PRIVATELY FINANCED INFRASTRUCTURE PROJECTS

Draft chapters of a legislative guide on privately financed infrastructure projects

Report of the Secretary-General

Addendum

Chapter III. SELECTION OF THE CONCESSIONAIRE

Paragraph
Legislative recommendations 
Notes on legislative recommendations 1-99 
Section
A. General remarks 1-2 
B. Selection procedures covered by the Guide 3-5 
C. General objectives of selection procedures 6-14
1. Economy and efficiency 7-9 
2. Promotion of integrity of and confidence in the selection process 10-11 
3. Transparency of laws and procedures 12-14 
D. Appropriate selection method 15-25
1. Range of proponents to be invited 19-20 
2. Emphasis on output requirements 21-22 
3. Evaluation criteria 23-24 
4. Negotiations with proponents 25 
E. Preparations for selection proceedings 26-32 
1. Appointment of the award committee 27 
2. Feasibility and other studies 28-29 
3. Preparation of documentation 30-32 
F. Prequalification of project consortia 33 
1. Invitation to prequalify 34-35 
2. Prequalification criteria 36-38 
3. Domestic preferences 39-40 
4. Contribution towards costs of participation in selection proceedings 41-42 
5. Prequalification proceedings 43-46 
G. Procedures for requesting proposals 47-93 
1. Phases of the procedure 47-49 
2. Initial request for proposals 50-52 
3. Final request for proposals 53-65 
4. Content and submission of final proposals 66-69 
5. Tender securities 70-71 
6. Evaluation criteria 72-74 
7. Opening, comparison and evaluation of proposals 75-77 
8. Final negotiations 78-79 
9. Notice of project award 80 
H. Direct negotiations 81-93 
1. Circumstances authorizing the use of direct negotiations 85-86 
2. Unsolicited proposals 87-93 
I. Review procedures 94 
J. Record of selection proceedings 95-99 

LEGISLATIVE RECOMMENDATIONS

Appropriate selection method
(1) For the selection of the concessionaire it is advisable to devise a method that promotes competition within structured, formal procedures. Direct negotiations should be reserved for exceptional circumstances (see paras. 
15-18).

Prequalification of project consortia
(2) It is advisable to use a prequalification procedure to narrow down the number of proposals with which the awarding authority must deal. Proceedings involving the evaluation of more than a limited number of proposals are 
generally not suitable for privately financed infrastructure projects (see paras. 19-20).
(3) Where consortia are formed to submit proposals, their members should not be allowed to participate, directly or through subsidiary companies, in more than one consortium (see para. 38).
(4) Where preferences for national candidates or candidates who offer to procure supplies, services and products in the local market are envisaged, they should be applied as a margin of preference at the evaluation phase and announced in the invitation to prequalify (see paras. 39-40).
(5) It may be useful to allow the awarding authority to consider arrangements for compensating prequalified proponents if the project cannot proceed for reasons outside their control or for contributing to the costs incurred by them (see paras. 41-42).
(6) No criterion, requirement or procedure with respect to the qualifications of project consortia should be used that has not been set forth in the prequalification documents (see para. 44).
(7) Upon completion of the prequalification phase, the awarding authority should elaborate a short list of the prequalified project consortia which will be subsequently invited to submit proposals. Subsequent changes in the composition of prequalified consortia should require the approval of the awarding authority (see paras. 45-46).

Initial request for proposals
(8) Unless the awarding authority deems it feasible to formulate input or output specifications of the project and contractual terms in a manner sufficiently detailed and precise to permit final proposals to be formulated, it is advisable to structure the proceedings for requesting proposals from qualified proponents in two stages (see paras. 47-49).
(9) The awarding authority should be allowed to convene a meeting of proponents 
to clarify questions concerning the request for proposals and to engage in 
negotiations with any proponent concerning any aspect of its proposal (see para. 
51).
(10) Following those negotiations, the awarding authority should review and, as 
appropriate, revise the initial input or output specifications. The awarding 
authority should be allowed to delete or modify any aspect, originally set forth 
in the initial request for proposals, of the technical or quality 
characteristics of the project and any criterion originally set forth in those 
documents for evaluating and comparing proposals and for ascertaining the 
successful proponent (see para. 52).
Final request for proposals
(11) At the final stage, the awarding authority should invite the proponents to 
submit final proposals with price with respect to the revised specifications and 
contractual terms (see paras. 53-65).
Contents and submission of final proposals
(12) Technical proposals should, as a minimum, include:
(a) specifications and schedule of works;
(b) feasibility and other studies;
(c) description of services to be provided and applicable quality standards;
(d) description of maintenance services and standards (see para. 66).
(13) Financial proposals should, as a minimum, include:
(a) The proposed tariff or price structure;
(b) The proposed duration of the concession, where it is not specified in 
the request for proposals;
(c) The level of governmental financial support required for the project, 
including, as appropriate, any subsidy or payment expected from the host 
Government;
(d) The extent of risks assumed by the concessionaire during the 
construction and operation phases, including unforeseen events, insurance, 
equity investment and other guarantees against those risks (see para. 67).
Evaluation criteria
(14) Criteria for the evaluation of the non-price technical aspects of proposals 
should include technical feasibility; environmental effectiveness; effectiveness 
of the proposed construction and operation systems; soundness of the proposed 
financial arrangements, including resources of the proponents (see para. 72).
(15) Criteria for the evaluation of the price proposals should include costs for 
design and construction activities; annual operation; maintenance costs; present 
value of capital costs and operating costs; present value of the proposed price 
over the concession period; the amount of subsidy, if any, expected from the 
host Government (see para. 73).
Opening, comparison and evaluation of proposals
(16) Upon receipt of the final proposals, the awarding authority should 
ascertain whether they are prima facie responsive to the request for proposals. 
Incomplete or partial proposals should be rejected at this stage (see para. 
75-77).
Final negotiations
(17) The awarding authority should rank all responsive proposals on the basis of 
the evaluation criteria set forth in the request for proposals and invite for 
final negotiation of the project agreement the proponent that has attained the 
best rating. These negotiations should not concern those terms of the contract 
that were deemed not negotiable in the final request for proposals (see para. 
78).
(18) If it becomes apparent to the awarding authority that the negotiations with 
the proponent invited will not result in a project agreement, the awarding 
authority should inform that proponent that it is terminating the negotiations 
and then invite for negotiations the other proponents on the basis of their 
ranking until it arrives at a project agreement or rejects all remaining 
proposals (see para. 79).
Notice of project award
(19) The awarding authority should cause a notice of the award of the project to 
be published. The notice should indicate:
(a) The name of the concessionaire;
(b) A list of the annexes and enclosures that form part of the agreement;
(c) A description of the works and services to be performed by the 
concessionaire;
(d) The duration of the concession;
(e) The tariff structure;
(f) The rights and obligations of the concessionaire and the guarantees 
assumed or to be provided by it;
(g) The monitoring rights of the awarding authority and remedies for breach 
of the project agreement;
(h) The obligations of the host Government, including any payment, subsidy 
or compensation offered by the host Government;
(i) Any other essential term of the project agreement, as provided in the 
request for proposals (see para. 80).
Circumstances authorizing the use of direct negotiations
(20) Direct negotiations should be resorted to only in exceptional circumstances 
(see paras. 82-85). Exceptional circumstances may include the following:
(a) When there is an urgent need for ensuring immediate provision of the 
service, and engaging in a selection procedure would therefore be 
impractical, provided that the circumstances giving rise to the urgency were 
neither foreseeable by the awarding authority nor the result of dilatory 
conduct on its part;
(b) In case of projects of short duration and with an anticipated initial 
investment value not exceeding a specified low amount (see para. 86).
(21) Direct negotiations might be further resorted to when an invitation to 
prequalify or a request for proposals has been issued but no applications to 
prequalify or proposals were submitted, or all proposals were rejected by the 
awarding authority, and when, in the judgement of the awarding authority, 
issuing a new request for proposals would be unlikely to result in a project 
award (see para. 87).
Unsolicited proposals
(22) The awarding authority should establish transparent procedures for dealing 
with unsolicited proposals (see paras. 88-90).
(23) Upon receipt of an unsolicited proposal, the awarding authority should 
determine whether it might be in the public interest to develop the proposed 
project. The awarding authority should examine the proposal within a reasonable 
period. Title to all documentation submitted should vest in the proponent 
throughout the procedure. If the proposal is rejected, all documents submitted 
should be returned to the proponent. No proposals should be solicited concerning 
a rejected project for a minimum number of years without the invitation of the 
company which submitted the original proposal (see paras. 91-92). 
(24) If the host Government accepts the proposal, the awarding authority should 
engage in a competitive selection procedure (such as request for proposals), 
preceded by a prequalification phase. The company that submitted the original 
proposal should be invited to participate in such proceedings and might be 
given, as a premium for submitting the proposal, a margin of preference over the 
final rating. If such a margin of preference is given, appropriate notice should 
be given to all companies invited to submit proposals (see para. 93). 
