The tender process under Public–Private Partnership (PPP) mechanisms constitutes a critical institutional stage that determines the long-term success of a project. Considering that infrastructure projects typically span 20–35 years, the quality of the tender process directly affects both the government’s fiscal commitments and the sustainability of service delivery.
The following sections outline the complete structure of the tender process, decision-making mechanisms, the legal-technical framework, and the evaluation methodology.
1. Pre-Tender Preparation: Establishing the Institutional Framework
The tender process must be prepared not only from a legal perspective but also as part of strategic planning. At this stage, government agencies generally undertake the following tasks:
1.1. Finalization of the Technical and Economic Feasibility (TEF) Study
The TEF document should justify the project in terms of:
- technical feasibility,
- demand forecasting,
- financial model sustainability,
- resilience to macroeconomic risks,
- socio-economic impact,
- environmental compliance.
Weak preparation of the TEF is a primary cause of tender failure.
1.2. Risk Allocation and Contract Structuring
Risks in PPP projects must be distributed between parties according to the principle of optimal allocation: a risk is assigned to the party best able to manage it.
Common risk categories include:
- construction and delay risks,
- financing risks,
- demand and revenue risks,
- operational and technical service risks,
- force majeure and political risks.
1.3. Selection of Tender Strategy
Tender strategy options include:
- open tender,
- restricted tender (pre-qualification),
- two-stage tender,
- competitive dialogue.
The choice depends on project complexity and the level of real competition in the market.
2. Pre-Qualification Stage
The main objective of the pre-qualification stage is to allow only technically and financially capable, experienced companies to participate in the tender. Evaluation criteria include:
2.1. Technical Experience
- participation in projects of similar size,
- professional team in infrastructure and service sectors,
- quality management and operational standards.
2.2. Financial Capacity
- soundness of financial statements over the last 3–5 years,
- stability of capital structure,
- credit ratings and bank guarantees.
2.3. Legal and Corporate Requirements
- transparency of consortium structure,
- beneficiary ownership information,
- compliance with national legislation.
Companies passing pre-qualification proceed to the main tender stage.
3. RFP Stage: Full Proposal Preparation
The Request for Proposals (RFP) documents represent the most critical stage of the tender. The RFP package typically includes:
3.1. Technical Specifications
- construction standards,
- service level indicators (KPIs),
- operational protocols,
- environmental requirements (ESG compliance).
3.2. Payment and Revenue Mechanisms
- tariffs and service fees,
- availability payments,
- minimum revenue guarantees or government support,
- Viability Gap Funding (VGF) if required.
3.3. Risk-Related Contract Terms
- penalties for delays,
- insurance requirements,
- dispute resolution mechanisms,
- contract amendment procedures.
3.4. Proposal Format and Evaluation Criteria
All criteria must be clearly stated in advance and remain unchanged throughout the process.
4. Proposal Evaluation
Proposals are evaluated in two main dimensions:
4.1. Technical Evaluation
- compliance with project scope,
- technological innovation and innovative solutions,
- operational efficiency,
- service level management.
4.2. Financial Evaluation
This includes:
- Net Present Value (NPV),
- Internal Rate of Return (IRR),
- Value for Money (VfM) analysis,
- assessment of the government’s fiscal obligations (PPP Fiscal Commitments Assessment).
5. Preferred Bidder Selection and Contract Negotiations
The highest-scoring bidder is designated as the Preferred Bidder, and contract negotiations are conducted. Key topics finalized include:
- investment cost and tariff policy,
- construction schedule and penalty mechanisms,
- minimum service level requirements,
- contract duration and extension terms,
- government guarantees and risk allocation.
The contract is drafted to maintain a legal, fiscal, and technical balance.
6. Financial Close and Project Commencement
The Financial Close marks the start of the practical PPP implementation. During this stage:
- loan agreements are signed,
- investor capital is formalized,
- construction permits and licenses are obtained,
- the project management structure (SPV) is fully activated.
Subsequently, the project enters the construction phase, initiating the long-term public–private partnership.
PMO.AZ Services
PMO.AZ provides international-standard consultancy in:
- TEF and risk allocation preparation,
- tender document drafting (EOI, PQ, RFP),
- contract structuring,
- PPP training for government agencies.
Our objective is to support the development of PPP institutions in Azerbaijan, ensure the preparation of cost-effective projects, and protect the government’s long-term interests.