Project Appraisal and

tendering procedures

John Ponsonby, Ponsonby Consultants Limited

April 24, 2019

Radisson Blu Hotel, Nairobi

Module Contents

Introduction to PPPs, and the Kenyan PPP Context

PPP Project Appraisal and Value for Money Assessment

PPP Tendering Procedures

Affordable Housing Programme procurement process

1

2

3

4

Introduction to PPPs

Source: World Bank

• “A long-term contract between a public party and a private party

• for the development and/ or management of a public asset or

service,

• in which the private agent bears significant risk and management

responsibility through the life of the contract, and

• remuneration is significantly linked to performance, and/or the

demand or use of the asset or service.”

Typically also includes the provision of private finance.

An International Definition of PPP

4

A Typical PPP Contractual Structure (Design Build

Finance Operate and Maintain example)

5

National or County Government or

Agency

Debt Providers

Design & Build (Contractors)

Equity ProvidersSpecial Purpose Vehicle

Operators (Operations &

Maintenance)

Procuring Entity/

Contracting Authority

Makes Periodic

PaymentsReceives Services

SponsorsEquity

Returns

Equity

Stake

Loans

Debt

Services

Banks

Subcontractors

Multilateral

Development Banks

MDBs

Key differences from Conventional Contractual

structures

6

Conventional Contractual Structures Public-Private Partnerships

• Government specifies Assets/ Services as inputs

• Government procures separately the different elements of delivery (design, build, operate and maintain)

• Private sector largely paid during construction. Private sector is only liable during the period of hold-backs and

extended warranties – much shorter than the asset’s useful life

• Government retains most risks. Private

sector not incentivised to provide long-term quality asset

• Government specifies requirement in output terms. Private sector has opportunity to respond to procurement with innovative solutions.

• Elements of delivery are procured as a single service (design, build, finance, operate and maintain) facilitating

integrated, efficient service delivery.

• Private sector paid over the life of asset and linked with operational performance,

incentivising construction of a high quality asset and effective life cycle management.

• Significant levels of risk transfer to the private sector over life of contract. Risks are

allocated to the party that is best able to manage them

The first PPP projects date back to 1959:

• Mtwapa and Nyali Bridges Concessions signed in 1959;

• The 75 MW Tsavo Independent Power Project tendered in 1995,

Olkaria III (48MW Geothermal Plant), lberafrica (56MW thermal

power plant), Mumias (34MW power plant);

• Port of Mombasa Grain Terminal on a Build Own and Operate

awarded in 1998;

• Concession of Kenya Railways Corporations freight services for 25

years and passenger services for 5 years in 2006;

• The 90 MW Rabai Independent Power Project in 2006

PPPs are not new in Kenya

7

Rationale for increased Kenyan focus on PPPs

8

Vision 2030 targets the

transformation of Kenya into a

middle income country by 2030.

Significant investment in infrastructure required to

achieve this.

Government policy set out as the Big 4

Agenda, including

development of Affordable

Housing

Government

fiscal

constraints

from levels of

Government

borrowing.

Govt. strategy -

reduce debt to

GDP (ratio) to

below 45% in

the medium

term

Additional funding from

private sector, hence

reduction of funding gap

Utilise private sector

efficiency & innovation to deliver public

services

Increase business

opportunities for the

domestic market

The focus on PPPs led to the development of Kenya’s PPP policy, with

the objective of achieving international best practice:

• Specific PPP legislation;

• Formation/ clarification of bodies and committees responsible for

PPPs (PPP Committee, PPP Unit, PPP Petitions Committee,

Contracting Authority nodes and project committees responsible

for each stage of the procurement process)

• Specification of procurement processes aligned with PPP

requirements

• Development of a pipeline of PPP projects

Development of Kenya’s PPP policy

9

Kenya’s PPP legislative framework

1

0

The key pieces of legislation governing the development of PPPs in Kenya include:

• Constitution of Kenya (e.g: Article 227 re requirement for procurement to be

conducted in a fair, equitable transparent, competitive and cost-effective

manner; and Article 10(2) re democracy and participation of the people)

• The PPP Act No.15 of 2013 (noting also proposed changes via the PPP

Amendment Bill currently in parliament)

