PPP

PPP procurement embodies 7 principles - international standards1. Appropriate systems of procurement, based on

transparency, competition and objective criteria in decision-making that is effective in preventing corruption and a system of accounting & auditing & related oversight;

2. Public distribution of information on procurement procedures and contracts;

3. Establishment, in advance, of conditions for participation including selection & award criteria & tendering rules & their publication;

draft PPP Rules 2012 embodies 7 principles -international standards

4. The use of objective & predetermined criteria for decisions;

5. An effective system of domestic review, including an effective system of appeal;

6. Measures to regulate matters regarding personnel responsible for procurement, where appropriate, corrective action in case of failure of procurement officials to comply with …

7. Measures to mitigate unethical practices from bidders and sanctions for indulging in such behaviour.

Public Private Partnership (Preparation, Procurement and Management) Rules

• has 105 Rules under 12 chapters• It takes a stage-wise process approach

• - project preparation, - planning the procurement, -procurement process, - post award contract management and - audit of PPP project

• Public Private Partnership (Preparation, Procurement and Management) Rules 2012 (draft rules – yet to become formal rules)

• what is the Act from which PPP rules derive their authority?

• made by exercising powers conferred by relevant Section of Public Procurement Act

• that itself is in draft stage- yet to be enacted

• draft Public Procurement Bill 2012

draft Public Procurement Bill 2012

• "public procurement" means acquisition of works, goods or services or any combination thereof and

• includes all stages of the process of acquisition, by purchase, lease and licence or otherwise, including

• award of Public Private Partnership projects.

PPP: a project based on a concession

agreement which has a term exceeding five

years and is awarded by a public entity to

a private entity for providing any works,

goods or services to the public entity or to

specified users or class of users on

payment of user charges, annuity or

unitary payment, as the case might be, or

in lieu of other consideration such as land

or other natural resources,

Draft Public Procurement Bill 2012 has 7 conditions for PPP

1. arrangement is with a private sector entity (more than 51% of non-governmental ownership)

2. there is use of a public asset or provision of service for public benefit that is traditionally provided by the government

3. Investments are made by and/or management is undertaken by the private sector entity

Draft Public Procurement Bill 2012 has 7 conditions for PPP

4. operations/management would be provided by the private sector entity for a specified period

5. private sector entity concerned should share the risk of providing services

6. Payments are linked to performance of partnering private sector entity

7. delivery of services through compliance to pre-determined and measurable standards

• What is the likelihood of ‘draft public procurement bill 2012’ becoming an Act and PPP (PPM) Rules 2012 becoming reality?

• India in May 2011 became signatory to the United Nations Convention against Corruption (UNCAC) formed in December 2005.

• Article 9 of UNCAC - each State take necessary steps to establish appropriate system of procurement based on transparency, competition and objective decision making which are effective in preventing corruption.

• Public Private Partnership (Preparation, Procurement and Management) Rules 2012 (draft)

• has 105 Rules under 12 chapters• It takes a stage-wise process approach

• project preparation • planning the procurement• procurement process • post award contract management• audit of PPP project

• Chapter I : applicability and definitions

• Rule 5 says Contracting Authority (Department, HoD) should carry out the responsibilities in a fair & transparent manner with complete probity.

• They should disclose potential conflict of interest if any and have procedures to deal with

• They should not include (in the contract) any specifications or conditions which may be likely to favour a particular bidder.

Chapter II deals with project preparation

• Contracting Authority (CA) has to identify the projects that can be implemented through PPP.

• on the basis of socio-economic priority, value for money, suitability in creation of an asset/efficient service delivery (Rule 9).

• CA would appoint a Project Officer (PO) -responsible throughout the process –till signing the Concession Agreement.

• PO assisted by Project Management Team constituted by CO for this purpose

Chapter II deals with project preparation

• process involves defining the objectives of the PPP Project, its suitability,

• determining the value for money, payment & revenue mechanism, affordability for users,

• selection & appointment of legal advisor & transaction (financial) advisors and

• conducting a pre-feasibility study of the project (Rule 10). (Format prescribed)

Pre-feasibility report includes

• preliminary analysis of technical & operational practicalities of the project,

• environmental and socio-economic aspects,

• preliminary assessment of financial and economic viability

• and institutional capability.

project can proceed for clearance & registration- after the pre-feasibility report cleared by CA (Rule 12)

after it is cleared, the Contracting Authority has to apply for registration of the proposed project with the Public Private Partnership Appraisal Committee (PPAC) Secretariat in Dept of Economic Affairs (DEA) in the prescribed form (Rule 13 & Appendix - 2) and along with documentation of entire process.

once registered, it is entered in the database of the PPP Cell &website of the Contracting Agency (Department) for public display

