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Quantifying bidders' eligibility

Quantifying bidders' eligibility

Selection of the right private partner in a scientific way for sustainable, effective and viable results is the key to the success of a project. Sumit Barua takes us through the process in this concluding part of the series.

Quantitative technical criteria should be deter­mined based on the complexity and extent of work involved in the entire project life cycle (con­c­ession period) including design, construction, oper­ations and management, besides other auxiliary activit­ies. The technical criteria shall be fixed to evaluate bidders' capability to undertake the project from scope, time, cost, quality and risk management point of view, during the entire concession period.   
It is a good practice to distribute 100 marks between multiple technical parameters covering all the aspects of project and set minimum qualifying marks (such as 75) to be eligible for participate in the financial bid stage.

Participation as a consortium

In many cases, where the project size is large and/or involves multiple type of experience, it is common for a number of participants (maximum up to six) to parti­cipate as a consortium. In such cases, a joint bidding agreement is sought as one of the documents as a part of the bid. The joint bidding agreement is an undertaking by the members of the consortium to form a separate company or Special Purpose Vehicle (SPV) with pre-determined equity holding, in the event of the conso­rtium is successful in the bid.

As per the guidelines of Government of India, the technical and financial capabilities of all the consortium members, who hold or intend to hold 26 per cent or more equity in the SPV, are considered for evaluation.

Case study: Integrated SWM, Dehradun

The project involves multiple activities: collection and transportation, segregation, secondary storage, com­posting and land filling. Thus the technical criteria have been set to evaluate bidding consortium's capability to perform all requisite project deliverables.

The number would include any project on setting up or operations and management (O&M) of Integrated solid waste management (SWM), collec­tion and transp­ortation, composting, landfill, and man­u­­­f­acture of RDF.

The project(s) would include O&M of waste collec­tion from urban areas. The project-wise matrix would be prepared to arrive at average quantity. The overall marks would be given on the average quantity.

The project would include setting up or O&M of composting facility.

The project wise matrix would be prepared to arrive at average quantity. The overall marks would be given on the average quantity.

The project wise matrix would be prepared to arrive at average quantity. The overall marks would be given on the average quantity.

Engineered landfill: Each engineering land­fill built will be given 5 marks, with a maximum of 10.

Approach, methodology & plan: The bidder would be given marks on the basis of their under­standing of the project plan. The bidding may be invited to make a presentation on approach, methodology and project plan to judge their understanding of the project.

Financial bid: The bidder/consortium who sec­ures minimum qualifying marks is invited to participate in the financial bid. In case of one stage-two bid system, the technical and financial bids are received together in separate envelopes and post technical evaluation the financial bids of technically qualified bidders are opened, in the presence of bidders. In case of two sta­ge-two bid system, the technical bids are received in the first stage and post technical evaluation the quali­fi­ed bidders are issued RFP to submit their financial bid.

In case of commercially viable projects, the PPP partner offers payment to the government, upfront and/or revenue share, whereas in case of non-viable projects (eg, social sector), where user charges are regulated, the government provides capital and/or revenue grant to the PPP partner. The financial bid structure needs to be formulised so as to create a level playing field for all the technically qualified bidders.

Case study: Financial bids

Ayurvedic Hospital and Wellness Cent­re, Nainital: The financial bid criterion was fixed up front payment of Rs 2.5 crore and percentage annual rev­enue share over a minimum level of 5 per cent.

Is it viable? The project is commercially unviable due to regulated user charges from citizens (very nomi­nal) and minimal revenue from compost sale compared to overall operational expenses. The government, in this project, has offered one-time capital grant (subject to a maximum level) and per metric tonne (mt) of tipp­ing fee. The one-time capital grant (Rs) and tipping fee (Rs/mt) was combined in the following formula to arrive at a comparable value.

PV (Rs  =     14 crore)
    Capital grant+mt/day×365×?  (Tipping fee)n
     n=1      (1+r)n
Present value = PV, Capital grant = Rs, Waste generated per day = 250 mt, Number of days in a year = 365, Concession period = 14 years, Tipping fees = Rs per mt, Discounted rate = “r” considered as 16 per cent.

The financial bids should be opened in the presence of all the qualified bidders and declared.

Draft Concession Agreement (DCA)

DCA is an integral part of bid documentation and must be as elaborated as possible. The models DCA have been provided by Planning Commission, National Highway Authority of India and other sectoral agencies. The DCA must elaborate in detail, the responsibilities of both parties-the concessionaire and concession aut­hority-to enable the bidder to perceive various risks and its allocation as structured in the project.

The emphasis should be to conduct a transparent and fair bid process with no room for qualitative ass­essment. The bid process, documents and evaluation methodology should be designed to create competition among most eligible PPP partners and to receive best value for money.

The author is Public Private Partnership Expert, Asian Development Bank.

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