Tuesday, June 9, 2009

How did PPP influence public procurement practices?

PPPs have made their impact on legislation and practices of infrastructure delivery related to procurement in many countries. There is no question, a lot of innovations have been stipulated by wave of innovative private sector driven projects and so was the public approach to the procurement of privately financed infrastructure. Public sector can only be as innovative in its procurement as how much would legislation and government policies allow. Let us examine couple of cases and discuss in this article how far we can go in procurement innovations.

European Commission has implemented in its Directive 2004/18 the procedure called Competitive Dialogue. This procedure has opened the doors for further innovations in procurement. The idea of competitive dialogue is basically idea of completely different approach to public procurement of infrastructure. How is it different? In traditional procurement public sector will provide detailed specification of the inputs and the competition is mostly about price. PPP has innovated the approach in to public sector specifying outputs and the competition is therefore about innovation and risk transfer as much as it is about the price.

Competitive Dialogue is becoming proffered procurement method for large infrastructure projects in which intensive communication, clarification and risk transfer negotiations are essential. Why not let private sector to be innovative – great idea with many issues down the road.

UK Treasury has identified as one the main issues how is financial close impacting projects and decided to issue a guidance on an innovative approach to procurement of funding to PPP (PFI in UK) projects in 2006. This new procedure is called Preferred Bidder Debt Funding Competition (PBDFC) and is to be a default option in privately financed, but publicly procured projects. This concept has been tested in UK since 2000. Under PBDFC procedure, government selects a preferred bidder and that preferred bidder, in consultation with government, then goes to the debt market seeking the best price for the debt funding for the project.

Other innovations seems to emerge from Australia, Chile and Canada, lets discuss these in the future.

1 comment:

  1. UK provided interesting report on its procurement practices in PPP here: