Modes of PPP Procurement
What procedures apply to PPP procurements?
The regulatory regime for Public Private Partnerships (PPP) in Ethiopia is a recent development. Recognizing the need to mobilize resources and attract private sector financing for infrastructure development, a PPP Policy document, issued by the Ministry of Finance in 2017, provided the policy rationale for PPPs. This was followed by the enactment of the PPP Proclamation No. 1076/2018 (“Proclamation”) and the PPP Directive No. 05/2018 which created specialized procedures for the procurement and implementation of PPPs. An institutional set-up was implemented with the establishment a PPP Board (“Board”) and a PPP Directorate-General (“PPP-DG”) to centrally facilitate and manage PPP projects. To date, the PPP-DG has procured one solar PPP power project through an open tender. Several others are on the pipeline.
Understanding the procedures for PPP procurement is critical to ensure enforceability of contracts and avoid future legal challenges. This note takes a closer look at the existing modes of PPP procurement offering insight into the administrative procedures provided by law.
Modes of Procurement
As a rule, PPP projects must be procured through an open bidding procedure. This involves a prequalification phase (RFQ) followed by a bid submission phase (RFP) where only prequalified bidders may participate. PPP-DG is obliged to uphold the principles of transparency, free and fair competition and equal opportunity. All PPP projects must be approved by the Board - which is the highest decision-making body comprising of senior government officials.
- Request for Qualification (RFQ)
The first step in a competitive bid is the request for qualification (RFQ). An RFQ process allows the PPP-DG to filter out the bidders with the financial, technical and legal capabilities to deliver the desired project. Responses to the RFQ are evaluated based on the criteria set for prequalification. Only those that have passed the RFQ will be invited to submit proposals and participate in the tender.
- Request for Proposals (RFP)
The PPP-DG will issue an RFP document with details, among others, of the PPP project, the technical and financial conditions that must be met and the specifications of the final product or services to be performed. As part of the RFP process, PPP-DG may organize bidder conference or one-to-one/group meetings to provide clarifications. Any changes to the RFP document resulting from discussions with prequalified bidders will be communicated to all bidders in writing. Bidders are required to submit separate technical and financial proposals. Those that are technically compliant with the RFP will be given the opportunity to have their financial proposals evaluated. PPP-DG will review the project based on the criteria provided in the RFP. An award to the winning bidder will be announced once a Board approval is granted.
Exceptions to Competitive Bidding
On exceptional circumstances, the Proclamation allows the PPP-DG to pursue other forms of procurement including (i.) two-stage bidding (ii.) competitive dialogue and (iii.) direct negotiations.
- Two-Stage Bidding
A two-stage bidding procedure may be employed if it is not feasible for PPP-DG to formulate RFPs with sufficient project specification, performance indicators or contractual terms. In this case, PPP-DG may split the process into two and at first instance issue a call for proposals for bidders to submit project specifications, performance indicators, financing requirements and other characteristics of the project and main contractual terms of the PPP. Upon examining the initial proposals and where it finds it satisfactory, PPP-DG will issue a second RFP with an appropriately detailed specifications on the project. Bidders will then be invited to submit final proposals based on the second RFP issued. Like a competitive tender, PPP-DG must follow the evaluation and approval processes provided in the Proclamation prior to award.
- Competitive Dialogue
For projects that are particularly complex and where an open tender is not be feasible, PPP-DG may request the Board to procure the project via a competitive dialogue. A competitive dialogue can be pursued after a prequalification phase is completed and prequalified bidders are invited for dialogue. Following the dialogue and based on the requirements presented by the PPP-DG, the selected bidders will be asked to submit their proposals. A proposal considered as the most economically advantageous will be selected by the PPP-DG. Board approval is needed prior to awarding the project.
- Direct Negotiations
Direct negotiations may occur when the PPP-DG directly invites single or multiple parties to engage in a project. It may also be initiated by the private party. Under the Proclamation, PPP-DG may engage in direct negotiations with a private party only on specific grounds provided by law. These are:
- there is an urgent need in the provision of the services:
- engaging in the procedures provided by the PPP Proclamation would be impractical provided the circumstances giving rise to the urgency were neither foreseeable nor the result of dilatory conduct on the part of the PPP-DG:
- the project involves infrastructure projects related to national defense or national security:
- there is only one source that can provide the required service:
- an invitation to the prequalification proceeding or request for proposals has been issued but no applications for qualification or proposals were submitted or all proposals failed to meet the evaluation criteria:
- the project is of a limited value and length and is ancillary and the necessary complement to a mining, industrial or other type of investment and the project has a duration of only five years maximum and initial investment capital does not exceed Birr 140 million.
Provided the above circumstances exist and the Board approves, the PPP-DG may engage in direct negotiation with private parties. It may also run a prequalification procedure if it deems necessary.
- Unsolicited Proposals
An unsolicited proposal is any proposal to undertake a PPP project that is not submitted in response to a competitive tender. PPP-DG will consider whether the unsolicited proposal is in the interest of the public and request the project proponent to provide as much information as possible to determine the project’s viability. A formal decision will be reached on whether to accept or reject the proposal. If accepted, further feasibility study will be conducted which will be submitted to the PPP Board for approval. Where the Board approves the feasibility study, the procurement for the project will be done through a competitive bid or direct negotiation.
If competitive bid is the chosen method, the proponent will be invited to participate in the bidding process and the PPP-DG may decide to award the proponent bonus points on the technical and financial score or directly award the project to the proponent. If the proponent is not the successful bidder in the competitive bid, the proponent may receive financial compensation for studies undertaken for the project. The successful will be required to settle the compensation payment as part of the condition’s precedent to financial close of the project.
Conclusion
A well-crafted and instituted landscape for PPP procurement allows the government and the private sector to procure infrastructure projects in a transparent, timely, consistent and cost-effective manner. It also inspires confidence on both the public and private sector that due process is well embedded in the procurement system while also keeping accountability in check. Ethiopia’s PPP regime attempts to strike the balance of transparency with that of expediency given the high demand for infrastructure services. Requirement of Board approval for key project milestones is one indication of the commitment to transparency. PPP-DG is challenged with the task of coordinating sector agencies responsible for technical design and implementation of complex projects and meeting the high expectations and demands of private players (often international). Given its relatively short existence and with only one project so far awarded, the success and gaps in current procurement procedures is yet to be tested.