Record of selection proceedings
(25) The law should require that the awarding authority keep appropriate record 
of key information pertaining to the selection proceedings (see paras. 94-99).

NOTES ON LEGISLATIVE RECOMMENDATIONS

A. General remarks
1. This chapter deals with methods and procedures recommended to be used for the 
award of privately financed infrastructure projects. In line with the advice of 
international organizations, such as the World Bank 1 and UNIDO 2, the Guide 
expresses a clear preference for the use of competitive selection procedures, 
rather than direct negotiations with project consortia, as further explained in 
paragraphs 15 to 17 below.
2. The selection procedures recommended in this chapter present some of the 
features of the tendering method under the UNCITRAL Model Law on Procurement of 
Goods, Construction and Services 3 with a number of adaptations so as to take 
into account the particular needs of privately financed infrastructure projects. 
The method herein consists of a two stage procedure with a prequalification 
phase. It allows some scope for negotiations between the awarding authority and 
the proponents within clearly defined conditions. The description of the 
procedures recommended for the selection of the concessionaire is primarily 
concerned with those elements that are special to, or particularly relevant for, 
privately financed infrastructure projects. Where appropriate, this chapter 
refers the reader to provisions of the UNCITRAL Model Law, which may mutatis 
mutandis supplement the selection procedure described herein. 
B. Selection procedures covered by the Guide
3. Private investment in infrastructure may take various forms, each requiring 
special methods for selecting the concessionaire. For the purpose of discussing 
possible selection methods for the infrastructure projects dealt with in the 
Guide, a distinction may be made between three main forms of private investment 
in infrastructure:
(a) Purchase of public utilities enterprises. Private capital may be invested in 
public infrastructure through the purchase of physical assets or the shares of 
public utility enterprises. Those transactions are often carried out in 
accordance with rules governing the award of contracts for the disposition of 
State property. Disposition methods often include competitive proceedings such 
as auctions or invitations to bid whereby the property is awarded to the 
qualified party offering the highest price;
(b) Provision of public services without development of infrastructure. In other 
types of projects, the service providers own and operate all the equipment 
necessary and sometimes compete with other suppliers for the provision of the 
relevant service. Some national laws establish special procedures whereby the 
State may authorize a private entity to supply public services by means of 
exclusive or non-exclusive Alicences@. Licences may be publicly offered to 
interested parties who satisfy the qualification requirements set forth by the 
law or established by the licensing authority. Sometimes licensing procedures 
involve public auctions to interested qualified parties;
(c) Construction and operation of public infrastructure. In projects for the 
construction and operation of public infrastructure, a private entity is engaged 
to provide both works and services to the public. The procedures governing the 
award of those contracts are in many aspects similar to those that govern public 
procurement of construction and services. National laws provide a variety of 
methods for public procurement, ranging from structured competitive methods, 
such as tendering proceedings, to less structured negotiations with prospective 
suppliers.
4. This chapter deals primarily with selection procedures suitable to be used 
for infrastructure projects which involve an obligation, on the part of the 
selected private entity, to undertake physical construction, repair, or 
expansion works in the infrastructure concerned with a view to subsequent 
private operation (i.e. those referred to in paragraph 3(c) above). It does not 
deal specifically with methods for disposal of State property for privatization 
purposes or procedures for licensing public service providers.
5. It should be noted, however, that some infrastructure projects may involve 
elements of more than one of the categories mentioned above, a circumstance 
which the Government may wish to consider when choosing the selection method. 
For instance, the acquisition of a privatized public utility (e.g. a water 
distribution company) may be coupled with an obligation to effect substantial 
investment in new infrastructure (e.g. expansion of pipe network). In those 
situations, it is important for the Government to identify the predominant 
element of the project (e.g. whether privatization or construction of new 
infrastructure) in order to choose the appropriate selection procedure which the 
Government might then wish to adjust so as to take into account the main 
ancillary obligations expected to be assumed by the concessionaire. To that end, 
some of the considerations set forth in this chapter may also be relevant, 
mutatis mutandis, for the disposal of State property or licensing procedures 
which involve an obligation on the part of the new concessionaire or licensee to 
undertake infrastructure works. 
C. General objectives of selection procedures
6. For the award of contracts for infrastructure projects, the host Government 
may either apply methods and procedures already provided in its laws or 
establish procedures specifically designed for that purpose. In either 
situation, it is important to ensure that such procedures are generally 
conducive to attaining the fundamental objectives of rules governing the award 
of public contracts. Those objectives are briefly discussed below.
1. Economy and efficiency
7. In connection with infrastructure projects, economy refers to the selection 
of a concessionaire that is capable of performing works and delivering services 
of the desired quality at the most advantageous price and upon the most 
advantageous contractual terms. It is promoted by procedures that provide a 
favourable climate for participation in the selection process by competent 
companies and that provide incentives to them to offer their most advantageous 
terms.
8. In most cases, economy is best achieved by means of procedures that promote 
competition among project consortia. Competition provides them with incentives 
to offer their most advantageous terms, and it can encourage them to adopt 
efficient or innovative technologies or production methods in order to do so. 
Furthermore, economy can often be promoted through participation by foreign 
companies in selection proceedings. Not only can foreign participation expand 
the competitive base, it can also lead to the acquisition by the awarding 
authority and its country of technologies that are not available locally. 
Foreign participation in selection proceedings may be necessary where there 
exists no domestic expertise of the type required by the awarding authority. A 
country desiring to achieve the benefits of foreign participation should ensure 
that the relevant laws and procedures are conducive to such participation. It 
should be noted, however, that competition does not necessarily require the 
participation of a large number of proponents in a given selection process. 
Particularly for large projects, there may be reasons for the awarding authority 
to wish to limit the number of participants to a manageable number (see paras. 
19-20). Provided that appropriate procedures are in place, the awarding 
authority can take advantage of effective competition even where the competitive 
base is limited.
9. Efficiency refers to selection of a concessionaire within a reasonable amount 
of time, with minimal administrative burdens and at reasonable cost both to the 
awarding authority and to participating contractors or suppliers. In addition to 
the losses that can accrue directly to the awarding authority from inefficient 
selection procedures (e.g. due to delayed selection or high administrative 
costs), excessively costly and burdensome procedures can lead to increases in 
the overall project costs or even discourage competent companies from 
participating altogether in the selection proceedings. 
2. Promotion of integrity of, and confidence in, the selection process
10. Another important objective of rules governing the selection of the 
concessionaire is to promote the integrity of, and confidence in, the process. 
Thus, an adequate selection system will usually contain provisions designed to 
ensure fair treatment of project consortia, to reduce or discourage 
unintentional or intentional abuses of the selection process by persons 
administering it or by companies participating in it, and to ensure that 
selection decisions are taken on a proper basis.
11. Promoting the integrity of the selection process will help to promote public 
confidence in the process and in the public sector in general. Project consortia 
will often refrain from spending the time and sometimes substantial sums of 
money to participate in selection proceedings unless they are confident that 
they will be treated fairly and that their proposals or offers have a reasonable 
chance of being accepted. Those that do participate in selection proceedings in 
which they do not have that confidence have a tendency to increase the project 
cost to cover the higher risks and costs of participation. Ensuring that 
selection proceedings are run on a proper basis could reduce or eliminate that 
tendency and result in more favourable terms to the awarding authority. 
3. Transparency of laws and procedures
12. Transparency of laws and procedures governing the selection of the 
concessionaire will help to achieve various of the policy objectives already 
mentioned. Transparent laws are those in which the rules and procedures to be 
followed by the awarding authority and by project consortia are fully disclosed, 
particularly to such participants. Transparent procedures are those which enable 
the participants to ascertain what procedures have been followed by the awarding 
authority and the basis of decisions taken by it.
13. One of the most important ways to promote transparency and accountability is 
to include provisions requiring that the awarding authority maintain a record of 
the selection proceedings (see paras. 95-99). A record summarizing key 
information concerning those proceedings facilitates the exercise of the right 
of aggrieved project consortia to seek review. That in turn will help to ensure 
that the rules governing the selection proceedings are, to the extent possible, 
self-policing and self-enforcing. Furthermore, adequate record requirements in 
the law will facilitate the work of Government bodies exercising an audit or 
control function and promote the accountability of awarding authorities to the 
public at large as regards the award of infrastructure projects. A general 
requirement of record-keeping in procurement proceedings is contained in article 
11 of the UNCITRAL Model Law. 
14. Transparent laws and procedures create predictability, enabling project 
consortia to calculate the costs and risks of their participation in selection 
proceedings and thus to offer their most advantageous terms. They also help to 
guard against arbitrary or improper actions or decisions by the awarding 
authority or its officials and thus help to promote confidence in the process. 
Transparency of laws and procedures is of particular importance where foreign 
participation is sought, since foreign companies may be unfamiliar with the 
country=s practices for the award of infrastructure projects.
