how it is compliant with the requirements of the NEEEF considerations of any other such applicable regulation.

NEEEF Rating and / or other information and documentary support

Table 2: Key evaluation criteria in the RFQ document

A template for the RFQ document is provided at Annexure 12.

4.3.3 Obtain Transaction Approval 2A

On preparation of the draft RFQ, the Line Agency shall submit it to the PPP Committee for its review. Thereafter, any revisions of the RFQ document, suggested and satisfactorily dealt with shall enable finalization of the RFQ document and lead to Transaction Approval 2A. The document shall also be submitted in parallel for other relevant approvals that may apply to the particular Line Agency. On obtaining all approvals the Line Agency will be ready to release the RFQ.

4.3.4 Advertise and release the RFQ

The method of RFQ distribution shall follow the Line Agency’s procurement plan and should be in line with applicable regulations. All interested private sector parties shall have sufficient time and opportunity to respond. The timeframe assigned to receive a response may vary depending on the size and nature of the project; however, typical timeframes span four to six weeks. A briefing session may be held for interested parties to ensure that potential applicants understand the requirements of the Line Agency.

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4.3.5 Receive queries and issue clarifications

The Line Agency shall respond to requests for clarification by the applicants. Such requests may be typically be received by the procuring entity two weeks prior to the deadline for submission of applications to qualify. The Line Agency in turn shall furnish a response expeditiously so as to enable applicants to make timely submission of their application to qualify. The response to any request shall, without identifying the source of the request, be communicated to all applicants to whom the Line Agency provided the RFQ document. It may also be useful to post clarifications on the Agency’s website for easier access of all applicants/other interested parties.

4.3.6 Receive and evaluate responses to the RFQ

On receipt of applicants’ responses, the Procurement Committee shall commence evaluation. External financial, legal and technical advisers or a TA may support the committee in the evaluation. Evaluation shall be in accordance with already established and communicated evaluation criteria. The Procurement Committee shall prepare an evaluation report and recommend a list of firms to be considered as ‘qualified’. In a situation where all firms fail to qualify on the basis of set out requirements, the Line Agency may waive or relax a few of the requirements and evaluate all firms for the second time, on the basis of the relaxed requirements.

4.3.7 Inform participants of pre-qualified applicants / shortlist applicants:

Firms meeting the qualification criteria and approved by the PPP Committee shall be notified by the Line Agency and be invited to the next stage of procurement. The Line Agency shall also inform unsuccessful applicants from the qualification stage within one week after receipt of all the required approvals to the qualification. The Line Agency shall make available to any member of the general public, upon request, names of all applicants that have qualified. These names may preferably be posted on the Line Agency’s website for easier access and public information. Furthermore, the Line Agency shall, upon request, communicate applicants that have not been qualified the grounds thereof. However, the Line Agency is not under obligation to specify the evidence for the grounds. The Line Agency shall maintain a record of the procurement proceedings thus far.

4.4 Request for Proposal

The objective at the RFP stage is to select a preferred bidder based on an objective, comprehensive and transparent selection process.

user

Highlight

user

Highlight

this is not made provision for in the Act - but best practice suggest it should be. Can we make a clause in the Regulations to cover this?

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The RFP document (including the draft PPP Agreement) is the formal bid document issued by the Line Agency to shortlisted applicants (as per the above described RFQ stage). The RFP process is outlined in the Figure below:

Figure 11 Steps in the RFP Process

4.4.1 Identify key considerations in the Bid Process – RFP Document

At this stage, the Line Agency shall identify the key considerations relevant for the RFP process. The key considerations during the RFP process shall include, but not be limited to the following:

SN Areas Description

1 Measures to

enhance

process

efficiency

Sufficient time and expertise is typically invested in developing the

RFP document. Also, short-listed parties expend considerable

resources – both monetary and time, on the bidding process. Hence

a poorly structured definition of the service requirement, lack of

clarity about the hurdles to be met, or subsequent amendments to

the RFP document may draw criticism and adversely affect

timeframes.

The efficiency of the process is enhanced by making available to

bidders all relevant information the Line Agency has. This aids

preparation of RFP responses. Information, including any analysis

with appropriate disclaimers, shall be made available in a ‘data

room’. Bidders will be advised of the information available and of

the formalized administrative arrangements regarding access to

and use of the data.

2 RFP and

bidding

modalities

Finalise RFP modalities in terms of contents, processes and

safeguards. These have been elaborated in the next stage.

Also, the Line Agency shall consider outlining in the RFP, the

process of change in any consortium member, if permitted. The

process should be as follows:

Consortium submits a written request to the Line Agency

requesting for change in composition of consortium. This

request shall contain all details about the consortium as

presented in the RFQ document;

The Line Agency shall re-evaluate the strength of the

consortium based on the RFQ evaluation criteria;

If found satisfactory, the Line Agency informs the consortium in

writing. If found unsatisfactory, it advises the consortium to

submit an alternative within a specified timeframe, failing which

it shall be disqualified from the bid process.

3 Interaction

with bidders

In addition to the material provided, it is likely that bidders shall seek

further clarification and advice during the bid process. Bidders shall

be assured that appropriate procedures were implemented to

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protect any information disclosed by a bidder. Hence, at this stage,

the process of interaction with the bidders shall be finalized.

Generally bidders obtain feedback in two ways from the Line

Agency, during the RFP phase:

Bidders submit questions to the project team in writing. The project team provides written responses to those questions (Q&A process).

Bidders participate individually or collectively in structured workshops (technical or financial)/focus group discussions with the Project Team and other project stakeholders, if necessary (the interactive tender process).

For complex PPP projects, an interactive tender process shall be

adopted. Only in rare circumstances and for compelling reasons will

individual interactive sessions, subject to the prior approval of the

Accounting Officer be undertaken.

4 Probity

measures

The Line Agency shall ensure transparency and integrity of the

procurement process. The Line agency shall:

Identify and implement ethical practices: To prevent any corrupt

practices or the perception of any fraudulent transaction, the Line

Agency shall evolve a clear anti-corruption policy, applicable both

for the Project Team and for the bidders. The procurement plan

developed shall also have necessary safeguards such as:

Disclosures: All Project Team members, TA and the

Procurement Committee shall declare any potential conflict of

interest. The Line Agency shall take necessary action to move

such officer/s to another position, wherein their conflict of

interest shall not impact or be perceived to impact the project

and they continue to be isolated from the said project.

Code of Conduct: All project team members, TA and the Procurement Committee shall sign a Code of Conduct which would require compliance on several ethical issues that may impact the bid process and in turn the project itself. This Code shall also be signed by pre-qualifying bidders. Also the RFP document shall state that a signed copy of the Code shall be submitted with the bid and form the minimum eligibility criteria.

Internal and external audits: The Line Agency’s Accounting Officer shall provide for incorporation of external and internal audits of the bid process against the procurement plan. The emphasis shall be on compliance to processes.

A structured oversight system: An individual other than the one who prepared the RFP document shall review all documentation regarding ethical practises and get the document signed off by the Project Team.

Further measures to ensure transparency and integrity in the

procurement process include:

Maintaining and referring to the list of prohibited or blacklisted suppliers who shall not be permitted to bid for

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any Namibian Government or Line Agency bids during the specified period.

Identify measures to maintain security of information and documentation.

