In the transaction stage, the government selects the private party that will implement the PPP. This process will also determine the effective terms of the contract. This stage follows the structuring, appraisal, and detailed preparation of the PPP described in the previous sections of this module. It concludes when the PPP reaches financial close—that is, when the government has selected and signed a contract with a private party, and the private party has secured the necessary financing and can start deploying it in the project.
The aim of the PPP transaction stage is twofold:
- To select a competent firm or consortium
- To identify the most effective and efficient solution to the proposed project’s objectives—both from a technical, and value for money perspective
To the latter end, the process typically establishes some of the key quantitative parameters of the contract, such as the amounts the government will pay or the fees users will pay for the assets and services provided. Achieving these objectives generally requires a competitive, efficient, and transparent procurement process, as outlined in the PPIAF toolkit for PPPs in roads and highways procurement section (WB 2009a) under competitive bidding; in the Caribbean PPP Toolkit (Caribbean 2017, Module 5); and by Farquharson et al (Farquharson et al. 2011, 112) in describing the outcome of the procurement phase.
Since most governments use a competitive selection process to procure PPP contracts as the best way to achieve transparency and value for money, this section assumes a competitive process is followed. In practice, there may be a few circumstances where direct negotiation could be a good option. However, many reasons put forward to negotiate directly are spurious, as described in Competitive Procurement or Direct Negotiation.
Direct Negotiation of Unsolicited Proposals outlines several preparation requirements for those procuring authorities that need to directly negotiate an unsolicited proposal.
The transaction stage typically includes the following five steps, as shown in Transaction Steps:
- Deciding on a procurement strategy, including the process and criteria for selecting the PPP contractor
- Marketing the upcoming PPP project to interest prospective bidders (as well as potential lenders and sub-contractors)
- Identifying qualified bidders through a qualification process, either as a separate step before requesting proposals or as part of the bidding process
- Managing the bid process, including preparing and issuing a Request for Proposal, interacting with bidders as they prepare proposals, and evaluating bids received to select a preferred bidder
- Executing the PPP contract and ensuring all conditions are met to reach contract effectiveness and financial close—this may require final approval from government oversight agencies
Managing PPP Transactions describes each of these steps, and provide further resources and tools for practitioners interested in managing PPP transactions.