D. Appropriate selection method
15. Generally, economy and efficiency in the award of public contracts are best 
achieved through methods that promote competition among a range of contractors 
and suppliers within structured, formal procedures. Competitive selection 
procedures, such as tendering, are usually prescribed by national laws as the 
rule for normal circumstances in procurement of goods or construction.
16. In competitive selection procedures, the awarding authority typically 
invites a range of companies to submit proposals which must be formulated on the 
basis of technical specifications and contractual terms specified by the 
awarding authority in the documents made available by it to proponents. 
Proposals are examined, evaluated and compared and the decision of which 
proposal to accept is made in accordance with essentially objective criteria and 
procedures that are set forth in the procurement laws and in the tender 
documents. Competitive selection procedures are said to be Aopen@ when the 
awarding authority solicits proposals by means of a widely advertised invitation 
to tender directed to all companies wishing to participate in the proceedings. 
The procedures are said to be Arestricted@ when the awarding authority solicits 
proposals only from certain companies selected by it.
17. The formal procedures and the objectivity and predictability that 
characterize the competitive selection procedures generally provide optimal 
conditions for competition, transparency and efficiency. Thus, the rules for 
procurement under loans provided by the World Bank require that, for projects 
financed with loans provided by the World Bank, the concessionaire has to be 
selected pursuant to competitive procedures acceptable to the World Bank (e.g. 
Ainternational competitive bidding@). 4 The use of competitive selection 
procedures in privately financed infrastructure projects has also been 
recommended by UNIDO, which has formulated detailed practical guidance on how to 
structure those procedures. 5 However, no international legislative model has 
thus far been specifically devised for competitive selection procedures in 
privately financed infrastructure projects.
18. National legislative provisions on competitive procedures for the 
procurement of goods construction or services may not be entirely suitable for 
privately financed infrastructure projects. International experience in the 
award of privately financed infrastructure projects has revealed some 
limitations of traditional forms of competitive selection procedures, such as 
the tendering method. In the light of the particular issues raised by privately 
financed infrastructure projects, which are briefly discussed below, it is 
advisable for the host Government to consider adapting such procedures for the 
selection of the concessionaire.
1. Range of proponents to be invited
19. In traditional Government procurement, the objective of economy is often 
maximized by allowing for as wide as possible competition among contractors and 
suppliers. Invitations to tender are sometimes issued directly without prior 
prequalification proceedings. Where prequalification is required, it is 
sometimes limited to verifying a number of formal requirements (e.g. the 
contractors= professional qualification or legal capacity).
20. The award of privately financed infrastructure projects, in turn, typically 
involves complex, time-consuming and expensive proceedings. Furthermore, the 
sheer scale of most infrastructure projects reduces the likelihood of obtaining 
proposals from a large number of suitably qualified project consortia. In 
addition, competent project consortia may be reluctant to participate in 
procurement proceedings for high-value projects if the competitive field is too 
large and where they run the risk of having to compete with unrealistic 
proposals or proposals submitted by unqualified candidates. Therefore, open 
tendering without a prequalification phase is usually not advisable for the 
award of infrastructure projects.
2. Emphasis on output requirements
21. In traditional public procurement of construction works the Government 
usually assumes the position of a ma顃re d=ouvrage or employer, while the 
selected contractor carries out the function of the performer of the works. The 
procurement procedures applied by the Government emphasize the inputs to be 
provided by the contractor, i. e. the awarding authority establishes clearly 
what is to be built, how and by what means. It is therefore common that 
invitations to tender for construction works are accompanied by extensive and 
very detailed specifications of the type of works and services being procured. 
In those cases, the Government will be responsible for ensuring that the 
specifications are adequate to the type of infrastructure to be built and that 
such infrastructure will be capable of being operated efficiently. In some 
privately financed infrastructure projects, particularly those involving works 
of moderate complexity or where the infrastructure is owned by the Government or 
is to be ultimately transferred to it, the Government usually wishes to 
establish precise specifications for the works to be performed or the technical 
means for the services to be provided (i. e. the Ainput@ expected from the 
concessionaire).
22. However, for many privately financed infrastructure projects, the host 
Government may envisage a different allocation of responsibilities between the 
public and the private sector. One of the underlying reasons for some 
Governments to promote private sector participation in infrastructure 
development is to release themselves from the immediate responsibility for those 
functions that are capable of being efficiently carried out by the private 
sector. Instead of assuming the direct responsibility for managing the project, 
those Governments may prefer to transfer such responsibility to the 
concessionaire. In those cases, after having established a particular 
infrastructure need, the Government may prefer to leave to the private sector 
the responsibility for devising the best solution for meeting such a need. The 
selection procedure used by the host Government may thus give more emphasis to 
the output expected from the project (i.e. the services or goods to be provided) 
rather than to technical details of the works to be performed or means to be 
used to provide those services. While the host Government remains ultimately 
accountable to the public for the quality of the works and services, the private 
sector will bear the risks that might result, for instance, from the inadequacy 
of the technical solutions used (see paras. 47-49).
3. Evaluation criteria
23. Goods, construction works or services are typically purchased by Governments 
with funds available under approved budgetary allocations. With the funding 
sources usually secured, the main objective of the procuring entity is to obtain 
the best value for the funds it spends. Therefore, in those types of procurement 
the decisive factor in establishing the winner among the responsive and 
technically acceptable proposals is often the global price offered for the 
construction works, which is calculated on the basis of the cost of the works 
and other costs incurred by the contractor plus a certain margin of profit.
24. Privately financed infrastructure projects, in turn, are typically expected 
to be financially self-sustainable, in that the development and operational 
costs are to be recovered from the project=s own revenue. This circumstance, 
compounded with the magnitude of most infrastructure projects, renders the task 
of evaluating proposals considerably more complex than in more traditional forms 
of procurement. Therefore, a number of other factors will need to be considered 
in addition to the construction and operation cost and the price to be paid by 
the users. For instance, the awarding authority will need to consider carefully 
the financial and commercial feasibility of the project, the soundness of the 
financial arrangements proposed by the project consortia and the reliability of 
the technical solutions used. Such interest exists even where no governmental 
guarantees or payments are involved, because unfinished projects or projects 
with large cost over-runs or higher than expected maintenance costs often have a 
negative impact on the overall availability of needed services and on the public 
opinion in the host country. Furthermore, given the usually long duration of 
infrastructure concessions, the awarding authority will need to satisfy itself 
of the soundness and acceptability of the arrangements proposed for the 
operational phase and will weigh carefully the service elements of the proposals 
(see paras. 72-74).
4. Negotiations with proponents
25. Laws and regulations governing tendering proceedings often prohibit 
negotiations between the awarding authority and the contractors concerning a 
proposal submitted by them. The rationale for such a strict prohibition, which 
is also contained in article 35 of the UNCITRAL Model Law, is that negotiations 
might result in an Aauction@, in which a proposal offered by one contractor is 
used to apply pressure on another contractor to offer a lower price or an 
otherwise more favourable proposal. As a result of that strict prohibition, 
contractors selected to provide goods or services pursuant to traditional 
procurement procedures are typically required to sign standard contract 
documents provided to them during the procurement proceedings. However, given 
the complexity of infrastructure projects, it is unlikely that the parties could 
agree on the terms of a draft project agreement without negotiation and 
adjustments to adapt those terms to the particular needs of the project. 
Therefore, it may be useful to allow for some negotiation between the awarding 
authority and the selected project consortium (see paras. 78-79).
E. Preparations for selection proceedings
26. The award of privately financed infrastructure projects is in most cases a 
complex exercise requiring careful planning and coordination among the offices 
involved. By ensuring that adequate administrative and personnel support is 
available to conduct the type of selection proceeding that it has chosen, the 
host Government plays an essential role in promoting confidence in the selection 
process.
1. Appointment of the award committee
27. One important preparatory measure is the appointment of the committee that 
will be responsible for evaluating the proposals and making an award 
recommendation to the awarding authority. The appointment of qualified and 
impartial members to the selection committee is not only a requirement for an 
efficient evaluation of the proposals, but may further foster the confidence of 
project consortia in the selection process.
2. Feasibility and other studies
28. As already indicated (see AIntroduction and background information on 
privately financed infrastructure projects@, para. 94), one of the initial steps 
taken by the host Government in respect of a proposed infrastructure project is 
to conduct a preliminary assessment of its feasibility, including economic and 
financial aspects such as expected economic advantages of the project, estimated 
cost and potential revenue anticipated from the operation of the infrastructure 
facility. The option to develop infrastructure as a privately financed project 
requires a positive conclusion of the feasibility and financial viability of the 
project.
29. Prior to starting the proceedings leading to the selection of a prospective 
concessionaire, it is advisable for the awarding authority to review and, as 
required, expand those initial studies. In some countries awarding authorities 
are advised to formulate model projects for reference purposes (typically 
including a combination of estimated capital investment, operation and 
maintenance costs) prior to inviting proposals from the private sector. The 
purpose of such model projects is to demonstrate the viability the commercial 
operation of the infrastructure and the affordability of the project in terms of 
total investment cost and cost to the public. They will also provide the 
awarding authority with a useful tool for comparison and evaluation of 
proposals. Confidence of project consortia will be promoted by evidence that the 
technical, economical and financial assumptions of the project, as well as the 
proposed role of the private sector, have been carefully considered by the host 
Government.
