Seville, Spain.

[dropcap style=»default, circle, box, book»]W[/dropcap]ith this article we would like to combine the viewpoints of the tender operator and consultant on the issue of Public – Private Partnerships (PPP). We shall explain the role held by the consultant in the PPP and why the tender operator needs the support of consultants. We will also talk about the mistakes made in this relationship and how to avoid them, in short, the keys to make sure this relationship is successful for both parties. For this reason, I have written this article with Luis Ramos, whose professional activity has been developed with the realms of franchisee company groups and the development of infrastructures belonging to constructor groups. We have based our writing on the Consultancy Course  that we have offered in various universities.

Let us first refresh our minds regarding the term PPP  Although we have already discussed PPPs in the trilogy of articles , I would like to summarise the main ideas here briefly. PPPs represent the means of the private and public sectors to work together in the development of a service (transport, health, water supply, etc) that may be developed in numerous ways, though the most commonplace is tenders for construction and operation. These tenders have always existed, however, the difference is that in a general sense, risks and liabilities were wholly transferred to the private sector until it became clear that this made the projects unfeasible or socially uninteresting. As a result of this, the concept of PPP was introduced so that a tender operator could always count on the contribution of the public sector in a variety of ways. Furthermore, we would like to highlight the definition provided by the Scottish Parliament, an international reference point in terms of PPP, as we understand that this provides the most comprehensive conceptualisation of the aforesaid contract in our opinion:  “Public Private Partnerships (PPPs) are a means of using the finance and techniques offered by the private sector for the carrying out of projects traditionally undertaken by the public sector. These include projects that are normally capital intensive such as schools, hospitals, motorways and water supply equipment. Instead of this being a public body that develops fixed assets and subsequently acts as owner, managing and regulating these, PPPs often imply the private sector’s responsibility, meaning that the Public Sector Administration “acquires” a service from the Contractor for a certain amount of time”.  Why would a company want to be a tender operator? A tender operator (generally in Spain a construction company) in a PPP has aims relating to its professional activity, namely:

• Making a profit on equity invested: One of the advantages of the tender system is that type of business can often be tackled with a reduced level of own funds with the rest provided via loans or financial leverage. With a “small” injection of capital equity major investments can be made thanks to external financing. As we have already seen in other articles, during times of public budgetary constraints, this may be a solution for the development of infrastructure projects. Furthermore, profitability on capital may be greater due to certain fiscal benefits (fiscal shield) affecting financial costs (though, due to the most recent fiscal reforms, less so).
• Obtaining on-going revenue: Tender projects provide on-going sources of revenue over a long period of time that allow for the creation of cash-flow for the project, to pay dividends to shareholders to finance new projects, as well as ensuring the service can survive despite any debt accrued. For example, in a public transport tender each passenger pays when they use the service and if demand levels are high this creates constant revenue.
• Diversification of the company activity: Construction companies need to grow and for this reason they have diversified into new business lines that are linked to their construction and service origins. Tender projects tend to encompass all these business arms: design, construction, maintenance, cleaning, refurbishment, modernisation and major repair work, etc.
• Expansion of the portfolio of constructor, installer and service partners: A tender contract brings with it a series of tasks that the tender company will outsource in the form of a “mirror contract” (implying that the latter assumes all the clauses of the original contract signed by the tender operator) with companies belonging to the groups forming the joint venture for the tender.

  Why is the bond between the tender operator and the consultant so necessary? Tender operators generally know what they want in terms of their business and expenditure, though consultants can provide added value for diverse reasons which I will explain in the diagram below. Consultancy within the framework of tender projects is present in the study stages carried out with the Public Sector Administration, up to the development and running phases. It is for this reason that the consultant must have an overall vision of the business at stake, during all of the stages and also be aware that they are dealing with complex, long-term contracts. The aims of the tender operator in which a consultant can contribute are:

• Help win the bid with a competitive offer.
• Finance the project under acceptable conditions especially through the use of traffic and revenue studies.
• Undertake the development and monitoring of the project in all of its stages (project, support for the construction stage, audits for the financiers)
• Resolution of possible conflicts and disputes arising throughout the duration of the contract (accountancy changes, interpretation of the contract, economic rebalance)

