This document discusses key considerations for selecting the right bidder for public-private partnership (PPP) smart city projects in India. It outlines that risk allocation is important for deciding the bidding process and bidder selection. The document recommends that risks should be allocated to the party best able to manage them. It provides examples of key risks like land acquisition and approvals that should be the responsibility of authorities versus commercial risks that could be passed to private partners. Finally, it states that the bidding process used, such as single stage versus two stage, should be tailored to the specific project but clearly define qualifications and risks upfront to select the optimal private sector partner.

1. Correspondents
India Business Law Journal72 March 2016
Smart cities
Picking the right bidder to
take on PPP project risks
By Soumya Kanti De Mallik,
HSA Advocates
T
he first list of 20 smart cities,
selected to receive financial assist-
ance from the government, was
announced in January. A number of
smart city projects – group housing, solar
power, community toilet, etc. – have been
identified for implementation under the
public-private partnership (PPP) mode.
Risk allocation is a key consideration
while deciding the right bidding process
foraprojectandselectingtherightbidder.
Authorities generally pass all risks to the
private sector. This approach has been
detrimental to the success and efficacy
of PPP projects, as evidenced by the
fact that only a few states in India have
leaned towards using PPP for develop-
ing infrastructure, and for limited sectors
such as roads, ports and airports.
Risk identification, allocation and man-
agement are crucial in PPP projects, as
inefficient and inequitable risk allocation
may lead to abandoning of projects.
Ideally, for risk allocation to be balanced
between the authority and the private
sector, risks should be allocated to the
party best placed to manage the risk.
A robust PPP structure will address the
issue of risk allocation. In the smart cities
context, some of the key risks and their
allocation are outlined below.
Land: The entire land and at least 90%
of the associated right of way should be
provided and granted by the authority
on or before the appointed date. This
is a condition precedent to the grant of
concession, as the concessionaire will
be unable to carry out retrofitting, rede-
velopment or greenfield development
without access and rights to the site.
Significantapprovals:Significantstat-
utory clearances – environmental, forest,
etc. – and utility clearances should be the
obligation of the authority. However, the
operational clearances, to be obtained
during the construction stage, should
be the responsibility of the concession-
aire. The clearances should be obtained
within a specified time period, with con-
sequences for delay.
Authority obligations: These have
to be clearly set out and carried out in
a coordinated manner, as any miscom-
munication or gap may result in the asset
being built, but underutilized.
Other risks: Regulatory and political
risks relate to changes in law and regula-
tory framework including taxation poli-
cies, and political changes, which could
affect site availability or lead to expropri-
ation. These risks should be retained by
the authority. Commercial risks (arising
from construction, operation and mainte-
nance activities) should be passed on to
the private sector.
While government agencies need to
appropriately identify and allocate risks
to efficiently manage PPP projects, it is
also imperative for authorities to select
a partner that not only contributes eco-
nomically and technically to the project
but also has the wherewithal to assume
the risks associated with the project.
Selecting the “right” bidding proce-
dure is key to selecting the “right” private
participant. Bidding procedures can be
divided into: (a) single stage; (b) two
stage; and (c) Swiss challenge.
(a) Under the single-stage process,
comprising only the request for proposal
(RFP), evaluation is a two-phase proc-
ess. The first phase involves checking
compliance with the RFP’s requirements
(the responsiveness test), clearance from
conflict of interest, technical and financial
capability, and eligibility of key personnel
for the project. Proposals that qualify are
selected for the second phase, which
involves evaluation of financial proposals
of the selected bidders.
(b) Under the two-stage process, the
request for qualification (RFQ) stage aims
to identify experienced bidders that have
the right technical and financial capacity
to undertake the project, so as to short-
list/pre-qualify them for submission of
financial bids at the RFP stage.
In the RFP stage, financial proposals
from shortlisted bidders are evaluated.
A report is submitted to the evaluation
committee, to decide on deviations from
RFQ/RFP, call for bidders’ clarifications (if
any) and finally, bid acceptance or rejec-
tion. What is, or is not, an essential con-
dition is at the discretion of the authority,
and here lies the scope for arbitrariness
or preferences to creep in.
(c) Swiss challenge involves the author-
ity seeking competing proposals to bet-
ter an original proposal, with the propo-
nent having an opportunity to match the
competing proposal.
The right approach has to be project
specific–noconsistent,commonformula
can run across all projects. However, the
key lies in recognizing, defining and allo-
cating risks before commencement of the
bidding process, and then formulating
the RFQ and other project parameters,
which may further be pre-defined into
“essential” and “dispensable” qualifica-
tions. Pre-defining will not only reduce
the scope for arbitrariness and distor-
tion of the process, but will also assist in
selecting the most appropriate bidder for
the project. A well-designed and efficient
PPP procurement process may also help
in avoiding delays and unwanted dis-
putes, reduce costs and ensure higher
value for the taxpayer’s money.
In the course of risk identification and
allocation in project documents, authori-
ties should involve technical and legal
consultants for every stage of the PPP
project, including structuring of the PPP,
documentation and development of
processes and guidelines, as they have
skill sets that the government is missing.
Soumya Kanti De Mallik is an associate partner
at HSA Advocates. HSA is a full-service firm with
offices in New Delhi, Mumbai and Kolkata, and
with a correspondent relationship in Bangalore.
New Delhi
81/1, Adchini,
Sri Aurobindo Marg
New Delhi – 110 017
Tel: +91 11 6638 7000
Fax: +91 11 6638 7099
Mumbai
Construction House, 5th Floor
Walchand Hirachand Marg
Ballard Estate
Mumbai – 400 001
Tel: +91 22 4340 0400
Fax +91 22 4340 0444
Email: soumya.demallik@hsalegal.com
www.hsalegal.com