3. Preparation of documentation
30. Selection proceedings for the award of privately financed infrastructure 
projects typically require the preparation of extensive documentation by the 
awarding authority, including project outline, prequalification documents, the 
request for proposals, instructions for preparing proposals and a draft of the 
project agreement. The quality and clarity of the documents distributed by the 
awarding authority plays a significant role in ensuring an efficient and 
transparent selection procedure. The awarding authority may need, at this early 
stage, to retain the services of independent experts or advisors to assist in 
establishing appropriate qualification and evaluation criteria, defining output 
specifications (and, if necessary, input specifications) and preparing the 
documentation to be issued to project consortia.
31. In many countries it is customary for the Government to devise standard 
contract forms and general conditions of contract that are used in public 
contracting. In some countries there may be fairly detailed standard contracts 
for different infrastructure sectors. Where standard contract documents are 
provided to project consortia during the selection proceedings, the awarding 
authority may have limited discretion to negotiate the terms of the project 
agreement with the selected group of project consortia. Standard contract terms 
may be useful to help expedite the conclusion of the project agreement by 
limiting the matters on which the parties have to elaborate contractual 
provisions. They may further be useful for ensuring consistency in the treatment 
of issues common to most projects in a given sector.
32. However, in using standard contract terms it is advisable to bear in mind 
the possibility that a specific project may raise issues that had not been 
anticipated when the standard document was prepared or that the project may 
necessitate particular solutions that might be at variance with the standard 
terms. Careful consideration should be given to the need for achieving the 
appropriate balance between the level of uniformity desired for project 
agreements of a particular type and the flexibility that might be needed for 
finding project-specific solutions.
F. Prequalification of project consortia
33. In most privately financed infrastructure projects the host Government may 
wish to narrow down the number of proposals with which the awarding authority 
must deal. This result may be achieved by applying a rigorous procedure to limit 
the number of prospective proponents from whom proposals will be subsequently 
requested. In addition, prequalification proceedings for privately financed 
infrastructure projects may involve elements of evaluation and selection, 
particularly where the awarding authority establishes a ranking of prequalified 
project consortia. Thus the prequalification of project consortia differs from 
more traditional prequalification proceedings, such as those used in the 
procurement of goods or services, where all candidates that meet the 
prequalification criteria are automatically admitted to the tendering phase.
1. Invitation to prequalify
34. In order to promote transparency and competition, it is advisable that the 
invitation to prequalify be published in a manner that reaches an audience wide 
enough to provide an effective level of competition. The laws of many countries 
identify publications, usually the official gazette or other official 
publication, in which the invitation to prequalify is to be published. In view 
of the objective of the UNCITRAL Model Law of fostering participation in 
procurement proceedings without regard to nationality and maximizing 
competition, article 24(2) requires publication of the invitations to prequalify 
also in a language customarily used in international trade, in a newspaper of 
wide international circulation or in a relevant trade publication or technical 
or professional journal of wide international circulation.
35. Prequalification documents should contain sufficient information for project 
consortia to be able to ascertain whether the works and services entailed by the 
project are of a type that they can provide and, if so, how they can participate 
in the selection proceedings. In addition to elements that are usually required 
to be contained in prequalification documents under general rules on public 
procurement (e.g. those mentioned in articles 7(3)(i), (iii), (iv) and (v); 
25(1)(a) and (d); and 25(2)(a)-(d) of the UNCITRAL Model Law), the invitation to 
prequalify should identify the infrastructure to be built or renovated and 
contain information on other essential elements of the project, including the 
services to be delivered by the concessionaire, the financial arrangements 
envisaged by the awarding authority (e.g. whether the project will be entirely 
financed by user fees or tolls or whether public funds may be provided as direct 
payments, loans or guarantees) and, where already known, a summary of the 
principal required terms of the project agreement to be entered into as a result 
of the selection proceedings. 
2. Prequalification criteria
36. Generally, project consortia should be required to demonstrate that they 
possess the professional and technical qualifications, financial and human 
resources, equipment and other physical facilities, managerial capability, 
reliability and experience, as necessary to carry out the project (cf. UNCITRAL 
Model Law, article 6(1)(b)(i)). Qualification requirements should cover all 
phases of an infrastructure project, including financing management, 
engineering, construction, operation and maintenance, where appropriate.
37. It is advisable to avoid burdening the law with details concerning 
qualification requirements and to leave it instead to regulations or to the 
awarding authority to set forth the type of information to be provided by the 
project consortia, including, for instance, quality indicators of their past 
performance as public service providers or infrastructure operators. Such 
information may relate to the size and type of previous projects carried out by 
the project consortia; the level of experience of the key personnel to be 
engaged in the project; sufficient organizational capability, including minimum 
levels of construction, operation and maintenance equipment. The regulations may 
set forth in some detail the manner in which the project consortia have to 
demonstrate their capability to sustain the financing requirements for the 
engineering, construction and operational phases of the project. The awarding 
authority may at this stage establish a minimum percentage of equity investment 
and require that the project consortia indicate the envisaged financing 
arrangements.
38. Given the large scale of most infrastructure projects, the interested 
companies typically participate in the selection proceedings through consortia 
especially formed for that purpose. Therefore, information required from 
consortium members should relate to the consortium as a whole as well as to its 
individual participants. For the purpose of facilitating the liaison with the 
awarding authority, it may be useful to require in the prequalification 
documents that each consortium should designate one of its members as a focal 
point for all communications with the awarding authority. It is further 
advisable for the awarding authority to review carefully the composition of 
consortia and their parent companies. It may happen that one company, directly 
or through subsidiary companies, joins more than one consortium to submit 
proposals for the same project. Such a situation should not be allowed, since it 
raises the risk of leakage of information or collusion between competing 
consortia, thus undermining the credibility of the selection proceedings. It is 
therefore advisable to provide in the invitation to prequalify that the same 
company, directly or through subsidiary companies, may not be a member of more 
than one consortium in the same selection proceedings. A violation of this rule 
should cause the disqualification of the consortia concerned.
3. Domestic preferences
39. The laws of some countries provide for some sort of preferential treatment 
for domestic entities or afford special treatment to candidates that undertake 
to use national goods or employ local labour. Such preferential or special 
treatment is sometimes provided as a material qualification requirement (e.g. a 
minimum percentage of national participation in the consortium) or as a 
condition for participating in the selection procedure (e.g. to appoint a local 
partner as a leader of the project consortium).
40. Where such preferences are established, it is important to weigh the 
expected advantages against the disadvantage of depriving the awarding authority 
of the possibility of obtaining better options to meet the national 
infrastructure needs. It is further important not to allow total insulation from 
foreign competition so as not to perpetuate lower levels of economy, efficiency 
and competitiveness of the concerned sectors of national industry. This is the 
reason why many countries that wish to provide some incentive to national 
suppliers, while at the same time taking advantage of international competition, 
do not contemplate a blanket exclusion of foreign participation or restrictive 
qualification requirements. Domestic preferences may take the form of special 
evaluation criteria establishing margins of preference for national candidates 
or candidates who offer to procure supplies, services and products in the local 
market. The margin of preference technique, which is provided in article 
34(4)(d) of the UNCITRAL Model Law, is more transparent than subjective 
qualification or evaluation criteria. Furthermore, it allows the awarding 
authority to favour local project consortia that are capable of approaching 
internationally competitive standards and prices, and it does so without simply 
excluding foreign competition. Where domestic preferences are envisaged, it is 
advisable that they be announced in advance, preferably in the invitation to 
prequalify.
4. Contribution towards costs of participation in selection proceedings
41. In some countries, a high price may be charged for the prequalification 
documents, while in other countries that price might reflect only the cost of 
printing the prequalification documents and providing them to the candidates. 
Expensive prequalification documents may be used as an additional tool to limit 
the number of candidates. At the same time, however, they add to the already 
considerable cost of participation in the selection proceedings. The high costs 
of preparing proposals for infrastructure projects and the relatively high risks 
that a selection procedure may not lead to a contract award may function as a 
deterrent for some companies to join in a consortium to submit a proposal, 
particularly when they are not familiar with the selection procedures applied in 
the host country.
42. Therefore, some countries authorize the awarding authority to consider 
arrangements for compensating prequalified proponents if the project cannot 
proceed for reasons outside their control or for contributing to the costs 
incurred by them after the prequalification phase, when justified in a 
particular case by the complexity involved and the prospect of significantly 
improving the quality of the competition. It is advisable that such contribution 
or compensation, when authorized, be announced at an early stage, preferably in 
the invitation to prequalify.