Table 3: Key considerations during the bid process

4.4.2 Develop RFP Documents

Development of RFP documents and the contract should ideally run as a parallel process with the RFQ process. This optimizes the use of time and ensures efficient progress of the project. The RFP is the formal bid document issued by the Line Agency. Its purpose is to outline the project requirements (its commercial, operational, technical, design and legal aspects) so as to solicit binding responses from the shortlisted bidders. It is therefore important that the requirements are communicated clearly through the RFP document to the bidders. The bidders are expected to expend significant time and resources developing their responses, hence it is essential that the RFP documents are well-structured and clear. 4.4.2.1 Information to be provided to the bidders

The RFP shall significantly draw on the work undertaken during the feasibility analysis. The following information should be provided to the bidders: 1. Overview of the RFP, covering the structure and the content of the documents;

2. Background – including details of the project objectives and rationale, site details,

Government’s role, responsible agency and key stakeholders;

3. Project scope covering key elements of the project; the details of which can be drawn from the Feasibility Report;

4. Output specifications – including an outline of the key design principles for the project,

architectural specifications, technical specifications (such as minimum performance standards), equipment specifications and other service / asset (input) specifications.

5. Tendering process – detailing formal tender requirements, processes and timelines, as

well as communication protocols;

6. Commercial framework summary – overview of the term of the project, the payment mechanism, the proposed allocation of risks and other project terms and conditions;

7. Terms and conditions of the contract – There may be a number of contractual documents

associated with each project. The contract is a comprehensive document, which includes schedules to be completed based upon information from the successful bid. The contract is developed along with other RFP documents and issued to bidders as a part of the RFP package to ensure that the bidders are aware of the specific contractual terms that the Line Agency is seeking and have an opportunity to raise clarification questions or flag potential issues during the process of preparing their submissions. However, the contract should be developed only after the risk allocation and commercial principles have been settled; and

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8. Evaluation criteria – It is important that proposal requirements are aligned with evaluation

criteria to ensure that the Procurement Committee receives the information that it requires. 4.4.2.2 Information to be collected from the bidders

The RFP should seek the following responses from bidders –

a) Details of the bidder – including consortium structure, ownership structure, allocation of responsibilities among consortium members;

b) As applicable, details of the proposed solution, including design, operational plans and service delivery plans, project management plans;

c) Any identified supplementary revenue opportunities;

d) Details of proposed funding structure and level of commitment;

e) If required, a financial model detailing the financial outcomes of the project; and

f) Evaluation details as per NEEEF / other applicable framework or regulation in force.

With respect to (e) above, the Line Agency’s financial adviser should develop a financial template that is to be issued to all bidders as part of the RFP. Such template could be released in soft copy to enable bidders to develop their financial proposal within the framework specified. The financial template should incorporate the requirements for information regarding the key components of a bid, including building cost, financing structure and major cyclical maintenance items. 4.4.2.3 Evaluation criteria and methodology

Similar to the RFQ stage of bidder selection, evaluation criteria need to be developed prior to the release of the RFP documents. The Line Agency should be guided by the following principles when developing the evaluation criteria:

a) Service delivery. The bidders should be assessed based on their technical capacity and the proposed approach to delivering the outputs sought by the Line Agency;

b) Facilities solution. The bidders should be assessed based on the physical solutions proposed, such as design principles, flexibility for later alterations, risks associated with the proposed approach and the Value for Money represented; and

c) Commercial issues. The bidders should be evaluated based on their commercial proposition including bid price, the risk allocation which the bidder is prepared to accept, departures from the proposed contract and the financing structure.

Two methods are available for evaluation of proposals:

a) In case of projects where there the developer is responsible for detailed designing of the facilities and there is flexibility available to introduce innovation and design efficiencies a Quality cum Cost Based Selection (QCBS) approach may be used. Where evaluation weights shall be distributed between Technical Proposals, Financial/Price Proposal and other evaluation considerations in compliance with applicable legislation.

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The actual selection of weight should be made based on the specific requirements of the PPP project.

b) In other cases Least Cost approach may be used. Under the Least Cost approach, the financial proposals of all bidders that qualify on technical criteria, are opened and assessed. The bidder quoting the most advantageous financial offer to the Line Agency is then selected as the preferred bidder.

The evaluation criteria should also include a list of requirements, which are considered mandatory. This will assist Line Agency in determining conformity of submitted bids. The following aspects may be considered when evaluating proposals:

a) Compliance and conformity: This involves assessment of compliance with the requirements set out in the RFP as well as the contract.

b) Technical Evaluation: these may include aspects of bidders’ track record / capacity of working on projects of similar nature; The components of evaluation considered for the RFQ stage may be applied here

c) Financial aspects: This involves assessment of financial proposition by each bidder

in terms of its Value for Money and frequently involves comparison against the PSC. Financial evaluation should cover the following aspects –

i. Viability of the bid proposition – an assessment of financial impacts of the bid in

terms of cost to the Budget;

ii. Certainty of project financing – an assessment of the funding commitments, underwriting and ability of the project’s cash flow to meet the lenders’ requirements; and

iii. Performance-based charges – an assessment of proposed payment mechanisms,

especially if the bidder has proposed any departures from the original arrangements.

d) Approach and innovation: In many cases the RPF may require bidders to outline

their proposed approach to project delivery over the life of the contract. Here, the bidders shall demonstrate their understanding of project’s key issues / challenges, and their proposed approach to efficiently meet the service delivery requirements.

The purpose of providing evaluation criteria is to guide the bidders in preparing their proposals. RFP responses should be evaluated by an appropriately qualified Procurement Committee that shall be constituted by the Line Agency. External financial, legal and technical advisers may be appointed to support the committee. A template of the RFP document is available at Annexure 13.

4.4.3 Obtain Transaction Approval 2B

Once the RFP document is prepared along with the draft PPP Agreement (a checklist to facilitate preparation of a PPP Agreement is available at Annexure 1), the RFP shall be submitted by the Line Agency to the PPP Committee for assessment and approval. Upon satisfactory review of the RFP document, the PPP Committee shall grant Transaction Approval 2B to the Line Agency.

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At this stage, any changes to the original PSC, project scope and objectives or departures from previously agreed commercial principles shall be highlighted in the RFP. Only subsequent to obtaining the Transaction Approval 2B, can the RFP document be released to qualified bidders.

4.4.4 Distribute RFP to bidders and undertake interaction with bidders

The Line Agency shall release the RFP document to qualified bidders after obtaining Transaction Approval 2B. Following the release of the RFP documentation, preparation of proposals by bidders commences. To improve the clarity of the procurement process and the Line Agency’s requirements, it is essential to ensure an adequate level of interactivity between the Line Agency and the bidders. This will improve the quality of submitted proposals and will ultimately improve the Value for Money of the proposed solutions. During the RFP process there are a number of avenues available for such interaction:

1. Data rooms 2. Written clarifications sought by bidders and responses (transparently

disseminated) by Line Agency 3. Pre-bid meetings

An interactive tendering process is useful since in case of PPPs infrastructure is developed by the private sector and managed and is used wither by the Line Agency to deliver core services and / or is used by public at large. Interaction between the Line Agency and bidders can therefore be effective in clarifying project requirements (both in terms of minimum inputs and desired outputs / service need. Such interactions would also provide bidders with opportunities to seek clarifications with respect to evaluation criteria where required. The following principles should guide the Line Agency when communicating with bidders:

1. Confidentiality of information received from bidders: It is essential to ensure that other bidders and other parties do not become privy to any proprietary information provided by any bidder;

2. No unfair advantage is given to any one bidder through information revealed in the process of interaction or a response to a question; and

3. Probity practices are followed in a way that interactions with bidders do not reduce the competitiveness of the bidding process of in any other way restrict achievement of value for money.

In general, it is recommended that the Line Agency conducts workshops to discuss the project. Workshops can be conducted for separate streams; including:

1. Technical workshops; where the private sector and the Line Agency discuss issues such as project design, output specifications, development schedules and operational issues; and

2. Financial and Commercial Workshops: where issues such as funding and commercial terms under the PPP agreement are discussed.