CA-PO-PMT can start – PPP Project Preparation

Chapter III deals with next stage PPP Project Preparation

• PO to prepare a budget to meet the expense on project preparation and procurement process

• prepare a work plan for the preparation phase of project with specific activities and timelines

• Contracting Authority (CA) can seek financial assistance for this purpose from IIPD Fund

(India Infrastructure Project Development Fund)

• CA can engage consultants and advisors on technical, legal & financial matters

Project officer to conduct feasibility study and due diligence

• Project background: type of infrastructure, location etc• Strategic needs assessment: current & future needs,

demand • Service standard: output expected, service gaps• Market assessment: potential market players, their

capability & appetite, competition, sources of revenues; demand projections etc

• Technical feasibility: technical solution, preliminary technical design of facilities, alternative design options, capital cost and operating & maintenance estimates based on preliminary design

Project officer to feasibility study and due diligence

• Financial feasibility: project costs, start-up capital, sources of financing, potential revenues, estimated returns

• Environment impact: environmental impact study• Legal framework: licences and/or requirements • Social impact analysis, stakeholder consultation and

public interest evaluation • Public sector comparator, value for money analysis and

recommendations: comparing the costs and benefits of a PPP Project with publicly financed (same) project

Project Officer should also prepare a structure of the PPP Project

• Risk assessment: all material risks associated with PPP, what risks proposed to be retained, shared, transferred to private entity

• Key commercial principles: payment mechanisms, relief, compensation, force majeure, default events, termination payments etc

• Evaluation criteria for selection of the preferred bidder

• Implementation plan: persons/entity responsible for implementation, time-lines of stages of completion

• Project resource requirement: during and after the project development period

After project officer prepares feasibility report and the structure of the PPP project

Contracting Authority (CA) should examine Feasibility Report with reference to project affordability

Whether users can afford proposed user charges

Review the project revenue assumptions

Whether the tariff revision framework (periodical or by a regulator) is predictable and transparent

CA to examine financial commitments – grants, annuity payments, management fee, revenue guarantees (minimum tariff), cash flows, land

Contingent Liabilities

Public sector comparator (PSC) to conduct value for money analysis

CA should conduct value for money assessment through the tool public sector comparator

Systematic comparison of discounted cash flows of the proposed project using the proposed PPP mode (capital cost, borrowing costs, operating, maintenance costs, discounted cash flows) with the - if government sets up the project

Sensitivity analysis of financial models under different scenarios with assumed IRR, NPV

• Table as example from quebec

• Contract Authority to decide on revenue support mechanism for the concession agreement

• Some of them are revenue sharing mechanisms

• CA to balance to see private party does not enjoy super normal profits and should not be exposed to high revenue risk

• If satisfied, CA can ask Project Officer to prepare draft tender documents (strictly using model tender documents of MoF)

• CA should seek approval from PPAC for ‘in principle clearance to proceed’ by sending all the related documents ; also procurement plan

Four major “families” of PPP modes are; Management Contracts, Lease Contracts, Concessions and Build-Operate-Transfer (BOT) and its variants

Lease Contracts are Build Lease Transfer (BLT) or Build-Own-Lease-Transfer (BOLT) or Build-Transfer-Lease (BTL) or lease. Build and Operate Contracts (BOT) are Design-Build-Operate (DBO), Build-Operate-Transfer (BOT)/ Design-Build-Finance-Operate-Transfer (DBFOT)Build-Own-Operate Transfer (BOOT) Contracts are Build-Own-Operate-Transfer (BOOT) or DBOOT, Build-Own-Operate (BOO).

In the roads sector, BOT is a common PPP mode, with revenues for the private operator often being from tolls (BOT Tolls contract) or from a fixed annual/semi-annual payment (BOT Annuity contract).

Bidding process is planned in single stage or multistage depending ....

Options Factors to consider

 How well defined is the project?

How well defined are the bidders? How much work will proposals require?

Single-stage: RFP (Request for Proposal)

Project scope is clear

Service options have been well-defined

Number of interested bidders is limitedPotential bidders are known and identifiedit is not necessary to identify interested bidders or to reduce their number

Multi-stage option 1:Project scope is not clear, extensive discussions are needed to finalise the service option

Potential bidders are known and identified, but number of interested bidders is largeRFQ (Request for

Quotation) + RFP (with or without RTP-Technical Proposal)

Considerable effort required by bidders to submit proposalsIn this case RFQ is useful to reduce number of bidders.

Multi-stage option 2: Project scope is not clear, extensive discussions are needed to finalise the service option

Number of interested bidders likely to be limited, but potential bidders not yet well known or identified

EOI + RFP (with or without RTP)

 

Considerable effort required by bidders to submit proposalsIn this case EOI is useful to identify interested bidders.