5. Prequalification proceedings
43. The awarding authority should respond to any request by a project consortium 
for clarification of the prequalification documents that is received by the 
awarding authority within a reasonable time prior to the deadline for the 
submission of applications to prequalify. The response by the awarding authority 
should be given within a reasonable time so as to enable the project consortia 
to make a timely submission of their application to prequalify. The response to 
any request that might reasonably be expected to be of interest to other project 
consortia should, without identifying the source of the request, be communicated 
to all project consortia to which the awarding authority provided the 
prequalification documents (cf. UNCITRAL Model Law, article 7(4)).
44. Qualification requirements should apply equally to all project consortia. An 
awarding authority should not impose any criterion, requirement or procedure 
with respect to the qualifications of project consortia which has not been set 
forth in the prequalification documents (cf. UNCITRAL Model Law, article 6(3)). 
When considering the professional and technical qualifications of project 
consortia, the awarding authority should consider the individual specialization 
of the consortium members and assess whether the combined qualifications of the 
consortium members are adequate to meet the needs of all phases of the project.
45. In some countries, awarding authorities are encouraged to limit the 
prospective proposals to the lowest possible number sufficient to ensure 
meaningful competition (e.g. three or four). For that purpose, those countries 
apply a quantitative rating system for technical, managerial and financial 
criteria, taking into account the nature the project. Where such a rating system 
is to be used, that circumstance should be clearly stated in the 
prequalification documents.
46. Upon completion of the prequalification phase, the awarding authority 
usually elaborates a short list of the prequalified project consortia which will 
be subsequently invited to submit proposals. One practical problem sometimes 
faced by awarding authorities concerns proposals for changes in the composition 
of project consortia during the selection proceedings. From the perspective of 
the awarding authority, it is generally advisable to exercise caution in respect 
of proposed substitutions of individual members of project consortia after the 
closing of the prequalification phase. Changes in the composition of consortia 
may substantially alter the basis on which the prequalified project consortia 
were short-listed by the awarding authority and may give rise to questions about 
the integrity of the selection proceedings. As a general rule, only prequalified 
project consortia should be allowed to participate in the selection phase, 
unless the awarding authority can satisfy itself that a new consortium member 
meets the prequalification criteria to substantially the same extent as the 
retiring member of the consortium.
G. Procedures for requesting proposals
1. Phases of the procedure
47. Following the prequalification of project consortia, it is advisable for the 
awarding authority to review its original feasibility study and the definition 
of the output and performance requirements and consider whether a revision of 
those requirements is needed in the light of the information obtained during the 
prequalification proceedings. At this stage, the awarding authority should have 
already determined whether the project consortia will be asked to formulate 
proposals on the basis of input or output specifications and whether 
alternatives to those specifications will be considered. If it is deemed both 
feasible and desirable for the awarding authority to formulate specifications 
(whether based on expected input or output) to the necessary degree of precision 
or finality, the Government may wish to structure the selection process as a 
single-stage selection procedure and proceed to issue a final request for 
proposals (see paras. 53-79).
48. However, in some cases it may not be feasible for the awarding authority to 
formulate its requirement in terms of sufficiently detailed and precise 
specifications or contractual terms to permit proposals to be formulated, 
evaluated and compared uniformly on the basis of those specifications and terms. 
This may be the case, for instance, when the awarding authority has not 
determined the type of technical and material input that would be suitable for 
the project in question (e.g. the type of construction material to be used in a 
bridge) or the exact manner in which to meet a particular need, and therefore is 
seeking proposals as to various possible solutions to obtain the expected output 
(e.g. the type of payment and traffic control system for a toll road).
49. In such cases, it might be considered undesirable, from the standpoint of 
obtaining the best value, for the awarding authority to proceed on the basis of 
specifications it has drawn up in the absence of discussions and negotiations 
with project consortia as to the exact capabilities and possible variations of 
what is being offered. For that purpose, the host Government may wish to divide 
the selection proceedings into two stages and allow a certain degree of 
flexibility for discussions and negotiations with project consortia. The first 
stage of those proceedings should provide an opportunity for the awarding 
authority to solicit various proposals relating to the technical, quality or 
other characteristics of the project as well as to the contractual terms. Upon 
the conclusion of that first stage, the awarding authority should finalize the 
specifications and, on the basis of those specifications, in the second stage, 
request final proposals from the project consortia.
2. Initial request for proposals
50. Where the selection procedure is divided in two phases, the initial request 
for proposals typically calls upon the project consortia to submit proposals 
relating to broad output specifications and other characteristics of the project 
as well as to contractual terms.
51. The awarding authority may then convene a meeting of proponents to clarify 
questions concerning the request for proposals and accompanying documentation. 
The awarding authority may, in the first stage, engage in negotiations with any 
proponent concerning any aspect of its proposal. The awarding authority should 
treat proposals in such a manner as to avoid the disclosure of their contents to 
competing consortia. Any negotiations need to be confidential, and one party to 
the negotiations should not reveal to any other person any technical, financial 
or other information relating to the negotiations without the consent of the 
other party.
52. Following those negotiations, the awarding authority should review and, as 
appropriate, revise the initial output specifications. In formulating those 
revised specifications, the awarding authority should be allowed to delete or 
modify any aspect of the technical or quality characteristics of the project 
originally set forth in the request for proposals, and any criterion originally 
set forth in those documents for evaluating and comparing proposals. Any such 
deletion, modification or addition should be communicated to project consortia 
in the invitation to submit final proposals. Project consortia not wishing to 
submit a final proposal should be allowed to withdraw from the selection 
proceedings without forfeiting any tender security that they may have been 
required to provide.
3. Final request for proposals
53. At the final stage, the awarding authority should invite the proponents to 
submit final proposals with respect to the revised specifications and 
contractual terms.
(a) Content of request for proposals
54. It might be desirable for the legislative or regulatory texts governing the 
selection proceedings to contain a listing of the information required to be 
included in the request for proposals. An indication in those laws or 
regulations of those requirements is useful to ensure that the request for 
proposals include the information necessary to provide a basis for enabling the 
project consortia to submit proposals that meet the needs of the awarding 
authority and that the awarding authority can compare in an objective and fair 
manner. Listings of items to be included in the solicitation documents for the 
procurement of goods and construction and in the request for proposals for 
services are contained, respectively, in articles 27 and 38 of the UNCITRAL 
Model Law. 
55. One category of items to be contained in the request for proposals concerns 
instructions for preparing and submitting proposals (cf. UNCITRAL Model Law, 
article 27(a)). The purpose of including these provisions is to limit the 
possibility that qualified project consortia would be placed at a disadvantage 
or even rejected due to lack of clarity as to how the proposals should be 
prepared. Instructions for preparing proposals usually cover, as appropriate, 
items such as the manner and the currency or currencies in which the proposal 
prices (i. e. the proposed schedule of tolls, fees, unit prices and other 
charges) are to be formulated and expressed (cf. UNCITRAL Model Law, articles 
27(i) and (j) and 38(j) and (k)).
56. The request for proposals should describe the works and services to be 
performed, including, as appropriate, technical specifications, plans, drawings 
and designs; the location where the construction is to be effected and the 
services to be provided; time schedule for the execution of works and provision 
of services (cf. UNCITRAL Model Law, articles 27(d) and 38(g)). If alternative 
proposals, including variations to non-mandatory elements of the request for 
proposals, are admitted, the awarding authority should indicate the manner in 
which they would be compared and evaluated. Alternative proposals should be 
rejected if they are not accompanied by a fully responsive proposal.
57. The level of detail provided in the specifications, as well as the 
appropriate balance between the input and output elements, will be influenced by 
considerations of issues such as the type and ownership of the infrastructure 
and the allocation of responsibilities between the public and the private 
sectors. For the construction of new infrastructure to be permanently owned by 
the Government and destined to be generally open for public use (e.g. roads, 
tunnels, bridges), the Government may see a need to have a larger degree of 
control over the engineering design and technical specifications than in the 
case of privately-owned facilities generally closed to the public and accessible 
only to the concessionaire (e.g. a private power plant). It is generally 
advisable for the awarding authority to bear in mind the long-term needs of the 
project and to formulate its specifications in a manner that allows it to obtain 
sufficient information so as to select the project consortium that offer the 
highest quality of services at the best economic terms. In some countries, 
awarding authorities have been encouraged to formulate specifications for 
services in a way that define adequately the output and performance required 
without being over prescriptive in how that is to be achieved.
58. To the extent the terms of the contractual arrangements are already known by 
the awarding authority, they should be included in the request for proposals, 
possibly in the form of a draft of the project agreement. The availability of 
that information at the earliest possible stage facilitates the project 
consortia=s task of establishing the financial viability of the project, in 
consultation with prospective lenders and capital providers. In order to 
establish clearly the scope of negotiations following the evaluation of 
proposals, the final request for proposals should indicate which are the terms 
of the project agreement that are deemed not negotiable. A requirement that the 
final proposals submitted by the project consortia should contain evidence 
showing the comfort of the project consortium=s preferred lenders with the 
proposed commercial terms and allocation of risks, as outlined in the request 
for proposals, might play a useful role in resisting pressures to reopen 
commercial terms at the stage of final negotiations (see para. 78). In some 
countries, project consortia are required to initial and return to the awarding 
authority the draft project agreement together with their final proposals as a 
confirmation of their acceptance of all terms in respect of which they did not 
propose specific amendments.