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4.4.5 Receive and evaluate proposals

Subsequent to the release of RFP and the pre-bid conference, the Line Agency’s Procurement Committee shall begin to receive proposals in the prescribed form and timeframe. These proposals shall be evaluated (where applicable with support from TAs / project advisors), in line with the evaluation criteria detailed in the RFP and according to the steps in the Figure below:

Figure 12: Steps in proposal evaluation

These steps are elaborated below: 4.4.5.1 Assess compliance and conformity

On receipt of bids/proposals, the Procurement Committee would assess proposals for compliance and conformity. This would include identifying alternative bids which are separated from conforming bids and treated as independent proposals. Alternative bids submitted by bidders that meet the minimum requirements of the RFP, shall be evaluated subsequent to the evaluation of conforming bids.

1. Check for completeness of the proposal - In this step the Procurement Committee

shall ensure that all documents required and requested in the RFP have been

submitted. A sign-off sheet lists the reference to its place in the RFP, a brief

description of document and whether it has been included. A possible format for a

sign-off sheet on this activity is presented in the Figure below.

RFP

Reference Description

Document

Included

(Yes/No)

Proposal

Reference

Cross

Reference

Comments

by evaluation

team

Table 4: Template for RFP completeness check sign-off sheet

2. Check for conformance of the proposal - A conforming bid would be one that meets all requirements specified as the minimum essential requirements of the RFP document. The Procurement Committee shall ensure that only conforming bids are evaluated further. Hence all bids received shall be checked for conformance first. A conformance sign off sheet, similar to the completeness sign off sheet, can be created and used for this activity.

Conforming bids may also include additional features or enhancements that are beyond the requirements of the RFP. Such bids may be included for further evaluation as they would have passed the basic conformance test in any case. Any additional details in the bid may be used for detailed separate evaluation later at the judgement of the Procurement Committee for their financial and technical impact, if any. The financial evaluation shall detail the cost to the Line Agency of each enhancement and comment on the VfM of each proposal. This requires consideration of the service delivery outputs to be delivered by the enhancement. In most

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circumstances, the PSC shall be adjusted to take account of the enhancement. The evaluation must also answer whether the enhanced service delivery meets a priority need that justifies any further allocation of funds.

4.4.5.2 Conduct bid clarifications

The Line Agency may seek clarifications on the bids submitted. Questions or issues (Design, Construction, O&M and financial aspects of the bid) shall be documented and reviewed by the PO, prior to being forwarded to the bidder. A formal meeting to discuss the responses may be appropriate and this meeting shall be confined to the issues already raised. Information regarding other proposals shall not be passed on to any bidder. Depending on the nature of the project, all bidders may be invited to make presentations on summaries of their proposals. Presentations shall be compliant with procedures in the project probity plan and shall take place only after all written bids have been lodged and acknowledgements provided thereof, to ensure that no opportunities are given for modifications to any bid, by virtue of the discussion. This timing also allows sufficient opportunity to the Procurement Committee to review the bids and identify any issues that they would eventually request bidders to clarify. 4.4.5.3 Review by the Procurement Committee

A decision must be made on the appropriate structure of the evaluation team(s). It is common for separate teams to be established to assess the service delivery, technical solution and commercial elements of bids. However, for less complex projects only one evaluation team may be sufficient. This team shall develop a methodology to ensure that all elements are appropriately assessed. The evaluation team’s task shall be to review each complying bid in detail. Each evaluation criterion is usually expressed as a rating against a predetermined scale, subject to mandatory requirements and eligibility criteria. The initial review is likely to bring to the fore a number of issues requiring clarifications from the bidders even before a detailed evaluation can be concluded. Evaluation and clarification processes are likely to run in parallel and there might be several rounds of clarifications required. Bid submissions shall be evaluated against the following main considerations:

1. Financial considerations;

2. Technical evaluation;

3. Legal evaluation; and

4. Service delivery evaluation.

These are elaborated below.

1. Financial considerations: Assessment of the financial proposition in each bid is a key

and complex aspect of the evaluation including not merely project costs but also

considerations of affordability, project bankability, VfM etc.

Depending on the project specifics, if the Least Cost approach is used, then the

financial considerations shall be the sole evaluation criterion. In such cases, bids that

qualify based on technical parameters shall be assessed individually and in

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comparison to one another. However as recommended for Namibia, in case of QCBS

approach, financial considerations are only one element of a balanced holistic

evaluation process while the non-financial aspects of a proposal are allocated certain

weightings based on the specific requirements of the PPP project. The weighted score

is then computed for all bids.

The cost of each bid to the Line Agency shall typically be assessed on a discounted

cash flow basis, taking into account all cash flows over the contract term including any

residual value payable at the end of the term. The payments required to be made by

the Line Agency should be discounted at the appropriate current nominal discount rate

to arrive at a net present cost. This allows bids to be compared on a consistent basis,

both against each other and against the PSC.

Care shall be exercised against any inappropriate use of the financial model provided

by bidders.

The underlying assumptions of the financial model may not support sensitivity analysis

or other purposes of the model. Thus, it may be advisable to involve the bidder, or the

bidder’s financial adviser, in analysis of the model or in verification of conclusions.

Financial evaluation of bids requires a well-structured approach and careful

consideration of the risks to the Line Agency.

Bids can easily be misinterpreted. It is also possible that certain risks may not get

identified. Such issues may expose the Line Agency during final negotiations. A few

key areas to focus on are as below:

a. Viability of bid proposition: The Line Agency shall focus on the financial

impact of the bid in terms of cost to the budget. Thus the Agency is likely

to be highly interested in bids which reflect aggressive pricing.

However, while the risks of business failure can be transferred to the private

sector to some extent through equity investment and guarantees, the

objective should remain entering into a viable long-term arrangement.

Accordingly, the Agency should focus on the components of a bid and

properly assess the underlying assumptions.

The evaluation process shall focus on each element of the financial

template (such as building cost, financing structure etc.) and question the

reasonableness of each major driver. The outcome of this detailed review

shall enable the Procurement Committee to have an opinion on the

following:

i. Reasonableness of the capital costs and the likely extent of

variation risk on any building component. This risk may be

contractually allocated to the private sector, however there is little

meaning in entering into a relationship that may have claims (albeit

fruitless) being made of the Line Agency at a later stage, as a result

of cost overruns;

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ii. The efficiency, pricing and deliverability of the financing

structure. On the one hand, the Line Agency’s focus will be on VfM

while on the other, the providers of equity will look for a reasonable

return for a motivation to deliver services at the standards required.

Similarly, financiers shall look for assurance of sufficient cover for

debt servicing. Failure to achieve this may result in a failure to fully

meet service standards, cost cutting or an attempt to walk away

from the project; and

iii. The extent of reliance placed on achieving bonuses for above-

standard performance or volume/usage increases. It is risky for

project cash flows to be too heavily dependent upon upsides which

may not eventuate.

b. A certainty of financing: The RFP may call for bids to include commitment

letters from the providers of debt and equity finance. The conditions shall

be thoroughly reviewed and risks assessed including if finance can

realistically be procured on the proposed terms.

The review shall be approached from the financiers’ perspective; the

evaluation shall therefore focus on whether the project cash flows and the

Line Agency support a proposition likely to meet the requirements of debt

providers.

c. External funding: The bidders’ proposed financing structure shall indicate

a level of equity contribution by the members of the consortium.

A 90% debt-funded structure may generate a lower bid price, however

unless sufficient recourse to the external financiers exists, the project will

lack a mechanism to achieve the necessary risk allocation.

d. Performance-based charges: The evaluation shall particularly consider

any proposed changes to the payment mechanisms which would increase

the payments due for above specification outputs (where there is reason to

make additional payment for above-specification outputs).

