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Procurement arrangements applicable

toPPP contracts

financed under World Bank projects

Summary of guidance noteOPCPR Mar. 2010

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Information Note - PPP

Provide background information PPP

Aspects that influence procurement and corresponding contracts involved

Discuss best practices

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Information Note - Contents

Concept and Use of PPPs

• Management & Lease Contracts

• Concessions• Greenfield projects• Divestitures

PPP vs. Construction Contracts

• Distribution of risks• Duration• Source of Financing• Market risk• Termination

Roles and responsibilities

• Government• Private Partners• Financial Institutions

(Lenders)• Multilateral

Agencies

Procurement concepts and examples of globally used procurement

methods

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Implementation of a PPP project

Entrepreneur

• Selected by the government• Becomes responsible for project implementation

SPV

• Local Project company (concessionaire)• Secures financing• Selects and hire a construction contractor, usually under a Engineering Procurement and Construction (EPC) turn-key contract• Finalizes the contract with the operator (and maintenance) sub-contractor• Secures the supply for inputs for operation of the facility

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PPP involves a series of contractsShareholders Agreement

Project Implementation Agreement

Concession Contract

Loan Agreements

Insurance agreements

Construction Contract

Operation and Maintenance Contract

Supply of Inputs Contract

Sales Contract

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Guidance Notes - Objectives

Provide guidance to task teams on PPP procurement policy

• Role of WBG & Procurement• Preparing & supervising PPP projects• Clarify application of Procurement GL

• Provisions• Acceptable practices

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How is WBG associated with PPPs• IFC and IBRD provide

advisory services to clients

• IFC also participates by lending directly to the private sector investors

• IBRD and IDA finance Output–Based Aid (OBA) subsidies, investments that are sovereign-guaranteed and consultants hired as transaction advisors

• MIGA provides guarantees to government agencies

EquityAssets

(Equipment/ Land)

VGF/ Subsidies

Loans to Financial

Intermediary

Role of WBG in PPPs

Advisory Services

Investment lending

Non-sovereign

guaranteed lending

Sovereign guaranteed

lending

Through hired

consultantsDirect

Guarantees

GuaranteesIFC WB

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PPP project preparation

•Multiple stakeholders•Risk management•Contractual arrangements•Not necessarily the same as conventional procurement contracts

PPP structures are complicated

•Early dialogue with borrowers•Information about Bank policies & procedures•Building borrower capacities•Performance indicators

Upstream involvement

•Early involvement benefits the team•Helps consider various procurement options•Discussions in isolation are less productive

Procurement in support role

Relevant provisions in GL

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BOO/BOT/BOOT, Concessions and Similar Private Sector Arrangements• GL 3.13

Existing Incumbent Concessionaire• OM dt.

November 7, 2005

Guarantees• GL 1.5 and 3.16

(OP14.25)Divestitures• GL 3.13 (?)

Financial Intermediary Loans

Bank Procurement

GL

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Procurement Approach to

PPPs

Applying Section I

Bidding Documents

•Bank SBDs not available•Borrower documents should contain minimum components specified

Bidding Process

•ICB is preferred•LIB when limited qualified bidders•NCB only exceptional cases

Advertisement & Promotion

•Recommended to have a pre-bid conference to disseminate information to potential bidders•Innovative means like road shows, data room•First version of bid documents for comments

Bidder prequalification•Ensures quality bidders•Indicates market perception of risk•Based on quantifiable and objective criteria•Due diligence to verify past performance of bidders•GL do not permit limiting number of bidders during pre-qualification

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Applying Section I (contd.)

Bid submission and Opening

•Allow sufficient time for bid preparation•One, two or three stage•Clarifications may be required for evaluation of technical proposals

Bid Evaluation

•As per the content and criteria clearly specified in the Bid Documents

Negotiation of Final Contract

•Contract awarded to Most Economically Advantageous Offer•Can be preceded by discussions of final details of contract terms, financing plan

Complaints and Appeals

•Clear and effective mechanism needs to be defined•Frivolous complaints can be discouraged but should not prevent bidders from submitting their feedback

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Thinking points

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Timing of Bank involvement

Discussions with the borrower

Role & composition of the task team

Procurement in a support role

Our capacity

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Resources

OPCPR

• Finalize and disseminate the Information and Guidance Notes• We will need support from Sectors

Global Expert Team (GET)

• Working together

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Thank You!