59. In addition to the items listed above, a number of other items may be 
particularly relevant for infrastructure projects. For build-operate-transfer 
projects, for instance, it is advisable to include information regarding the 
assets and property to be transferred to the host Government at the end of the 
concession. Where the host Government is selecting a new concessionaire to 
operate an existing infrastructure, the request for proposals should also 
include a description of the assets and property that will be made available to 
the concessionaire. It is also desirable to indicate in the request for 
proposals the possible alternative, supplementary or ancillary revenue sources 
(e.g. concessions for exploitation of existing infrastructure), if any, that may 
be offered to the successful proponent.
60. Other important items of the request for proposals concern in particular the 
manner in which the proposals will be evaluated; their disclosure is required to 
achieve transparency and fairness in the selection proceedings. Particularly 
important is the disclosure of the criteria to be used by the awarding authority 
in determining the successful proposal, including any margin of preference and 
any criteria other than price to be used, and the relative weight of such 
criteria (cf. UNCITRAL Model Law, articles 27(b) and 38(m)).
61. Further relevant information concerns the manner, place and deadline for the 
submission of proposals (cf. UNCITRAL Model Law, articles 27(n) and 38(c)); the 
means by which project consortia may seek clarifications of the request for 
proposals, and a statement as to whether the awarding authority intends, at this 
stage, to convene a meeting of project consortia (cf. UNCITRAL Model Law, 
articles 27(o) and 38(q)); the period of time during which proposals shall be in 
effect (cf. UNCITRAL Model Law, articles 27(o)); the place, date and time for 
the opening of proposals; and the procedures to be followed for opening and 
examining proposals (cf. UNCITRAL Model Law, article 27(q) and (r)).
62. One important aspect to be considered by the awarding authority relates to 
the relationship between the award of one particular project and the 
governmental policy pursued for the sector concerned (see chapter II, ASector 
structure and regulation@). Where competition is sought, the host Government may 
be interested in ensuring that the relevant market or sector is not dominated by 
one enterprise (e.g. that the same company does not operate more than a certain 
limited number of local telephone companies within a given territory). The host 
Government may thus wish to retain the possibility of rejecting a particular 
proposal if it determines that the award of the project to the consortium 
submitting the proposal might make it possible for a particular company to 
dominate the relevant market or otherwise distort the competition in the sector 
concerned. For purposes of transparency, it is desirable for the law to provide 
that, where the awarding authority reserves the right to reject a proposal on 
those or similar grounds, adequate notice of that circumstance must be included 
in the request for proposals.
63. Where the awarding authority further reserves the right to reject all 
proposals, without incurring liability towards proponents, such as compensation 
for their costs of preparing and submitting proposals, a statement to that 
effect should be included in the request for proposals (cf. UNCITRAL Model Law, 
articles 27(x) and 38(d)). 
(b) Clarifications and modifications
64. It is desirable to establish procedures for clarification and modification 
of the request for proposals in a manner that will foster efficient, fair and 
successful conduct of selection proceedings. The right of the awarding authority 
to modify the request for proposals is important in order to enable it to obtain 
what is required to meet its needs. It is also desirable to authorize the 
awarding authority, whether on its own initiative or as a result of a request 
for clarification by a project consortium, to modify the request for proposals 
by issuing an addendum at any time prior to the deadline for submission of 
proposals. However, in case of extensive amendments of the request for 
proposals, the deadline for submission of proposals may need to be extended.
65. Generally, clarifications, together with the questions that gave rise to the 
clarifications, and modifications must be communicated promptly by the awarding 
authority to all project consortia to whom the awarding authority provided the 
request for proposals (cf. UNCITRAL Model Law, article 28(1)). If the awarding 
authority convenes a meeting of project consortia, it should prepare minutes of 
the meeting containing the requests submitted at the meeting for clarification 
of the request for proposals, and its responses to those requests, without 
identifying the sources of the requests, and send copies to the project 
consortia.
4. Content and submission of final proposals
66. In view of the complexity of privately financed infrastructure projects and 
the variety of evaluation criteria usually applied in the award of the project, 
project consortia are often required to formulate and submit separately their 
technical and financial proposals. The technical proposals to be submitted by 
the project consortia should include: specifications and schedule of works; 
feasibility and other studies; description of services to be provided and 
applicable quality standards; description of maintenance services and standards.
67. Financial proposals should include: proposed tariff or price structure; 
proposed duration of the concession, where it is not specified in the request 
for proposals; level of governmental financial support required for the project, 
including, as appropriate, any subsidy or payment expected from the awarding 
authority; the extent of risks assumed by the project consortia during 
construction and operation phase, including unforeseen events, insurance, equity 
investment and other guarantees against those risks.
68. Feasibility studies are particularly important in privately financed 
infrastructure projects. They should substantiate the feasibility and viability 
of the project and should, for instance, cover the following aspects:
(a) Commercial viability: particularly in projects financed on a non-recourse 
or limited recourse basis, it is essential to establish the need for the 
project outputs and to evaluate and project such needs over the proposed 
operational life of the project, including expected demand (e.g. traffic 
forecasts for roads) and pricing (e.g. tolls);
(b) Engineering design and operational feasibility: project consortia should 
be requested to demonstrate the suitability of the technology they propose, 
including equipment and processes, to national, local and environmental 
conditions, the likelihood of achieving the planned performance level and the 
adequacy of the construction methods and schedules. This study should also 
define the proposed organization, methods and procedures for operating and 
maintaining the completed facility;
(c) Financial viability: project consortia should be requested to indicate the 
proposed sources of financing for the construction and operation phases, 
including debt capital and equity investment. While the loan and other 
financing agreements in most cases are not executed until after the signing of 
the project agreement, the project consortia should be required to submit 
sufficient evidence of the lenders= intention to extend the specified 
financing to the project company. This study should also indicate the expected 
financial internal rate of return in relation to the effective cost of capital 
corresponding to the financing arrangements proposed. Such information should 
allow the awarding authority to consider the reasonableness and affordability 
of the proposed fees or prices to be charged by the concessionaire and the 
potential for subsequent increases in the fees or prices;
(d) Environmental impact: this study should identify possible negative or 
adverse effects on the environment as a consequence of the project and 
indicate corrective measures that need to be taken.
69. In formal selection proceedings, proposals should be required to be 
submitted in writing, signed and in sealed envelopes. Proposals received by the 
awarding authority after the deadline for the submission of proposals should not 
be opened and should be returned to the project consortium that submitted it 
(cf. UNCITRAL Model Law, article 30(6)).
5. Tender securities
70. It may be advisable for the laws or regulations governing the selection 
process to authorize the awarding authority to require the project consortia to 
post a tender security so as to cover those losses that may result from 
withdrawal of proposals or failure by the selected project consortium to 
conclude a project agreement.
71. It is advisable that the request for proposals indicate any requirements of 
the awarding authority with respect to the issuer and the nature, form, amount 
and other principal terms of any tender security to be provided by project 
consortia submitting proposals (cf. UNCITRAL Model Law, art. 27(l)). In order to 
ensure a fair treatment of all project consortia, requirements that refer 
directly or indirectly to the conduct by the project consortium submitting the 
proposal should not relate to conduct other than: withdrawal or modification of 
the proposal after the deadline for submission of proposals, or before the 
deadline if so stipulated in the request for proposals; failure to achieve 
financial closing; failure to sign the project agreement if required by the 
awarding authority to do so; and failure to provide a required security for the 
performance of the contract after the proposal has been accepted or to comply 
with any other condition precedent to signing the project agreement specified in 
the request for proposals (cf. UNCITRAL Model Law, article 32(1)(f)(i)-(iii)). 
Safeguards should be included to ensure that a tender-security requirement is 
only imposed fairly and for the intended purpose.6
6. Evaluation criteria
72. Criteria for the evaluation of the non-price technical aspects of proposals 
should include technical feasibility; environmental effectiveness; effectiveness 
of the proposed construction and operation systems; soundness of the proposed 
financial arrangements, including resources of the proponents. The evaluation 
committee should rate the non-price elements of each proposal in accordance with 
the predisclosed rating systems for the non-price evaluation criteria and 
specify in writing the reasons for the rating. Besides criteria relating to the 
quality of the proposal, additional non-price criteria sometimes used by 
awarding authorities include the extent of participation by local suppliers and 
contractors, the economic development potential offered by the proposal, the 
encouragement of employment, the transfer of technology, the development of 
managerial, scientific and operational skills. For the purpose of ensuring 
objectivity and transparency, no weight should be given to prequalification 
criteria at the evaluation stage. 