This may be structured as a bid with a low service charge against the

standard requirements with higher hurdles for abatements. The outcome

could be a lower price against the base payments, however would imply

higher costs to the Line Agency over the contract term;

e. Cash flow profile: The profile of payments outlined in bids should be

assessed for any solvency issues for the private sector. At times, bidders

‘back-end’ payments to start service charges at a low level and escalate

over the contract term. However, the Line Agency needs to assess if

sufficient cash flows would be available in the early years to support the

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private sector’s operating costs and debt servicing. Back-ending may also

result in tax and balance sheet implications.

f. Residual value/debt amortization profile: The bid evaluation process

shall specifically assess the rate at which debt finance is to be amortized.

This allows the procurement team to understand the level of debt

outstanding at each stage of the contract term. Assumption of residual

value risk by the private sector may generate a lower cost for services to

the Line Agency during the term; however this structure could result in debt

levels generating a higher step-in cost at any stage.

g. Taxation assumptions: The contract is usually drafted to allocate all

taxation risks to the private sector. Hence the bid evaluation process shall

focus on assumptions made about available tax deductions and availability

of other tax concessions. If the project structure assumes that the

deductions or concessions are available, the private sector could face a

much larger tax liability than is reflected in its bid, with severe

consequences for its viability; and

h. Risks of shared utilization: Where a bid proposes that the infrastructure

be used to service the requirements of both the Line Agency and third

parties, the associated risks need to be considered. Improved asset usage

is a positive aspect as it may lead to lower service charges to the Line

Agency. However, third-party activities need to be appropriately partitioned.

For example, in a hospital development where part of the facility is to be

used to operate a private hospital, the Line Agency shall assess any

adverse impact of services to it, in the event of a failure of the private

sector’s operations. Such an assessment shall also consider financing

arrangements and the specific rights of financiers, should the private

hospital fail.

Each financial evaluation shall provide the following information:

a. A composite score for financial evaluation (for price scores);

b. Notes explaining or showing matters requiring resolution; and

c. A sensitivity analysis of the key assumptions.

2. Technical evaluation: This implies evaluation of non-financial aspects of the

proposal that are more subjective in nature than ‘cost to the Line Agency’. This

evaluation is concerned with the physical infrastructure, design, operational

parameters offered and other non-financial matters that are potentially more

challenging to deal with than the ‘numbers’ of the project.

Hence the key principle in evaluating non-financial components of bids shall be to

focus on the outputs being sought by the bid process and not on the inputs.

Evaluation shall consider the ability of a proposed design to deliver the outputs over

the contract term and also the flexibility that the design provides to increase service

capacity or accommodate other changes, if required.

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The bids shall be reviewed against criteria such as degree of redundancy (i.e., excess

capacity), design flexibility, the proposed design agency, aesthetic value of the design,

technological superiority, robustness, and occupational health and safety and

environmental considerations.

The weightage accorded to each criterion shall be determined prior to the evaluation

process.

Each technical evaluation shall provide the following information:

a. A weighted score;

b. A report on the number of ‘inadequate’ ratings or inadequacies. This implies

that a weighted score having some overall respectability shall not disguise

inadequacies; and

c. Notes requiring resolution.

The scored bidder may then be ranked against the following indicative parameters (the exact parameters may be decided by the Line Agency on a project by project basis):

a. Benefits and impacts on the public of infrastructure solutions outlined

in the bid;

b. Adequacy of the proposed infrastructure against its ability to deliver

the outcomes specified in the RFP. This includes:

i. Confidence level in the performance of assets;

ii. Required time to achieve improved performance levels and

credibility of benefits;

iii. Flexibility of infrastructure to changes in volume or scope; and

iv. Any legislative difficulties in implementation.

c. Design and construction in terms of functional, technical, operational and

appearance criteria. This shall include the overall quality of engineering;

architectural and landscape design; environmental considerations;

construction methods and work programs for the project; nominated

resources; engineering services, overall layout and relationships between

spaces; traffic management and integration with service delivery and

emergency management;

d. Ability of bidder’s management structure to undertake the project; and

e. Quality assurance program.

3. Legal evaluation: This evaluation focuses on two areas as follows:

a. Legal due diligence on the bidding consortium, including its structure, legal

status and status of individual firms; and

b. Evaluation of comments or modifications of bidders on the draft PPP

Agreement. This shall include capturing all marked up amendments to the

draft PPP Agreement, etc.

It is recommended not to prepare scores for legal evaluation. However, legal evaluation shall be utilized to provide notes requiring resolution, and refining the risk matrix and VfM assessment in conjunction with the financial evaluation team.

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4. Service delivery evaluation: Service delivery is central to the project purpose. The

infrastructure proposed to be developed may be excellent; however key considerations

shall arise such as if the infrastructure shall be operated satisfactorily, whether it shall

remain reliably available over the project lifecycle and whether all services shall be

delivered to the required output specifications.

The scope of service delivery shall vary considerably between projects. Given the

underlying expectation that the practices of specifying outputs and recruiting from the

widest available skills shall generate innovative service delivery solutions, evaluation

of the service delivery components of bids may require abandoning of conventional

service delivery assumptions. Consequently, the evaluation team shall have both, the

experience in the particular area of service delivery and also a readiness to accept

new approaches

Three main service delivery aspects of the bids shall be evaluated including:

a. The offered service;

b. The capability of an operator to deliver that service; and

c. The reliability of delivery over time.

4.4.5.4 Evaluation Reports

Once final bids are fully evaluated, the findings shall be presented in an ‘Evaluation Report’. The evaluation report shall follow the evaluation criteria set out for the RFP and the evaluation methodology applied. The evaluation report would be prepared in order to provide bidder ranking and to recommend the preferred bidder (if possible). If several evaluation teams are involved (technical, financial, etc.), the report shall provide a consolidated view solicited from each team. (Although the financial and technical evaluations are water-tight per se, it is assumed that evaluation teams shall consult beforehand for any cross-team inputs that may affect the analysis of either team). The report shall discuss rankings within each area of evaluation and the basis of the team’s agreement on the preferred bidder. The evaluation report including supporting score sheets and ranking would typically comprise:

1. The financial propositions;

2. The service delivery propositions;

3. Robustness of the design and construction proposal;

4. Potential risks to the Line Agency in entering into a contract with each party;

5. Capability of the bidder/consortium to deliver services over the contract term;

6. Extent of contract variations being sought and the impact of these on the risk

allocation which the Line Agency had previously approved; and

7. Flexibility of each proposal to accommodate future requirements for expansion,

higher volume or changes in operating protocols due to policy change.

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4.4.6 Selection of preferred bidder

A well-structured RFP with bidder interaction is the most appropriate and efficient method of selecting a single preferred bidder. At the readiness of the evaluation reports, the process of selection of the preferred bidder shall commence. Following the evaluation, the highest ranking bid based on evaluation criteria shall be declared the preferred bidder and the Agency will plan to award the contract to the bidder who submitted the highest ranking bid. The evaluation shall generally result in the selection of a single preferred bidder and one or more reserve bidders. However, at times, a single preferred bidder may not emerge because either:

1. The bids emerge as identical or too similar to choose a clear preferred bidder from;

or

2. No single bid meets the Line Agency’s defined project objectives.

A suggested treatment in case of tied proposals is provided in Annexure 16.

4.4.7 Obtain Transaction Approval 3

The proposal evaluation reports along with relevant supporting documents and recommendation of a preferred bidder shall be submitted to the PPP Committee for obtaining Transaction Approval 3. The Line Agency must receive the Transaction Approval 3 from the PPP Committee before it proceeds with final negotiations and settlement with the selected preferred bidder.