Multi-stage option 3:

Project scope is not clear, extensive discussions are needed to finalise the service option

Uncertainty about the level of interest in the project – unknown if interest is limited or large

EOI + RFQ + RFP (with or without RTP)

Potential bidders not yet well known or identified

Considerable effort required by bidders to submit proposalsEOI is useful to identify interested bidders and level of interest; RFQ is useful to reduce the number of bidders

Chapter IV of PPP Rules – Procurement Plan

• Project officer finalizes ‘procurement plan’ defining each stage of the procurement process

• CA should form Tender Evaluation Committee with members also from Finance Ministry

• CA to appoint ‘Independent Monitor’ to oversee tender proceedings – representative from ministry of finance, law etc.

• Independent monitor should be provided with complete information

Chapter - V : Rule 32 to 53 - general provisions

Tenders should be given wide publicity

advertisement/notification in at least one English and one Hindi daily of national reputation

website of the Contracting Authority and on the centralized PPP e-procurement website

may advertise in trade journals or business publications or other periodicals – if needed

procedures notified by MoF if it intends to utilize system of e-tendering

• Communication between contracting authority and the respondents; any decision, notification, information generated during tender process should be in a form that would be a record to be accessible subsequently

• Record of Tender Proceedings should contain basic information of respondents, statement of reasons and circumstances relied upon by contracting authority for decision, ....state of reasons for rejection, .... deviations from model tender documents

Rule 53• All officers and employees are bound by a Code of

Conduct, documented and implemented by Contracting Authority; (Format is prescribed)

• CA can disqualify –if respondent has offered, given or agreed to give, directly or indirectly, to any current or former officer or employee of the CA or other governmental authority a gratuity in any form or any other thing of service or value, so as to influence a decision or an act relating to procurement proceedings.

• Similarly for false information, conflict of interest

• Chapter-II of Draft Procurement Bill 2012 has Code of Integrity both for procuring entities and for bidders

• No official of a procuring entity or a person participating in a procurement process shall act in contravention of the code of integrity prescribed by the Central Government. Code of integrity includes provisions for prohibiting any offer, solicitation or acceptance of any bribe, reward or gift or any material benefit, omission, including a misrepresentation, collusion…….

• Whoever, being a public servant acting in

connection with any procurement process, accepts

or obtains or agrees to accept ... any gratification

other than legal remuneration or any valuable

thing ……………… in connection with such public

procurement, as a motive ..... favour or disfavour

to any person or for rendering or attempting to

render any service or disservice to any person, shall

be punishable with imprisonment not less than six

months which may extend to five years and shall

also be liable to fine.

• whoever interferes procurement process with the intention of ......shall be punished with imprisonment for a term which may extend to Rs. five years and shall also be liable to fine which may extend to 5 lakh or 10% of value of procurement

• Whoever abets an offence punishable under this Act ......, whether or not that offence is committed in consequence of that abetment, shall be punished with the punishment provided for the offence

• there is clause to protect officials who acted ‘good faith’ --shall have the same meaning as is assigned in section 52 of the Indian Penal Code

• Chapter - X lays down the Rules governing post-award project and contract management

• CA to appoint Contract Management Team (CMT) headed by a Director (CMD) before LOA issued

• The Project Officer should provide all documents to the CMT and continue as member until the execution of the Concession Agreement

• Ministry/Department should set up an Empowered Review Cell headed by a Joint Secretary or above with sufficient capacity and skills to monitor the project

• Empowered Review Cell is to review the work, issue

necessary directions to CA to rectify any defaults

• Submit a half-yearly report to the PPPAC; redressal the

grievances of users, issues affecting projects,

• CA should appoint an Independent Engineer for

Inspecting & monitoring of construction, conducting

tests & issuing certificates during the construction;

period, reviewing & inspecting the operations and

maintenance arrangements; and monitoring

compliance with the performance & maintenance

standards during the operations period.

• Engineer to submit monthly report to CMT

• Grievance redressal system (tendering process) is provided in the Public Procurement Bill

• any bidder or prospective bidder aggrieved that any decision, action or omission of the procuring entity is in contravention to the provisions of this Act can appeal and have redressal of his grievance

• procurement redressal committee shall consist of not less than three members including its chairperson –a retired Judge of a High Court nominated by the Chief Justice of the concerned High Court.

Chapter XI provides for audit of the PPP ProjectCA is the subject of audit, not the concessionaireThe scope of audit is the ‘process compliance’ during procurement stage procedures in releasing payments provision of guarantees managing Contingent Liabilities adherence to the Concession Agreement in terms of

ensuring fulfilment of conditions precedent, performance assessments, fulfilment of obligations of concessionaire and any modification in the agreement not in accordance with the PPP Rules.

• The Contracting Authority should maintain the documents for the above purpose and make the information available

• However, decision to implement a project on PPP basis and choice of the PPP structure approved by the Approving Authority shall not be subject to audit

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