This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its April 2010 report, the Alberta Auditor General reviewed the Alberta Schools Alternative Procurement Project, known as ASAP 1, a pilot project launched to determine whether the public-private partnership procurement model could be used to quickly build a large number of schools, while also ensuring value-for-money to taxpayers. While the report determined that “the processes used for ASAP 1 resulted in a fair and open procurement”, it also found that the project team “did not publish a report to inform Albertans how value-for-money was achieved.” The Auditor General called for greater cost transparency when using a P3 approach to public procurement.
The Auditor General found that the ASAP 1 P3 initiative failed to follow the Management Framework: Procurement Process guidelines established by the Alberta Departments of Treasury Board and Infrastructure, which called for the creation and release of a value-for-money report upon the award of a P3 contract:
The Management Framework: Procurement Process provides guidance on information that should be disclosed in a Value for Money Report and information that should remain confidential to avoid compromising the competitive process.
To ensure that the P3 process is transparent, the framework states that a Value for Money Report be prepared, and published upon signing the P3 contract, to inform Albertans about how value for money was achieved. The Report should include the following content:
-
project background, objectives and alternatives (typically traditional delivery and P3 delivery)
-
a description of the selection process, short-listed proponents, preferred proponent, milestone dates, advisors (financial, engineering, process, fairness as applicable), and selection costs
-
a summary of the key terms of the Project Agreement
-
a financial summary including NPV lifecycle cost comparison, performance payment requirements and accounting treatment
-
any material scope changes to the project during the procurement
-
summary of the risk profile/allocation
-
innovations and creativity provided
As the above list reflects, a value-for-money report calls for the disclosure of material information about the entire procurement process. The ability to effectively provide this post-award report, therefore, requires an institution to establish the appropriate project governance protocols before it initiates its competition. In other words, downstream transparency obligations must be met at the planning stage of a major project.
Given the relatively complex project financing arrangements of P3s and their multi-stage bidding and award protocols, the Auditor General recommended that the purchasing institution engage in a comparative analysis to justify the use of this approach rather than more traditional and less complex procurement strategies. The report also called for the preparation of a business case to document the expected advantages of utilizing the P3 approach:
A P3 may be considered instead of traditional forms of infrastructure acquisition and maintenance where there is a reasonable expectation that the P3 can provide greater value for money through a combination of risk transfer, earlier project delivery, and lower initial capital and ongoing maintenance and cyclical renewal costs.
Departments prepare a business case to determine the procurement alternative that can provide the best value for money. The quantitative analysis compares the estimated costs of a traditional alternative—the Public Sector Comparator— to other viable alternatives, one of which is a P3.
As this recommendation illustrates, given its increased cost and complexity, institutions should test their assumptions before concluding that the P3 financing and tendering model is the appropriate approach to any particular project.
As with any other type of open public procurement, institutions that are employing a P3 model should ensure that their competitive bidding process adheres to the defensibility principles of open and fair competition. As the Auditor General stated in its report:
To ensure that the procurement process is fair and consistent, the following principles are used as guidelines throughout the process:
-
all interested parties, respondents and proponents have the same opportunity made available to access information
-
the information made available to interested parties, respondents and proponents is sufficient to ensure that they have the opportunity to fully understand the opportunity
-
all interested parties, respondents and proponents have reasonable access to the opportunity
-
the criteria established in the invitation documents truly reflect the needs and objectives in respect of the project
-
the evaluation criteria and the evaluation process are established prior to the evaluation of submissions
-
the evaluation criteria, RFQ/RFP, and evaluation processes are internally consistent
-
the pre-established evaluation criteria and evaluation processes are followed
-
the evaluation criteria and process are consistently applied to all submissions.
The Auditor General’s transparency recommendations provide a useful roadmap to help ensure the defensibility of all procurement competitions, irrespective of the specific type of contracting format that is used by the institution.