4.4.8 Final negotiations and contract finalization

Prior to the award of the project to the preferred bidder and after obtaining Transaction Approval 3, the Line Agency shall initiate negotiations with the preferred bidder. The objective of the negotiation process is to finalise the terms of the PPP Agreement with the preferred bidder. At this post evaluation stage, final adjustments to the PPP Agreement (draft already available along with RFP) should be limited to clarifications and confirmation of commitments. A basic principle of good procurement is that any change to the PPP Agreement agreed with the preferred bidder during final negotiations must not be material to the procurement (i.e. another bidder could have been selected or could have submitted a different offer if the amended term had been initially proposed in the procurement documents). The actual act of negotiation may take multiple interactions between the negotiating teams to arrive at a mutually acceptable final version of the PPP Agreement for the project. Hence, a dedicated negotiations team is recommended to be set up within the Line Agency to undertake the final negotiation process with the preferred bidder in an atmosphere of trust and cooperation. The negotiations team is typically led by the Project Officer. When deciding on the composition of the team, the Line Agency shall bear in mind that smaller teams are generally more efficient. At the start of the negotiation or contract finalisation process the Line Agency’s negotiation team and the preferred bidder would need to a framework of negotiations – this would typically include:

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1. The negotiation / contract finalisation timetable 2. An identification of any outstanding issues of agreement 3. A recording of any agreements already reached that are not documented in

the available draft of the PPP agreement Boundaries of negotiations process: Suggested boundaries of the negotiating process are

as follows:

Negotiations may be permitted in the areas of:

Negotiations may not be permitted in the areas of:

A minor alteration to the technical details of the providers, or statement of requirements;

Reduction of quantities for budgetary reasons, where the reduction is in excess of any provided for in the solicitation documents;

A minor amendment to contract conditions;

Finalizing payment arrangements; Agreeing final delivery or work

schedule to accommodate any changes required by the Line Agency;

Clarifying details that were not

apparent or could not be finalized at the time of bidding.

To substantially change the specification or details of the requirement, including tasks or responsibilities of the bidder;

To materially alter the terms and

conditions of contract stated in the RFP; or

To substantially alter anything that

forms a crucial or deciding factor in bid evaluation.

To add a newly obtained NEEEF-rating into the bid, that was not available at the time of bidding.

Table 5: Boundaries of the negotiating process

Conclusion of negotiations and drawing up of final PPP Agreement: The finally negotiated positions shall be incorporated in to a finalised version of the PPP Agreement. Treatment in case of unsuccessful negotiations: In a scenario where contract negotiation with the preferred bidder is unsuccessful – the negotiation team may recommend rejection of the preferred bidder. The negotiation team may also, where appropriate, recommend inviting the reserve or next ranked bidder for negotiations. Where negotiations have commenced with the next ranked bidder or a new bidder is invited, the Line Agency shall not re-open earlier negotiations; and the original preferred bidder shall be informed in writing of the reasons for termination of the negotiations.

4.4.9 Obtain Transaction Approval 4

Transaction Approval 4 is required after negotiations but before signing of finalised PPP agreement with the Preferred Bidder.

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The Line Agency should have obtained Transaction Approval 3 before proceeding to apply for Transaction Approval 4. Documentation for this level of approval shall highlight any material changes to commercial or technical contours of the project that may have taken place since obtaining Transaction Approval 3.

4.5 PPP Agreement Signing

The Line Agency shall nominate a suitable date and venue for contract signing and execution with the preferred bidder. A public announcement of the contract and the successful bidder shall be made, in ways that conform to the Line Agency’s policy and procedures. The Accounting Officer shall sign the procurement contracts on behalf of the Line Agency.

4.6 Financial Close

The following steps would be undertaken by the Line Agency at the post contract signing stage:

1. Specific Government approvals - There may be specific government approvals such

as access to site, that financiers may need to resolve before unreservedly committing

their finance to the project.

Such matters that may be left outstanding at contract signing shall be kept to an

absolute minimum to prevent unacceptable delays between contract execution and

financial close. When these matters have been resolved, financial close can occur.

2. Finalization of accounting treatment and reporting requirements - The Line

Agency shall assess the likely accounting treatment to be adopted for PPP projects. It

should be noted that the achievement of 'off-balance-sheet' transactions is not a

motivation for the Line Agency to deliver PPPs. The Agency's key drivers shall remain

improved VfM in service delivery and appropriately balanced risk allocation.

A checklist on the PPP Procurement stage is available at Annexure 18.

[The Line Agency may, at some point, receive unsolicited PPP proposals. These are proposals submitted by the private sector in the absence of a publicly announced tender. The treatment of unsolicited proposals is explained at Annexure 15].

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5 Contract Management

5.1 Introduction

Contract Management begins subsequent to the PPP Procurement phase to manage project implementation, monitoring, delivery and exit. A PPP Agreement encapsulates the rights and responsibilities of the parties to the Contract. Contract Management defines the processes which direct parties to the contract in meeting their respective obligations with respect to service delivery and in turn facilitates the meeting of project objectives. It involves building a good working relationship between government and the private sector that is expected to continue through the life of the contract. Given the dynamic nature of business environment, Contract Management also implies managing proactively and anticipating future needs rather than only reacting to contractual situations as they arise. Role of the Line Agency’s Contract Management team shall be to monitor delivery under the PPP Agreement, undertake regular reviews and performance measurement to ensure that no aspect of the PPP Agreement gets compromised. Key stages of Contract Management are depicted below:

Figure 13: Stages of Contract Management

The key aspects of Contract Management include:

1. Contract Management Team;

2. Contract Management Plan and Strategy; and

3. Contract Management Framework.

These are elaborated in the sections below.

5.2 Contract Management Team

The establishment of a Contract Management team within the Line Agency is the first step in the Contract Management process. The strength of the Contract Management function is derived from the skills, experience and knowledge of such a team. A clear definition of roles and responsibilities of key individuals on this team is crucial to effective management of the PPP Agreement. A suggested team structure is depicted and described below:

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Figure 14: Contract Management Team structure

5.2.1 Contract Director

The Contract Director is expected to perform a strategic role by providing inputs to the Contract Management Team. Key responsibilities would include:

1. Mobilizing support for the project amongst the key stakeholders;

2. Appointing a Contract Manager;

3. Obtaining necessary approvals for the Contract Management Plan;

4. Delegating sufficient powers to the contract manager to enable him to effectively

implement the terms of contract;

5. Stepping in to resolve any dispute which the contract manager is unable to settle;

6. Providing executive commitment to relationship management;

7. Providing financial oversight and ensuring that the project continues to operate in

public interest after the contract has been signed; and

8. Ensuring that the contract is effectively enforced.

5.2.2 Contract Manager

The Contract Manager’s14 role is central to safeguarding the interests of the Line Agency while managing the contract. The Contract Manager shall possess both personal and technical competencies to perform the role. Key responsibilities would include:

1. Managing the project on behalf of the Line Agency, exercising delegated authority;

2. Ensuring that the project continues to be affordable, and provides quality, VfM and

appropriate risk transfer, in line with provisions of the PPP Agreement;

3. Ensuring that parties meet their contractual obligations;

4. Ensuring that requirements of the output specifications are achieved;

5. Appointing a contract management team with the necessary technical skills;

6. Administering Line Agency obligations and protecting its rights in the contract;

7. Building a strong partnership and good working relationship with the private sector;

8. Preventing and/or resolving disputes;

9. Managing risks;

10. Monitoring private sector performance and taking corrective action where necessary;

11. Developing and implementing the contract management plan, and developing and

maintaining the contract management manual;

14 Contract Manager’s role may be taken up by the ‘Project Officer’.

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12. Developing and managing contract administration systems;

13. Reporting on contract management, as required, among others, for the Line Agency’s

annual report, and by the Accountant-General, the Auditor-General, any other

government regulator and updates to the SADC’s regional conferences on PPP

development in Namibia;

14. Ensuring that the private sector maintains insurance and indemnities in force;

15. Managing approved variations;

16. Developing an effective communication framework;

17. Managing consequences of contract breach;

18. Organizing contract management reviews;

19. Co-ordinating inputs from support team members; and

20. Recording and reporting the performance on all of the above to the Contract Director.

5.2.3 Contract Management support team

Team members shall comprise a range of specialists and technical advisors supporting the Contract Manager. The team shall be responsible to ensure that the project runs smoothly over the contract term. The size and complexity of the project shall determine the size, skills-set and composition of the support team. In a few cases, it may be possible that no more than a single individual may be required to carry out the contract management function. The size and composition of this team shall evolve through the project lifecycle. The broad nature of skills required on the team would include:

1. Design and construction;

2. Business and product assurance;

3. Facilities and services management;

4. Statutory safety and regulatory responsibilities;

5. Legal and regulatory; and

6. Finance.

5.3 Contract Management Plan and Strategy

Development and implementation of a Contract Management Plan shall begin at an early stage during procurement, as depicted in the Figure below. This ensures that contract management requirements are included in the draft PPP Agreement developed by the Line Agency.