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Backup slides

Management & Lease contracts• Ownership of the assets continues with the public

sector• Bank may be requested to finance a Management

contract or the expansions and/or rehabilitation of the facilities

• Under Bank GL similar to procurement of services and/or works

• Should follow the Consultants Guidelines for Management contract and Section II of Bank procurement guidelines for expansion or rehabilitation

Concessions

• Ownership of the assets is mixed for a period and is transferred to the public sector at the end of the contract, and investments are required and were part of the award of the concession

• Bank may be requested to finance (or co-finance) e.g a BOT type contract, as part of the award of the concession (Bank GL para 3.13)

Greenfield Projects

• Ownership of the new assets rests with the private sector and is transferred to the public sector at the end of the contract

• Selection of the private partner is part of the award of the Greenfield project

• Bank may be requested to finance (or co-finance) a BOT type contract, as part of the award of the concession(Bank GL para 3.13)

Divestitures• Private entity buys an equity stake in a state-owned asset or enterprise

through an asset sale• Bank may be requested to finance government investments or new

installations and expansions under responsibility of the private concessionaire

• Bank GL para 3.13 – applicable if investments (either by the government or by the concessionaire) are part of the procurement process for divestiture

• If investments are made some time after divestiture took place and an incumbent concessionaire is already in place, there are two possibilities:– Large investments on new facilities (like a ‘Greenfield’ project) - procurement

of services and/or works– Expansion of existing network or system made by the incumbent

concessionaire (not a ‘Greenfield’ project) – para 3.13 of GL

Concessions

Concessionaire or Entrepreneur can procure goods, works and services required by the facility using its own procurement practices

• subject to eligibility conditions defined under para 1.8 GL• Concessionaire or Entrepreneur selected based on ICB acceptable to the Bank (para 3.13a)

ICB procedures followed by the Borrower to select the Concessionaire or Entrepreneur

• do not need to be carried out in accordance with Section II of the Procurement Guidelines • basic principles established in Section I of the Guidelines are observed• Competitive bidding procedures with clear rules and provisions for all relevant information to bidders

GuaranteesOP14.25 (Guarantees)

• Compliance with paragraphs 1.5 and 3.16 of the Procurement Guidelines

Such arrangements are not subject to OP 11.00 (Procurement)

• When the project does not finance new investments

Key features:

• Due regard to economy and efficiency• Bank to be satisfied that procedures used to fulfill the borrower’s obligations to cause the project to be carried out diligently and efficiently and that the goods and works are procured with satisfactory quality,

delivery time and price

Should review borrower systems procurement, organization & control

Existing Incumbent Concessionaire

Concessionaire (privately or publicly owned) already exists

• Government may seeks Bank financing for expansion of existing systems (not Greenfield projects)

OM dt. November 7, 2005

• Small amounts involved in downstream procurement, makes use of Bank’s ICB procedures

Guidance

• Eligibility of incumbent concessionaire defined by Para 1.8 (c) of the Guidelines• Up-front assessment of the procurement capacity and procurement procedures• Bank may accept if procedures result in fair competition to bidders, economy (lowest cost), efficiency (satisfactory quality), transparency.• Post review by Bank

Divestitures

Investments (either by the government or by the Concessionaire) are part of the procurement process for divesture

• Para 3.13

Investments made after the divesture took place and incumbent Concessionaire is already in place

• Large investments on new facilities (like a ‘Greenfield’ project) – are similar to conventional procurements of services and/or works under Bank Guidelines, and should follow Section II of Bank Procurement Guidelines; or

• Expansion of existing network or system made by the incumbent Concessionaire – para 3.13

Background

Oct 2007: Heads of Procurement of the Multilateral Development Banks created a Working Group, co-chaired by WB & IDB

Feb 2008: PPP monitoring group formed with staff from Procurement, Infrastructure, GPOBA and PPIAF

Dec 2008: Internal survey on issues related to Procurement & where Bank can help

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