Bidding on PPP projects is an expensive undertaking. To successfully assume risk, private partners need to define almost every project parameter in advance, racking up design and consulting fees, exposing intellectual property and providing detailed models and plans.
Infrastructure
Stakeholders are divided over the practice
TORONTO
Bidding on PPP projects is an expensive undertaking. To successfully assume risk, private partners need to define almost every project parameter in advance, racking up design and consulting fees, exposing intellectual property and providing detailed models and plans.
While the winner of the bid walks away with an obvious prize, also-rans are now commonly offered a substantial honorarium, a practice that has stakeholders divided.
Infrastructure Ontario recently began to offer honoraria in line with other provinces, such as Alberta or B.C.
Governments offering honoraria to unsuccessful bidders say the practice encourages competitors to put forth their best proposals, and shows potential bidders that the government is serious about proceeding with a project.
Detractors fall into several camps, suggesting an honorarium doesn’t cover enough of the cost of bidding to make it worthwhile, adds to the cost of a project by rewarding bidders who would have participated regardless, and sends a negative message to taxpayers.
EllisDon
“To properly submit a bid, the work undertaken by both the private and public sector is huge — it comes from both sides,” says Jim King, senior vice president, Finance, EllisDon Construction Inc. “The criteria are very stringent. Under a regular bid process, you want to hear from two bidders and hopefully one does not comply [with the design criteria].
“In a PPP, the government wants ALL of the bidders to comply and there are additional costs to get there.
“We look at the out-of-pocket costs of bidding to be about one half of one per cent, so if you have a $100-million job, it would be $500,000.
“As the job gets bigger, that percentage drops down — on a $300-million job, it might be $1 million.”
Many PPP players are competing in projects worldwide, so an honorarium can be the deciding factor in whether a company bids on a Canadian project at all, says Michael Bernstein, managing director, head of Canadian Infrastructure and Utilities Advisory, Macquarie, North America Ltd.
“When the economics of a bid are looking just a little bit lean, the million dollars or so that can help defer the cost of losing can help push us over the edge and get us to decide to chase this project.”
To some degree, smaller honoraria may limit PPP competition to larger companies only, says J. Paul Boucher, vice president, Infrastructure Development, Carillion Canada Inc.
“Smaller engineering firms and construction firms may have something to add and cannot afford to.
“If you’re interested in bringing some of that talent onto the stage, then a bigger honorarium does help out.”
To diffuse criticism that government procurement agencies are rewarding even failure among construction industry cronies, some bids now require the winning bidder to pay honoraria to losing qualifying bidders.
Ultimately, however, even that amount is passed on to taxpayers in the price of the winning bid.
Proponents suggest governments need to show taxpayers that honoraria ultimately lead to better proposals that add value to projects.
“The public sector is getting more than it’s paying for,” says Vincent Blesa, vice president, Business Development, Acciona Infrastructures Canada Inc.
The comments were made at the 14th annual National Conference on Public-Private Partnerships.
Recent Comments
comments for this post are closed