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Figure 15: Steps in Contract Management

All three steps rely on efficient collection, analysis and management of information. Given that contract management shall be enforced throughout the PPP lifecycle, the Line Agency shall dedicate sufficient resources to carefully develop the plan the strategy. The first step is to develop a plan.

5.3.1 Develop a Contract Management Plan

A Contract Management Plan shall include components as per the Figure below:

Figure 16: Components of a Contract Management Plan

1. Tools and processes: The Contract Director shall identify the necessary tools and

processes required to effectively manage the contract during the PPP lifecycle. These

tools and processes (e.g., monitoring of measurable Key Performance Indicators

(KPIs15)) shall be comprehensive and entail a level of detail that would enable the

contract monitoring parties to be able to identify any potential risks;

2. Resource availability: The availability of tools and processes governing contract

management shall be futile in the absence of resources to utilize the tools. Resources

take three forms viz., human, financial and technological; and

15KPI - are an effective tool for use by the contract management team for performance monitoring. It is based on developing

specific indicators which capture the performance requirement of the PPP project. These performance requirements are developed and refined into measurable indicators and target values are set for each of these indicators. These target values act as a benchmark for comparison of actual performance and the contract management team can report any deviations from the same. KPIs shall be simple, measureable, achievable, relevant and timed i.e. timeframe for achievement shall be defined.

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3. Timeline for development of tools and processes: The Contract Management Plan

shall contain the timeline set out to develop and install tools and processes within the

contract management framework, subject to the availability of resources.

5.3.2 Develop and implement tools and processes

Once the plan is developed, the Contract Director shall develop and implement necessary tools and processes. The Contract Director shall also inform the project team on the development of the request for project tender documentation. The contract management requirements should be built into the request for tender. The tools and processes thus developed shall be collated in the contract administration manual.

5.3.3 Establish a system of ongoing management and review

The Contract Director shall establish a culture of ongoing contract management including a review of the overall contract management strategy, tools and processes during the PPP lifecycle. A systematic approach to reviewing the contract management strategy enhances the management’s ability to identify potential risks and effective risk mitigation strategies early on. Through the PPP lifecycle, the contract management strategy may undergo adjustments. However, such adjustments shall be done in consultation with all relevant stakeholders.

5.4 Contract Management Framework

The Contract Management Framework includes:

1. Service Delivery Management: This relates to managing the project from the

perspective of risk and performance. Typically the range of risks associated with the

contract is larger than the risks identified during procurement. An effective Contract

Management Plan should be able to identify, monitor and manage such risks and

ensure performance meets the standards specified in the contract.

2. Contract Administration: This relates to outlining administrative processes required

to manage all procedural and documentation issues specified in the contract.

3. Relationship Management: This relates to managing the structure of authority and

accountability within the Service Delivery framework as specified in the Contract to

ensure efficient service delivery.

5.4.1 Service Delivery Management

The objective of service delivery management is to ensure that the service meets standards specified in the contract and in turn the project objectives. It also ensures that costs associated with the project have not exceeded those estimated during the procurement phase. Service delivery management covers two areas:

1. Risk Management16; and

2. Performance Management.

These are elaborated below:

1. Risk Management: The Risk Management process here shall substantially draw on

risk analysis and management planning work undertaken at the feasibility analysis

stage of the project.

16 Refer to Annexures 4, 5 and 6.

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Risk Management involves taking appropriate action to keep all risks to the project at

a level acceptable to the Government entity.

Broad categories of risks that may likely impact a PPP project are as follows:

a. Project risks contractually allocated to the Line Agency: They are risks that

arise due to contractual obligations implied by the law and are explicitly allocated

to the Line Agency.

b. Risk arising from issues not resolved during contract signing: During

procurement, the procurement team shall attempt to identify and appropriately

allocate all risks associated with a project. However, as the business environment

is dynamic in nature, it is likely that certain risks may not have been identified and

hence not allocated to respective parties. Certain risks may also not have be

resolved during the negotiation stage and hence may not have been allocated. The

contract management team shall attempt to minimize the impact of such

unresolved risks on the project.

c. Risk borne by the Line Agency: This represents risk retained by the Line Agency.

d. Risk associated with changes proposed to contract terms during the PPP

project lifecycle: This represents ineffective handling of changed terms of

contract or the risk of impact of the change on the ongoing success of the project.

The Risk Management Process to be adopted by the Line Agency is as follows:

a. Developing a risk matrix: During the feasibility stage, the Line Agency shall

identify risks associated with the project. These shall be brought together in a ‘risk

matrix’. The matrix shall detail identified risks, risk mitigation mechanisms, risk

allocation, and probabilities and costing associated with each risk. As has been

mentioned earlier in this Manual, the risk matrix shall be used and refined at various

stages including Transaction Approval 1 and Transaction Approval 2B. In its final

form, the risk matrix shall inform the PPP Agreement in terms of risk

allocation between the contracting parties.

b. Developing a risk management plan: The Line Agency shall develop a risk

management plan based on the risk matrix. For each institutional or shared risk,

the risk management plan shall set out:

i. An evaluation of the different options for treating the risk;

ii. The Line Agency official who shall be responsible to manage the risk;

iii. The procedures and mechanisms intended to be used for risk control; and

iv. An estimate of resources that the Line Agency shall allocate to manage

risks.

For each private sector risk, the risk management plan shall set out the following:

i. The obligations and reporting requirements which the institution has

imposed on the private sector to ensure that risk is managed;

ii. The Line Agency official who shall be responsible to monitor the risk;

iii. Estimate of resources that the Line Agency shall set aside to monitor risk;

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iv. Mechanisms that the Line Agency shall use to deal with any failure of the

private sector to manage its risk, such as penalty deductions, step-in rights,

etc. and

v. Business contingency plan that the Line Agency shall follow to ensure

continued service delivery in the event that the private sector cannot

maintain the service or the Line Agency is forced to terminate the PPP

Agreement for any reason.

c. Structure and consolidate risk ownership: A crucial next step for the Line

Agency, after signing of the PPP Agreement, shall be to structure and consolidate

risk ownership. While the risk management plan shall identify risk management

responsibilities, this shall be institutionalized. Risk ownership shall be defined,

documented and agreed with the individual risk owners at all levels. This ensures,

consistent understanding of various roles, responsibilities and accountability.

d. Establish risk mitigation procedures: The Project Officer shall ensure that

mechanisms of the risk management plan are put in place after signing of the PPP

Agreement. Two effective risk mitigation instruments are the Risk Register and

the Summary Risk Profile. These are elaborated as below:

i. Risk Register -This is a log of all risk and all relevant information related

to each identified risk and will present a consolidated picture of the risk

exposure of the project. The table below presents a sample template of a

risk register:

Risk

No.