What are the most commonly offered services? I will eventually write a post on this as it is quite a meaty topic, though here I shall summarise the main activities that a consultant can offer in the field of tenders and PPP:

• At the beginning of the conception and preparation stages the consultant can undertake preliminary viability and financial structuring studies, normally for the relevant Public Sector Administration.
• During the bidding process they can work in tandem with the bidder to prepare their bid focusing on diverse aspects such as:
  • Analysis of costs and investments
  • Estimation of demand levels and revenue.
  • Financial modelling
  • Bid closure and documentation drafting.
  • Whilst the contract is being carried out, undertaking the construction project, facultative management of the construction work, assessment and advisory services regarding development and usage, legal and financial aspects.
  • They may also act in the role of assessor for the financial institutions ensuring the feasibility of the project. This aspect is known as Due Diligence.
  • They can also take part in cases involving conflicts and economic rebalance or renegotiation providing support to either of the parties.

   Key issues for the success of consultancy in PPPs and Tenders. As we have seen throughout this post, the consultant has an important role in the development of tender projects during all of their stages, and so, below we offer a list of key issues that must be borne in mind.

• Create an air of confidence. When a tender operator hires a service, naturally they do so at the best possible price, however trust is important and is a valued commodity. You cannot let them down at key moments, and you must always give your best, within the limits of the contract.
• Don’t offer pipe dreams. Often consultants make a technical – financial proposal promising a professional team with the cream of the crop to carry out the project. If you offer this, this is what you must provide as to avoid the mistake of allowing for the project to fall into the hands of less-experience or cheaper staff. Supervision and mentoring of junior staff under the auspice of experts is essential and allows for the accomplishment of high quality working standards without compromising costs. At the sane time this can lead to professional growth within the company and for its workers.

• Carry out an internal audit. A final personal revision accompanied by someone outside of the company where the project is being carried out may be the best and most economical means of creating a “Quality Standards Plan” that can be applied in consultancy terms in order to prevent mistakes. This has nothing in common with the standard AENOR style plans, we are dealing here with genuine self-monitoring programmes for quality with added value.
• Do not overlook judicial and administrative aspects. The consultant must also be well aware of the reference terms involved as in many cases administrative aspects can influence the technical bid.
• Avoid overcrowded meetings. This is an aspect that must be controlled. The efficiency and optimisation of resources is a key issue, as is the proper transmission of information between components of the consultancy team. If it is an expert steering committee that meets with the client, as would appear the most logical option, these persons must transmit as clearly as possible all of the information and aims to the junior team and external collaborators with whom they must work (lest we forget that we are not only dealing with major companies but also SMEs and MicroSMEs). Furthermore, we must avoid overly long meetings without fixed agendas, the consultant can help with this.
• Each project is unique, and therefore techniques must be adapted to the environment in which it is being carried out. We have to be able to work upon demand without losing sight of our experience and know-how to remain efficient.
• Know how to get your message across. Ideas and numbers cannot speak for themselves and it is important to know how to communicate. The development of communication skills is in our hands, listening to each other regarding what we wish to transmit and how we wish to transmit it, similarly, we must also listen to the client, knowing what their needs are and what they wish go to accomplish.

Some final recommendations  The consultant must:

• Conocer el negocio y ser consciente del entorno en el que se desarrolla (crisis actual, situación sectorial, diferenciación del ámbito del país donde se desarrolla el proyecto)
• Asesorar al cliente como si de su propio dinero se tratara (“PONERSE EN SUS ZAPATOS”)
• Aportar varias soluciones ante diferentes escenarios (SER IMAGINATIVOS Y FLEXIBLES)
• Elaborar la documentación con calidad, rigor y coherencia (OBVIO, IMPORTANTE Y NO SIEMPRE SE CUMPLE)

Well, certainly something to mull over, I would love to hear your viewpoints, tender operators and consultants. This article has been written by Luis Ramos and Julián Sastre