Five Common Mistakes made By the Public Sector when Procuring Public-Private Partnership Projects

Introduction

Public-Private Partnerships (PPPs) are complex beasts that require considerable insight, due diligence and, and patience when they are procured.

A common theme that I experience with public sector PPP implementing entities is the question of how they can be fast tracked and what steps can be omitted or shortened when projects are procured. This sentiment is an immediate red flag as it exposes both public and private sector partners to unnecessary risk and the possibility of project failure.??Unfortunately, this also leads to distrust of PPPs and an apathy towards using PPPs as an alternative mechanism of procurement and development. We need to avoid situations where bad actors result in bad PPPs which hurt the reputation of PPPs.

To ensure that PPP projects are successful, careful visioning, planning and strategizing is essential if Value for Money (VfM); Value for People (VfP) and Value for the Future (VfF) are to be achieved.

So, what can be done to avoid making costly and time-consuming mistakes that imperil the reputation of PPPs?

Choosing PPP Models Cautiously

Possibly the most difficult action required when visioning PPPs is to determine what PPP model is the best fit, or if a PPP approach is an alternative at all.??Many countries legislate specific PPP models, with the BOT model typically the most common.??This is a fundamental mistake as it ignores the fact that every PPP project is unique and requires a unique approach.??Legally mandated selections of a limited repertoire of PPPs models forces implementing entities to follow a path of forcing a project to fit a model instead of the model fitting the project.??Mandated models also prevent the private sector from introducing innovative approaches that might require another model.??Unfortunately, in situations where specific models are mandated by law, we find that the only way this oversight can be rectified is by legislative reform which can take years to pass.??Unfortunately, in the interim, public servants might be forced to choose models which are ill suited for the proposed project.

Attempting to Fast-Track Project Procurements

Initiators of PPP projects are under constant pressure to implement PPPs as soon as possible. This urgency is often driven by political objectives that are insensitive to the finetuning required to ensure that procurements are transparent and competitive.??Unfortunately, the substitution of political imperatives by politicians, instead of common-sense imperatives and best practices by knowledgeable public sector officials leads to ill-conceived and poorly planned PPPs.??Large and complex PPP projects require a patient approach and a procurement strategy that could be in excess of 18 months.??The 6-month procurement timeline often proposed by ill-informed politicians undermines the due diligence required to plan, design and realize a procurement strategy that enhances the judicious selection of projects and qualified private sector partners necessary for??sustainable and resilient PPP projects. Unfortunately, there is in some countries an increasing trend to consider Unsolicited Proposals (USPs) as a mechanism to fast track PPP projects.??There might be times where such an approach is merited, but caution should again be exercised that USPs do not undermine “pipelined” PPP projects. It is also important that USPs are forced to undergo an extensive independent feasibility study that can prove the private sector’s claims of “guaranteed VfM and minimal risk” if their project is selected.

Setting Clear Project Objectives and Desired Outcomes?

It is baffling how many tender documents inadequately articulate project objectives and desired outcomes.??It is not uncommon to find an almost total scarcity of information in this regard in tender documents.??Tender document sections that describe project objectives and desired outcomes should be several pages long in well-structured tender documents.??Unfortunately, it is more common that only a few paragraphs are allocated to this critically important aspect in tender documents. Why does this occur? One can only assume that there is uncertainty on the side of the implementing entity on what they want, they do not know what they want, or they have not spent enough time exploring what they want. This is a very dangerous precedent as it opens both the public and private sector to speculation on what the PPP project is about and this can lead to poor tender proposal responses (both technical and financial in the case of PPPs) by parties which are essentially in the dark about what the project is about. Furthermore, lack of clarity can result in contract negotiations with a “preferred” bidder that are detrimental to the interested of both parties and exposes the project to delivery risk.

The Need for Comprehensive Feasibility Studies?

Government agencies grapple with commissioning feasibility studies.??Numerous reasons are given for discounting comprehensive feasibly studies, the most common being that there is a lack of institutional capacity to perform them, that they take time, and that they are costly.??Due to the long-term nature of PPP projects (+25 years being the average) it seems incomprehensible that not even truncated feasibility studies are contemplated.??Content poor (or lacking) feasibility studies place projects are risk and result in an information poor environment regarding whether the project has merit.??Additionally, feasibility studies allow implementing entities to test project objectives and desired outcomes.??Often, as an effort to speed up the procurement of PPP projects, implementing agencies say that they will perform a comprehensive feasibility study once the “preferred” bidder is selected.??This is backwards as again it places all parties at risk, especially if the feasibility study is executed by the winning bidder.??This exposes the implementing entity to risk as few bidder would want to compromise their project win by then sponsoring a feasibility project on their own dime only to then find out that the project is not viable. An added value of a feasibility study is that it allows clear parameters to be developed for the project tender that then can be used as a cross reference for establishing project bidder selection criteria.??An example of the utility of comprehensive due diligence actions includes completing a public sector comparator (PSC) assessment which then can be used as a base line comparison for tender responses.??It is advised that that the initiating entity consider using an independent party to perform a feasibility study, especially if there is a lack of institutional capacity to perform one, so that institutional bias towards the project can be avoided.

Setting Clear Procurement Evaluation Criteria

One of the biggest challenges is selecting the best bidder in an objective manner.??This cannot take place unless comprehensive technical and financial evaluation criteria are drafted for a procurement that are measurable and unambiguous. Poorly drafted evaluation criteria are often indicative of lack of understanding of the proposed project objective and desired outcomes, poor planning, and undue haste. It is important that evaluation criteria are technically sound and well-articulated so that they can actually be used to evaluate proposals submitted during tenders. Furthermore, it is critical that the proposal evaluators understand the criteria and are skilled enough to perform their critical role.??In the case of “innovative” projects, it would behoove the implementing entity to consider hiring sectors expert consultants to ensure that the evaluation criteria make sense and are compatible with the objectives and outcomes of the project.??To ensure unwarranted outside influence it is also important that evaluators are as independent as possible and are not exposed to conflicts of interest. Additionally, evaluators should never modify evaluation criteria post during proposal evaluation.

Conclusion

A systematic and methodical approach to PPP procurement preparation is critical to successful PPP procurements.??If the abovementioned steps are undertaken, responsible decisions about PPPs will take place in an information rich environment.??Shortcuts and irresponsible cost savings measures will only result in unnecessary project risk, the selection of poor partners, and the approval of projects for implementation through PPPs that are at risk of failure.??It is time we stop blaming PPPs are a poor mechanism for building infrastructure and implementing critical infrastructure and rather retrospectively examine what we can do to improve their implementation.