Date of

Registration

Description

of Risk

Impact Probability Possible

Response

Target

Date

for

Action

Owner Action

Time Cost Quality

Table 6: Sample Template for Risk Register Source: South Africa PPP Manual

ii. Summary Risk Profile: This is an effective PPP Agreement management

tool presenting a summary of all key project risks as compiled in the risk

register. The PO shall update the risk register regularly and generate the

summary risk profile. The profile shall show risk in terms of probability and

impact and the possible effects of risk mitigations applied. The risk

tolerance line in the summary risk profile in the graph below reflects the

Line Agency’s risk tolerance to general and project-specific risks. This risk

tolerance line shall be set by experienced risk managers in consultation

with the PO and shall be regularly reviewed. Should the overall risk

exposure be above and to the right of the risk tolerance line, the PO and

the PPP Agreement management team shall prompt action regarding

relevant risks.

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Figure 17: Sample Summary Risk Profile

e. Ensuring regular update of the risk mitigation systems: As and when

additional potential risks are identified by the contract management team or where

there are notable changes to the understanding of identified risks.

The other area of service delivery management is Performance Management, elaborated below:

2. Performance Management: A well-structured performance management system

allows the Line Agency, to quantify benefits and costs, clearly define services and their

deliverables and ensures that services provided comply with identified business

requirements.

Performance management consists of systems to monitor and report performance.

The following issues should be taken in to account while developing a performance

management system:

a. Timing: The timing of performance management and reporting would change at

various stages i.e., reporting requirement frequency during construction shall be

different from the operating period;

b. Nature of monitoring and reporting: Monitoring and reporting requirements shall

depend on the type of project and delivery structure. For example the financial

reporting requirements for an SPV shall differ from that of a corporate finance

structure;

c. Level and type of action required shall be governed by the monitoring and

reporting information achieved from points a and b above.

Various steps in performance management comprise the following:

a. Development of a performance management model which as part of the

PPP Agreement shall include three elements as follows:

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i. Baseline level of performance that meets the service delivery

specifications: The determined baseline shall be reasonable and

measurable. Performance measures and any improvements thereof shall

be tracked against the baseline performance.

ii. Performance monitoring systems: Performance monitoring takes place

at three levels, the first is systematic self-monitoring through a quality

management system. At the second level, the Line Agency or a third party

shall review the quality management system. The third level shall comprise

end-user feedback on the quality and effectiveness of service delivery. The

PPP Agreement shall specify the form of reporting for performance

monitoring.

iii. Penalties associated with not meeting baseline requirements: Should

the private sector fail to meet the baseline requirements, its consequences

shall be specified in the PPP Agreement and be handled as per contact

terms. In this regard, a range of penalties shall apply in levels of severity,

as required, including warnings, payment deductions or contract

termination on account of default.

b. Detail a performance management plan in the PPP Agreement Management

plan: Such a plan details the performance management model developed in the

previous step and provide reporting requirements. Key elements of the

performance management plan shall be as follows:

i. Reporting requirements of the private sector in the context of self-

monitoring;

ii. Performance monitoring system that the Line Agency or independent third

parties shall use to review the private sector’s quality management system;

iii. Mechanisms that shall be used to solicit end-user feedback;

iv. Line Agency officials responsible for monitoring affordability, service

delivery, VfM, quality and performance improvement; and

v. Estimated resources that the Line Agency shall allocate to manage private

sector performance.

c. Establish performance monitoring systems: Subsequent to signing the PPP

Agreement, the Project Officer shall implement various performance monitoring

systems. The objective of the performance monitoring systems is to regularly check

project progress against established milestones, conduct progress meetings and

discuss performance reports, establish that all performance conditions and clauses

in the PPP Agreement are acted upon, develop an effective feedback mechanism,

review third-party monitoring reports and maintain comprehensive documentation

on performance monitoring.

d. Review performance monitoring and take corrective action: Monitoring

systems shall facilitate the Line Agency to review the private sector’s performance

against baseline requirements specified and also aid in taking corrective action

where required. While reviewing, the PO shall consider using generic quality

assurance systems or industry-specific systems to evaluate the effectiveness of

the private sector’s quality management system. Any corrective action shall be in

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line with relevant provisions of the PPP Agreement and shall consider the severity

and impact of deviation from baseline requirements. The application of penalties

and other similar responses shall be balanced and shall invoke best results from

the Line Agency’s point of view i.e., an overly rigid approach may jeopardize

continuing service delivery to end-users on the one hand, while too much leniency

may provide room to the private sector to under-perform or commit further

breaches.

e. Effecting performance improvement measures: The objective of effecting

performance improvement is not to extract more from the private sector. Instead,

it aims to improve service delivery quality and VfM that results in mutual benefit of

contracting parties. Since most PPP Agreements tend to be relatively large,

changes to baseline performance requirements could be warranted on account of

technological obsolescence or productivity improvement. The payment mechanism

shall capture incentives to the private sector for such improvement. For example,

a fixed payment system which would imply any reduction in costs on account of

productivity improvement would reflect in higher margins for the private sector.

The following Figure depicts the typical process flow for performance monitoring:

Figure 18: Sample process flow for performance monitoring

5.4.2 Contract Administration

The objective of contract administration is to establish administrative processes to ensure that all procedures and documentation associated with the PPP Agreement are effectively managed. The three elements of PPP Agreement administration include:

1. Variation Management;

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2. PPP Agreement Maintenance; and

3. Financial Administration.

These are elaborated below: 1. Variation Management – This implies creating a mechanism to enable effecting

changes to the PPP Agreement. These changes represent specific circumstances that

may not have been anticipated at the time of contract signing and could represent

changes to works, services or form of delivery. Contract variations are both a source

of risk and a potential scope for the contracting parties to extract additional benefits

from the project.

Given the length and complexity of PPP Agreements, procedures of variation

management may be invoked from time to time to manage changing project needs and

in line with the dynamic business environment. The PO shall be well-versed with

variations procedures and shall ensure that these procedures are meticulously

followed to enable critical contract management functions such as performance and

risk management to continue to function in line with contractual requirements and

changing service delivery needs. Applications for variations, addenda or amendments

must be reviewed and approved by the Accounting Officer.

Contract variations may arise from the following scenarios:

a. Incorporation of new technological or information developments into the project;

b. Changes in the Line Agency’s policies and priorities that may materially affect

the project;

c. Oversights, omissions or errors by the Line Agency or private sector during

procurement;

d. Non-delivery on contract deliverable or the deliverable does not meet the stated

performance or quality standards;

e. Excusable delay in accordance with the terms of contract;

f. private sector or Line Agency underestimates scope or complexity of work

under the contract; and

g. Cost increases that are not absorbable by the private sector.

The process flow diagram below demonstrates how contract variations may be managed.

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Figure 19: Process Flow to manage contract variations

The second element of PPP Agreement Administration is Contract Maintenance.

2. PPP Agreement Maintenance– This includes establishing procedures to keep the

PPP Agreement and related documentation up to date and ensuring that all documents

relating to the contract is consistent and accessible to all relevant parties.

Here, a Contract Administration Manual is a key document prepared by the

Contract Director with assistance from the Contract Manager and team. It is a

comprehensive manual with the following purposes:

a. It shall enable the Contract Director to understand key contract provisions and

the environment/context in which the contract shall be administered;

b. It shall be a repository of PPP Agreement management procedures, key

stakeholder details and all important documents relating to the PPP

Agreement;

c. It shall be a document management tool; and

d. It shall be a resource to train newly-appointed PPP Agreement management

staff, and to orient TAs and end-users.