• PPP Regulations and guidelines (PPP Regulations 2014, L.N. No.171 of 19

December 2014; PPP Petition Guidelines, 2015; PPP (Project Facilitation Fund) Regulations, 2017; PPP Disclosure Framework, 2018)

• Public Finance Management (PFM) Act, 2012

• County Governments Act, 2012

Source: Kenyan PPP Act 15 of 2013 & Regulations 19th December 2014

• "Public private partnership" means an arrangement between a contracting

authority and a private party under which a private party—

a) Undertakes to perform a public function or provide a service on behalf of the

contracting authority;

b) Receives a benefit for performing a public function by way of-

i. Compensation from a public fund;

ii. Charges or fees collected by the private party from users or consumers of a

service provided to them; or

iii. A combination of such compensation and such charges or fees; and

c) Is generally liable for risks arising from the performance of the function in

accordance with the terms of the project agreement;

Kenya’s Definition of a PPP

1

1

The PPP Act’s definition of PPP types

1

2

PPP Types

1. Management contract;

2. Output performance based contract;

3. Lease;

4. Concession;

5. Build-Own-Operate Transfer (BOOT);

6. Build-Own Operate (BOO);

7. Build-Operate-and-Transfer (BOT);

8. Build-Lease-and-Transfer (BLT);

9. Build-Transfer-and-Operate (BTO);

10.Develop-Operate-and-Transfer (DOT);

11.Rehabilitate-Operate-and-Transfer (ROT);

12.Rehabilitate-Own-and-Operate (ROO); and

13.Land Swap.

PPP Project Appraisal

and Value for Money

AssessmentAn Overview

Contracting Authorities wishing to investigate the viability of undertaking a PPP

project have to set out their project appraisal in a feasibility study in prescribed

form, including:

• Project technical requirements;

• Legal requirements to be met by parties to the project;

• Social, economic and environmental impact of the project; and

• Affordability, value for money and public sector comparator for the project.

PPP Feasibility study

1

4

The sections that deal with, or are affected

by, the choice of project delivery /

procurement option

Typical components of a PPP Feasibility Study

Project Rationale

Project Scope and Description

Identification of Project Delivery

Models

Project Objectives and

Constraints

Procurement Objectives and Considerations

Project Delivery Options Analysis

and Short List

Qualitative Assessment of Project Delivery Models

Quantitative Risk

Assessment

Value for Money

Assessment

Risk Identification

Integrated Recommendatio

n

Procurement and

Implementation Planning

Project Funding and Affordability

Quantitative Assessment of Short-Listed Project Delivery Models

Finalization

Assessment of Project Delivery models within a PPP

Feasibility study

1

5

• Identification of potential project delivery models and how well they meet the Contracting Authority’s objectives and constraints:

Qualitative assessment of Project Delivery models

1

6

Qualitative

Analysis

(multi-criteria,

weighted)v

Identification of

Procurement

Objectives and

Constraints

Identification of

Project Delivery

Models

Development

of Evaluation

Framework

1 2

3

4

Short-Listed Project

Delivery Models

Qualitative Assessment

Market Soundings and Jurisdictional Scan

Example objectives and constraints

• Contracting Authority’s funding available during construction and operation periods

• Timing requirement for project signing and project delivery

• Potentials for efficiency in project delivery and risk transfer

Traditional types

VFM Assessment

Recommended Project Delivery Model

Quantitative Assessment

VFM Methodology

Description of Project Costs

Financial and Project Financing

Assumptions and

Rationale

1 2

3

4

Short-Listed Project

Delivery Models

PPP type

s

Quantitative assessment of Project Delivery models

1

7

• The Value for money assessment in the Feasibility study compares the estimated cost under a PPP structure (the ‘Shadow Bid’) with the cost under a traditional procurement/ contracting strategy (the ‘Public Sector Comparator’) – under base case assumptions and sensitivities

Value for money assessment

1

8

Base Costs

Other Costs

Financing

Costs

Retained

Risks

Retained

Risks

Financing Costs

Other Costs

Base Costs

Retained Risks are the risks that are retained by Government.

Other Costs include transaction and project management costs.

Financing Costs reflect the expected difference in borrowing rates under a PPP.

Base Costs are comprised of the design and construction costs. The base costs under the PSC and PPP are assumed to be the same.