73. Criteria for the evaluation of the financial proposals should include costs 
for design and construction activities; annual operation and maintenance costs; 
present value of capital costs and operating costs; present value of the 
proposed price over the concession period; the amount of subsidy, if any, 
expected from the host Government. For the awarding authority it is advisable 
not to limit itself to a comparison of the unit prices offered for the expected 
output but to consider instead all elements of the financial proposals so as to 
assess their financial feasibility and the likelihood of subsequent increases in 
the proposed prices.
74. It is important for the awarding authority to determine the relative weight 
to be accorded to each such criterion and the manner in which they are to be 
applied in the evaluation of proposals. To the extent practicable, the non-price 
criteria applied by the awarding authority should be objective and quantifiable, 
so as to enable proposals to be evaluated objectively and compared on a common 
basis. This reduces the scope for discretionary or arbitrary decisions. 
Regulations governing the selection process might spell out how such factors are 
to be formulated and applied.
7. Opening, comparison and evaluation of proposals
75. For the purpose of ensuring transparency, national laws often prescribe 
formal procedures for the opening of proposals, usually at a time previously 
specified in the request for proposals, and require that the project consortia 
that have submitted proposals, or their representatives, be permitted by the 
awarding authority to be present at the opening of proposals (cf. UNCITRAL Model 
Law, article 33). Awarding authorities selecting project consortia for 
infrastructure projects may wish to structure the evaluation of proposals in two 
stages, as in the evaluation procedure provided in article 42 of the UNCITRAL 
Model Law. In an initial stage, the awarding authority typically establishes a 
threshold with respect to quality and technical aspects to be reflected in the 
technical proposals in accordance with the criteria other than price as set out 
in the proposals, and rates each technical proposal in accordance with such 
criteria and the relative weight and manner of application of those criteria as 
set forth in the request for proposals. The awarding authority then compares the 
financial proposals that have attained a rating at or above the threshold. 
76. When the technical and financial proposals are to be evaluated 
consecutively, the awarding authority at this stage usually opens only the 
technical proposals and ascertains whether they are prima facie responsive to 
the request for proposals (e.g. whether they cover all items required to be 
addressed in the technical proposals). Incomplete or partial proposals should be 
rejected at this stage. While the awarding authority may ask project consortia 
for clarifications of their proposals, no change in a matter of substance in the 
proposal, including changes aimed at making an unresponsive proposal responsive, 
should be sought, offered or permitted at this stage (cf. UNCITRAL Model Law, 
article 34(1)(a)).
77. The most advantageous proposal should be the one with the highest combined 
rating in respect of both price and non-price evaluation criteria. 
Alternatively, the price proposed for the output (e.g. the water or electricity 
tariff, the level of tolls) might be the deciding factor for establishing the 
winning proposal among those that have passed the threshold with respect to 
quality and technical aspects. In order to promote the transparency of the 
selection process, and to avoid improper use of non-price evaluation criteria, 
it is advisable to require the awarding committee to provide a written 
justification of the reasons for selecting a proposal other than the offering 
the lowest unit price for the output.
[The Commission may wish to consider the desirability of elaborating further on 
the evaluation criteria recommended to be used to award privately financed 
infrastructure projects, particularly as regards the notion of Aprice@ and other 
criteria used to evaluate financial proposals.]
8. Final negotiations
78. The awarding authority should rank all responsive proposals on the basis of 
the evaluation criteria set forth in the request for proposals and invite for 
final negotiation of the project agreement the project consortium that has 
attained the best rating or, as appropriate, the one that offered the lowest 
price for the output among those that attained the minimum threshold in respect 
of technical aspects. One particular problem faced by awarding authorities is 
the danger that the negotiations with the best qualified project consortium 
might lead to pressures to amend, to the detriment of the host Government, the 
price or risk allocation originally contained in the proposal. Changes in 
essential elements of the proposal should not be permitted, as they may distort 
the assumptions on the basis of which the proposals were submitted and rated. 
Therefore, the negotiations at this stage may not concern those terms of the 
contract that were deemed not negotiable in the final request for proposals.
79. The awarding authority should inform the remaining responsive project 
consortia that they may be considered for negotiation if the negotiations with 
the project consortium with better ratings do not result in a project agreement. 
If it becomes apparent to the awarding authority that the negotiations with the 
project consortium invited will not result in a project agreement, the awarding 
authority should inform that project consortium that it is terminating the 
negotiations and then invite for negotiations the next project consortium on the 
basis of its ranking until it arrives at a project agreement or rejects all 
remaining proposals. To avoid the possibility of abuse and unnecessary delay, 
the awarding entity should not reopen negotiations with any project consortium 
with whom they had already been terminated.
9. Notice of project award
80. Project agreements frequently include provisions that are of direct interest 
for parties other than the awarding authority and the project company, and who 
might have a legitimate interest in being informed about certain essential 
elements of the project. This is particularly the case for projects involving 
the provision of a service directly to the general public. For transparency 
purposes, it may be advisable to establish procedures for publicizing those 
terms of the project agreement that may be of public interest. One possible 
procedure may be to require the awarding authority to publish a notice of the 
award of the project, indicating, inter alia, the following elements: (a) the 
name of the project company;(b) the annexes and enclosures that form part of the 
agreement; (c) a description of the works and services to be performed by the 
project company; (d) the duration of the concession; (e) the tariff structure; 
(f) the rights and obligations of the project company and the guarantees to be 
provided by it; (g) the monitoring rights of the awarding authority and remedies 
for breach of the project agreement; (h) the obligations of the host Government, 
including any payment, subsidy or compensation offered by the host Government; 
and (i) any other essential term of the project agreement, as provided in the 
request for proposals. Where such a system is used, it is important to ensure 
consistency between the notice of award and the project agreement.
H. Direct negotiations
81. In some countries, concessions of public services have traditionally been 
regarded as a delegation of a State function and, as such, the delegating 
authority is not bound to follow the same procedures that govern the award of 
public contracts. In those countries, concessions may be awarded after direct 
negotiations between the delegating authority and a concessionaire of its 
choice. In contrast to the competitive selection procedures, which sometimes may 
appear to be excessively rigid, selection by negotiation is characterized by a 
high degree of flexibility as to the procedures involved and discretion on the 
part of the awarding authority. Sometimes the only requirement for those 
negotiations may consist in the previous publication of a notice to interested 
parties who wish to be invited to those negotiations.
82. In other countries, where tendering is under normal circumstances the rule 
for the award of public contracts, awarding authorities have been encouraged to 
resort to direct negotiations whenever possible for the award of privately 
financed infrastructure projects. The rationale for encouraging negotiations in 
those countries is that in negotiating with project consortia the Government is 
not bound by pre-determined requirements or rigid specifications and has more 
flexibility for taking advantage of innovative or alternative proposals that may 
be submitted by the participants in the selection proceedings, as well as for 
changing and adjusting its own requirements in the event that more attractive 
options for meeting the infrastructure needs are formulated during the 
negotiations. 
83. National laws that deal with selection by negotiation usually establish few 
rules and procedures governing the process by which the parties negotiate and 
conclude their contract. However, the laws in some countries provide for 
selection methods that combine certain basic features of the tendering and 
negotiation methods. In one of such structured methods of negotiation, which is 
sometimes referred to as Acompetitive negotiation@, the awarding authority 
solicits proposals from a limited number of companies believed to have the 
appropriate qualifications and expertise. It also sets forth general criteria 
that proposals are requested to meet (e.g. general performance objectives, 
output specification). The awarding authority identifies the proposals that 
appear to meet those criteria and engages in discussions with the author of each 
such proposal in order to refine and improve upon the proposal to the point 
where it is satisfactory to the awarding authority. The price of each proposal 
does not enter into those discussions. When the proposals have been finalized, 
the awarding authority requests the author of each proposal to submit a firm 
price offer in respect of its proposal. The awarding authority selects the 
proposal of the company offering the lowest price or lowest evaluated price.
84. Negotiated methods generally afford a high degree of flexibility that some 
countries may find beneficial to the selection of the concessionaire. However, 
negotiated methods may have a number of disadvantages that make them less 
suitable to be used as a principal selection method in a number of countries. 
Because of the high level of flexibility and discretion afforded to the awarding 
authority, negotiated methods require highly skilled personnel with sufficient 
experience in negotiating complex projects. They also require a well structured 
negotiation team, clear lines of authority and a high level of coordination and 
cooperation among all the offices involved. Therefore, the use of negotiations 
for the award of privately financed infrastructure projects may not represent a 
viable alternative for countries that do not have the tradition of using such 
methods for the award of large Government contracts. Another disadvantage of 
negotiated methods is that they may not ensure the level of transparency and 
objectivity that can be achieved by more structured competitive methods. In some 
countries there might be concerns that the higher level of discretion in 
negotiated methods might carry with it a higher risk of abusive or corrupt 
practices. 