The Contract Administration Manual shall, at a minimum, contain the following documents:

NO

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a. The PPP Agreement;

b. All schedules contained in the PPP Agreement;

c. All financing agreements;

d. Financial models;

e. The PPP Agreement Management Plan;

f. Variation procedures; and

g. Names, roles and contact details of key individuals in the Line Agency and

the private sector; third-party entities; end-user organizations; and other key

stakeholders/ groups.

The Contract Administration Manual shall answer key questions as per the Figure below:

Figure 20: Contract Administration Manual contents

The third element of PPP Agreement Administration is Financial Administration, elaborated below.

3. Financial Administration– Effective financial administration involves developing

systems and procedures to honour and receive financial payments, and to maintain

records of financial transactions. In preparing the PPP Agreement, the Line Agency

shall – applicable - include procedures for making unitary payments and additional

payments to the concessionaire; method of calculation and receipt of fixed payments

or variable payments (like revenue share) from the concessionaire; administering

penalty deductions; calculating inflation; dealing with delayed payments; and

maintaining reports linked to such project related payments.

Responsibilities and

Accountability

The Role of a Line

AgencyEmergency Planning

The manual assigns accountabilities to both public and private parties.

The manual identifies the government obligations.

The mitigation and control of risks are also documented to ensure consistency in the understanding of contractual risk management procedures

Finally the manual should also detail how the private party’s performance of its obligations can be monitored

Under emergency planning the manual details the ramifications of any non-performance or default by the private party ot the government, and how these issues are addresses.

The manual identifies references to various contingency plans and issue and dispute resolution mechanisms in such events

The manual will identify and detail the resources, and authorisations required for government to perform its contractual obligations.

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As per section 5.4, after Contract Administration, the final area of the Contract Management Framework is Relationship Management. This is elaborated below.

5.4.3 Relationship Management

Given the long-term nature of PPP projects, the public and private sectors shall attempt to build a strong, ongoing and mutually beneficial relationship. Good relationship management enables both parties to anticipate and mitigate any potential risk events more effectively. An understanding of mutual benefit, open communication and information sharing are the key features of relationship management. The Contract Management team shall aim to build the following in relationship management:

1. The parties appreciate each party’s objectives, strategy and points of view;

2. The parties shall work collaboratively to resolve disputes and issues that may arise

during the PPP’s lifecycle. Both parties shall agree beforehand on a dispute resolution

mechanism;

3. There shall be clear and open communication channels between public and private

parties and other stakeholders at all levels;

4. A degree of commercial trust shall be established between the two parties as the

foundation to achieve efficiency and effectiveness in the PPP’s progress; and

5. The relationship shall be championed at senior levels in each organization.

Stable and strong working relationships shall aid the parties to increase the odds of achieving project success. 5.4.3.1 Levels of Communication

Given that responsibilities differ at each level of seniority in both the public and private organizations, effective relationship management requires effective communication management. Communication levels may be divided on three different levels: Strategic, Business and Operational. The diagram below illustrates how the levels may be organized:

Figure 21: Communication Process during Contract Management

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5.4.3.2 Issue Management

Issue Management involves management of service delivery-related problems occurring during the project’s lifecycle. Clear procedures ensure that issues and problems are dealt at the earliest and appropriate level. The Contract Management team shall identify different issue escalation mechanisms in the PPP Agreement. A standard issue management procedure covers:

1. Issue Register - An issue register shall be set up to record issues as they occur to

identify potential trends in the types of issues recorded. This aids assessment of any

potential threat to VfM. Modern IT platforms may facilitate such functionality;

2. Issue Notification Mechanism - Issues identified by the Line Agency shall be notified

to the appropriate level of the private sector. The same mechanism shall be applied to

any issues identified by the private sector;

3. Issue Escalation Mechanism and procedures –These shall be built in to allow for

successive level of responses, depending on the nature of the problem and outcomes

of the actions taken at lower levels; and

4. Documentation of approach and resolution - Issues that are successfully resolved

shall be fully documented including the resources needed, approaches and levels of

escalation needed to arrive at a satisfactory resolution. Issues that have not been

successfully resolved shall also be documented with the reasons thereof.

A well-established Issue Management mechanism shall enable both parties to resolve issues, effectively and efficiently. 5.4.3.3 Dispute Resolution

While disputes are not a common occurrence in a well-planned and structured PPP Agreement, given the long term nature and the depth of contractual relationships in PPP projects, there could be unforeseen disputes arising out of the contract. Disputes that are not managed effectively can impact projects costs and risks associated with the project. The Contract Management Team shall thus build into the contracts, agreed mechanisms to settle disputes between contracted parties. A mutually acceptable and pre-decided dispute resolution framework shall lead to a quicker resolution, which in turn shall minimizes negative publicity for all parties involved in the dispute. Dispute resolution approaches in ascending order of escalation may be classified as below:

1. Negotiation/Amicable settlement Level 1: Implying dispute resolution in a specified

timeframe and effort level involving a discussion between counter parties at the

Contract Manager level;

2. Negotiation/Amicable settlement Level 2 / Fast Track resolution process: Failure

at amicable settlement Level 1 results in the dispute being referred to the Contract

Director and the counterpart in the private sector for a further attempt at amicable

settlement;

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3. Independent Third Party Mediation: Failure at amicable settlement Level 2 shall

result in the matter being referred to an independent third party mediator. Support from

representatives of both contractual parties is vital to the success of this formal method

of dispute resolution. However, even if successful, third party mediation (such as

expert determination) is not always binding on contracting parties. Conciliation also

often comes within the scope of mediation and may be attempted. Both methods are

not adversarial in nature; and

4. Arbitration or Litigation: The final escalation level for disputing contractual parties is

Arbitration or Judicial Courts. The decisions made at these levels shall be binding on

both parties. However, since these levels of resolution progress slowly, entail high

costs and are adversarial in nature, they should be used by parties in exceptional

circumstances and only as a last resort. (The Contract Management team shall ensure

that the relevant arbitration clauses are built into the contract).

These dispute resolution approaches are depicted below:

Figure 22: Dispute resolution escalation during Contract Management

The Contract Management Team shall provide guidance on the preferred resolution approach, project continuity following dispute resolution, and an agreed allocation of costs of dispute.

5.5 Contract expiry

At the end of the contract term, contracting parties shall fulfil a set of obligations clearly marked out in the PPP Agreement. At contract expiry, in line with the provisions of the Agreement, the private sector shall hand over the required project assets to the Line Agency. The Contract Management Team shall monitor the private sector’s compliance with the exit obligations under the PPP Agreement. The Contract Management team shall also manage the handover of relevant documents and records. Furthermore, at this stage the Contract Management team shall begin to execute the plan for continuity of service delivery and maintenance of service standards either in the form of new project development or through other means.

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Annexure 19 presents a checklist on the PPP Agreement Management phase of the PPP lifecycle.

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6 Exclusions from the Manual

The Namibia PPP Manual does not address the following areas:

6.1 Project Identification

The Manual focuses on the preparation, evaluation and implementation of PPP projects. It is not intended to provide guidelines on identification of projects. It is assumed that Project Agencies would have identified projects before referring to this Manual for guidance on subsequent steps involved in the PPP Process.

6.2 Budgeting Guidelines

The Manual is not intended to provide funding guidelines for a PPP project. Any budgeting or funding concerns with regard to the proposed PPP project shall be the onus of the Line Agency or Line Ministry from where the project concept has originated.

6.3 PPP audits and accounting treatment

Although in a PPP, the means of service delivery changes and the use of Government assets changes hands, the Line Agency continue to remain accountable to ensure that services are delivered or that government assets are used properly. Hence it is also the Line Agency’s responsibility to pursue sound financial management as per applicable law and regulation in Namibia and follow tenets of good governance. For this, the Line Agency will be audited accordingly by the Auditor-General. However, audit and accounting processes are not covered in this Manual.

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Namibia: Public Private Partnership (PPP) Guidance Manual

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