Positive Value for Money

Public Sector

Comparator

(traditional procureme

nt)

Shadow Bid

(PPP)

KES C

ost

(N

et P

rese

nt V

alu

e T

erm

s)

Qualitative

AssessmentQuantitative

Assessment

Optimal

Project

Delivery

Model

Recommended Project

Delivery Method

Procurement Strategy and

Implementation Plan

Recommendation of Project Delivery Method

1

9

PPP Tendering

Procedures

The two stage PPP Procurement process

2

1

• The standard procurement is set out in the PPP Act s.29 and following and specifically excludes applicability of the PPADA. It is based on a two stage solicited (competitive) process, allowing fair price discovery, aligned with the Constitution s.227;

• I.e it is designed to achieve Value for Money through a fair and transparent process:

Request for Qualification Invitation to Bid

Sets out criteria that demonstrate that a proposed

bidder is able to undertake the project (technical

capability, financial and legal capacity to undertake

the project, not being bankrupt or otherwise

precluded from entering into the contract)

Sets out details of the project, the specifications that

tenders will need to meet, levels of bid security

required, the draft contract and the criteria that will be

used to evaluate bids. Requests for technical and

financial proposals on the project (provided in

separate envelopes).

Does not ask for proposals relating to the project Allows for interaction with bidders during the process

to refine the tender

Any party that meets the criteria qualifies for the

Invitation to Bid stage

Most terms of the contract are completed during the

competitive phase, before the preferred bidder

nominated

Price may not be increased in subsequent negotiations

Gateway approvals under the PPP Procurement process

2

2

Step 1PPP Project

Proposal

Step 2 Feasibility

Study Report

Step 3

Evaluation

ReportStep 4

Project & Financial Risk Assessment

ReportStep 5

Contract Execution

Financial Close

PPP

Committee

Approval*

PPP

Committee

Approval

PPP

Committee

Approval

PPP

Committee

Approval

Cabinet

Approval

Privately Initiated Investment Proposals

2

3

The PPP Act does allow (s. 62) for Privately Initiated Investment Proposals:

• Since this is a non-competitive process, the use is restricted primarily to

cases that have an urgent requirement; or are proposed by a party

with significant intellectual property in relation to the proposed project

design; or there is only one feasible bidder;

• The Contracting Authority still needs to demonstrate that the project

represents value for money, is affordable and transfers appropriate

risks.

Affordable Housing

Programme

Procurement Process

Procurement legislation and procurement

process

2

5

• The procurement process is the ‘Specially permitted procurement procedure’

introduced by s.57 of the Finance Act 2017 as a new section 114A of the Public

Procurement and Asset Disposal Act 2015. It allows the Cabinet Secretary to

prescribe the procedure to be followed.

Applications for Strategic Partners Subsequent negotiations

Single stage selection of Strategic Partner for a project.

Combines:

• Information on technical capability, financial

capacity (including re commitment fee) and legal

capacity to undertake the project, advisors; with

• Information on the project: Proposed land

location, project description (details of the units &

other facilities to be constructed), Project

Development and implementation plan, and

preliminary project economics (supported by

audited financial model)

Negotiations with applicants in order of ranking.

Second ranked applicant to be requested to extend

the validity of its application.

Project to be developed/ negotiated from the

preliminary project economics stage through to

financial close.

Applicants ranked by an AHP Committee Allows for interaction with bidders during the process to

refine the tender

• Gateway approval process also

proposed for Affordable Housing

Programme

• Gateways aligned to conventional

procurement type processes

• But position of tendering stage approval

may be changed under a different

procurement process

• Project Steering Committee approves

progression options

Gateway approvals for the

Affordable Housing Programme

2

6

• How / whether the requirements of the Specially Permitted Procurement

Procedure under the PPADA interact with the requirements of the PPP Act,

where the contractual structure would be defined as a PPP?

• Transparency of evaluation process / selection of first ranked Strategic

Partner for an AHP project (where more than one has bid for a project)?

• including comparison of separate development partners v consortia?

• Integration of Strategic Partners?

• How the Government of Kenya will be able to demonstrate value for

money, with the extent of project development post selection of first ranked

development partner?

• Extent to which Government might consider entering into Joint Venture

arrangements?

Discussion topics on legislation, approvals and

tendering procedures

2

7

Questions?

Thank You