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PPP TOOLKIT for Improving PPP
Decision-Making Processes
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Sector: State Highway  |  Module 2: Work through the PPP process

PPP suitability checks

Projects entering the PPP development pipeline should be carefully selected on the basis of their suitability for development as a PPP and their likelihood of providing value for money to the public sector. This toolkit includes tools to help the Project Officer choose and prioritise projects for development as PPPs and to continually refine the project design so as to increase the likelihood of achieving VFM. The first of these tools are the Suitability Filter and the Mode Validation tool.

The Suitability Filter is a key tool for deciding whether the project should proceed through the PPP pipeline.

Additionally, it is necessary at this stage to have at least a basic idea of which PPP mode the project is likely to be best suited to. The Family Indicator Tool and Mode Validation Tool are designed to help the Project Officer consider the important factors that guide the choice of mode and to arrive at an indication of which mode is likely to be most appropriate.

PPP family indicator tool

The ongoing process of choosing and defining the PPP mode for the project starts from Phase 1. PPP modes can be loosely grouped into several ‘families’ which share certain important characteristics. The simplest family groups are Opex PPPs and Capex PPPs.

The PPP family indicator tool uses a decision tree to help the Project Officer see quickly the main PPP mode options available in the selected sector and for the particular project type. This provides the earliest indication of the mode that might be best for the project.

Project Officers may find it helpful to use the family indictor before using the suitability filter.

A generic PPP mode decision tree is shown below. Click here to see definitions of main PPP modal families for a sector.

Generic PPP family decision tree


Suitability filter

The Suitability Filter is effectively a preliminary qualitative (subjective) VFM analysis. It tests for qualitative factors that have an impact on the ease or difficulty of doing the project as a PPP. The Filter’s purpose is to weed out dead-end PPP projects early, so resources aren’t wasted and can instead be used on the most promising projects.

The Suitability Filter is made up of a series of questions about the important factors that impact on the suitability of the project for being a PPP. The answers to each question are scored, and the final result from all questions is presented on a scale of ease or difficulty of developing the project further as a PPP. The Suitability Filter results would be summarised in the Pre-Feasibility Report.

The results of the Filter can also be used to highlight where there are weaknesses in the project or in the supporting environment that would make the project less suited to being a PPP. By highlighting any such weaknesses, the Filter can help the Project Officer identify areas that need to be improved, or to decide that the project is not well suited to being a PPP. In this way, the Suitability Filter can help to strengthen the quality of PPPs entering the development pipeline.

PPP policy makers in the UK have shifted the focus of VFM analysis away from quantitative tests and have placed more weight on qualitative assessments of VFM. Quantitative analysis is still an important and required part of VFM checks in the UK and must be carried out for all potential PPPs. However, it is treated as one input to the overall assessment of VFM to be considered alongside the results of qualitative analysis.

The Suitability Filter can be an important part of qualitative VFM testing in India. Since quantitative (ie, numerical) VFM testing presents challenges in the Indian context,  due to an inadequate supporting data base, this sort of qualitative test can be very valuable in checking the quality of potential PPPs.

The Suitability Filter analysis should be free from pre-conceived bias in favour of PPP or not. In practice this often is not the case. There will always be some subjectivity in the assessment and individuals bring their own opinions and viewpoints. It is important that the analyst remains conscious of this and aware of the motivations behind their own judgements and tries to approach the assessment as objectively as possible.

If the proposed project passes the Suitability Filter then the next step is to choose which PPP family would be best for the project using the Mode Validation tool. 

Mode Validation Tool (risk based assessment)

The Mode Validation tool uses a risk allocation approach to further consider the preliminary choice of the best PPP ‘family’ for the project. The mode will then be further refined during the full feasibility and procurement stages and finally specified in detail in the Concession Agreement. The exact details of the specific PPP mode will be determined by the Project Team or by external Advisors.

The aim at this stage is to prompt the Project Officer to go to the next level of detail in thinking about the particular project risks and how these might best be allocated between the public and private sectors in a PPP. This allocation is a key to choosing the PPP mode.

The Mode Validation tool allows the Project Officer to specify their own preferred risk allocation, and to compare this against the typical allocations under the main families of PPPs. Where there are differences between the preferred allocation and the typical allocations, the Project Officer should ask why this is and consider whether a different allocation would be more appropriate. In this way, the PO should get a better sense of the best suited PPP mode.

 

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