1. Circumstances authorizing the use of direct negotiations
85. In countries that generally prescribe the use of the competitive selection 
procedures as a rule for the award of privately financed infrastructure projects 
direct negotiations are usually only authorized in exceptional cases. For 
transparency purposes as well as for ensuring discipline in the award of 
projects, it might be generally desirable for the law to identify the 
circumstances that may authorize the use of direct negotiations. They may 
include the following:
(a) When there is an urgent need for ensuring immediate provision of the 
service, and engaging in a competitive selection procedure would therefore be 
impractical, provided that the circumstances giving rise to the urgency were 
neither foreseeable by the awarding authority nor the result of dilatory 
conduct on its part;
(b) In case of projects of short duration and with an anticipated initial 
investment value not exceeding a specified low amount.
86. In some countries, after a competitive selection procedure was initiated, 
situations might arise under which the awarding authority may prefer to change 
the selection method in favour of direct negotiations. This may be particularly 
the case when an invitation to prequalify or a request for proposals has been 
issued but no applications to prequalify or proposals were submitted, or all 
proposals were rejected by the awarding authority, and when, in the judgement of 
the awarding authority, issuing a new request for proposals would be unlikely to 
result in a project award. In such a case, the awarding authority might prefer 
to enter into negotiations with responsive proponents, as a an alternative to 
having to reject all proposals and start another procedure with possible 
uncertain results.
2. Unsolicited proposals
87. Unsolicited proposals may result from the identification by the private 
sector of a need that may be met by a privately financed infrastructure project. 
They may also involve innovative proposals for infrastructure management. The 
host Government may therefore have an interest in stimulating the private sector 
to formulate innovative proposals for infrastructure development. At the same 
time, however, the award of projects pursuant to unsolicited proposals and 
without competition from other project consortia may expose the Government to 
serious criticism, particularly in cases involving exclusive concessions. 
Furthermore, in the absence of competition the host Government may deprive 
itself of objective parameters for comparing prices, technical elements and the 
overall effectiveness of the project.
88. Two basic approaches may be found for dealing with such unsolicited 
proposals: in some countries the Government is authorized to negotiate 
unsolicited proposals directly with the proponent; in other countries projects 
resulting from unsolicited proposals, too, need to be awarded pursuant to the 
generally applicable award procedures. 
89. One possibility for taking advantage of the potential innovation that may 
result from unsolicited proposals may be to establish a transparent procedure 
for dealing with such proposals, such as the procedure described in the 
following paragraphs.
(a) Submission of initial proposal
90. The company or project consortia who approach the host Government with a 
suggestion for private infrastructure development may be requested to submit an 
initial proposal containing the following information: description of the 
company or companies concerned (references to previous projects, financial 
information); the project (type of project, location, regional impact, proposed 
investment, operation costs, financial assessment, resources needed from the 
host Government or third parties); the site (ownership and whether land or other 
property will have to be expropriated); a description of the service and the 
works.
(b) Initial response and formal proposals
91. Following a preliminary examination, the host Government should inform the 
company, within a reasonably short period, whether or not there is a potential 
public interest in the project. When the host Government reacts positively to 
the project, the company should be invited to submit a formal proposal which, in 
addition to the items covered in the initial proposal, has to contain a 
technical and economical feasibility study (including characteristics, costs and 
benefits) and an environmental impact study. The company submitting the 
unsolicited proposal should retain title to all documents submitted throughout 
the procedure, and those documents should be returned to it in the event the 
proposal is rejected. In order not to discourage unsolicited proposals, it is 
advisable to provide that no proposals may be solicited concerning a rejected 
project for a certain number of years without the invitation of the company 
which submitted the original proposal.
(c) Public proposal
92. If the host Government accepts the proposal, the awarding authority should 
engage in public selection proceedings as described above in paragraphs 43-80, 
to which the company that submitted the original proposal should be invited. In 
such proceedings, the original proponent might be given, as a premium for 
submitting the proposal, a margin of preference over the final rating.
93. In the subsequent proceedings the awarding authority may need to make use of 
designs, plants and other documents that had been originally submitted with the 
unsolicited proposal. Thus, it is important to settle at this stage possible 
questions concerning the intellectual property rights in those designs, plants 
and documents, in the event that such intellectual property rights have not yet 
been acquired by the awarding authority. [The Commission may wish to consider 
whether this issue should be elaborated further.]
I. Review procedures
94. An important safeguard of proper adherence to the rules governing the 
selection procedure is that project consortia have the right to seek review of 
actions by the awarding authority in violation of those rules. Essential 
features of a review procedure may be drawn, mutatis mutandis, from chapter VI 
of the UNCITRAL Model Law.
J. Record of selection proceedings
95. In order to ensure transparency and accountability and to facilitate the 
exercise of the right of aggrieved project consortia to seek review of decisions 
made by the awarding authority, the law should require that the awarding 
authority keep an appropriate record of key information pertaining to the 
selection proceedings.
96. The record to be kept by the awarding authority should firstly contain, 
mutatis mutandis, such general information concerning the selection proceedings 
as is usually required to be recorded for public procurement (e.g. the 
information listed in article 11 of the UNCITRAL Model Law), including the 
following:
(a) A description of the project for which the awarding authority requested 
proposals;
(b) The names and addresses of the companies participating in project 
consortia that submitted proposals and the name and address of the members of 
the project consortium with whom the project agreement is entered into;
(c) Information relative to the qualifications, or lack thereof, of project 
consortia; a summary of the evaluation and comparison of proposals including 
the application of any margin of preference;
(d) The price, or the basis for determining the price, and a summary of the 
other principal terms of the proposals and of the project agreement;
(e) A summary of any requests for clarification of the prequalification 
documents or the request for proposals, the responses thereto, as well as a 
summary of any modification of those documents;
(f) If all proposals were rejected, a statement to that effect and the grounds 
therefor.
97. In addition to the above information, it may be useful to require the 
awarding authority to include the following information in the record of the 
selection proceedings:
(a) A summary of the conclusions of the preliminary feasibility studies 
commissioned by the awarding authority and a summary of the conclusions of the 
feasibility studies submitted by the qualified proponents;
(b) The list of the prequalified project consortia;
(c) If changes to the composition of the prequalified project consortia are 
subsequently permitted, a statement of the reasons for authorizing such 
changes and a finding as to the qualifications of the new members or members 
admitted to the consortia concerned;
(d) If the awarding authority finds most advantageous a proposal other than 
the proposal offering the lowest unit price for the expected output, a 
justification of the reasons for such finding by the awarding committee;
(e) If the negotiations with the consortium that submitted the most 
advantageous proposal and any subsequent negotiations with remaining 
responsive consortia did not result in a project agreement, a statement to 
that effect and of the grounds therefor.
98. For selection proceedings involving direct negotiations (see paras. 81-86) 
it may be useful to include the following information in the record of the 
selection proceedings:
(a) A statement of the grounds and circumstances on which the awarding 
authority relied to justify the direct negotiation;
(b) The name and address of the company or companies invited to those 
negotiations;
(c) If those negotiations did not result in a project agreement, a statement 
to that effect and of the grounds therefor.
99. For selections proceedings engaged in as a result of unsolicited proposals 
(see paras. 87-93) it may be useful to include, in addition to the information 
the following information in the record of the selection proceedings:
(a) The name and address of the company or companies submitting the 
unsolicited proposal and a brief description thereof;
(b) A certification by the awarding authority that the unsolicited proposal 
was found to be of public interest.
[The Commission may wish to consider the usefulness of including a discussion of 
what kind of information should be available to the public and what information 
should be reserved for the host Government and the proponents.]
* * *
1 International Bank for Reconstruction and Development, Procurement under IBRD 
and IDA Loans, 1996, para. 3.13(a).
2 UNIDO BOT Guidelines, p. 96.
3 The UNCITRAL Model Law on Procurement of Goods, Construction and Services 
(hereafter referred to as Athe UNCITRAL Model Law@) and its accompanying Guide 
to Enactment, were adopted by the Commission at its twenty-seventh session (New 
York, 31 May-17 June 1994).
4 Under the World Bank Rules, a concessionaire selected pursuant to procedures 
acceptable to the World Bank is generally free to adopt its own procedures for 
the award of contracts required to implement the project. However, where the 
concessionaire was not itself selected pursuant to those competitive procedures, 
the award of subcontracts has to be done pursuant to competitive procedures 
acceptable to the World Bank (International Bank for Reconstruction and 
Development, Procurement under IBRD and IDA Loans, 1996, para. 3.13(a)).
5 UNIDO BOT Guidelines, p. 96.
6 Article 32 of the UNCITRAL Model Law provides certain important safeguards, 
including, inter alia, the requirement that the awarding authority should make 
no claim to the amount of the tender security, and should promptly return, or 
procure the return of, the tender security document, after whichever of the 
following that occurs earliest: (a) the expiry of the tender security; (b) the 
entry into force of the project agreement and the provision of a security for 
the performance of the contract, if such a security is required by the request 
for proposals; (c) the termination of the selection process without the entry 
into force of a project agreement; or (d) the withdrawal of the proposal prior 
to the deadline for the submission of proposals, unless the request for 
proposals stipulates that no such withdrawal is permitted.