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Awarding of Port PPP contracts: the

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Hidde Siemonsma , Wouter Van Nus & Patrick Uyttendaele
a
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 MARIT. POL. MGMT., JANUARY 2012,
VOL. 39, NO. 1, 63–78

Awarding of Port PPP contracts: the added value

of a competitive dialogue procedure

HIDDE SIEMONSMA, WOUTER VAN NUS and

PATRICK UYTTENDAELE
Maritime & Transport Business Solutions (MTBS), Rotterdam,
The Netherlands

Nowadays, port development and operations are typically structured as a Port

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Public–Private Partnership (‘Port PPP’) between a public port authority and

a private terminal operator. Port PPPs contribute maximum value to an economy
when they are optimally scoped and structured in terms of allocation of
investment, operational and financing responsibilities and risks amongst the
parties. In order to unlock this value potential of Port PPPs, a port authority
should award the contract efficiently and effectively to the most suitable terminal
operator for the project specifics. In the practice of awarding Port PPPs, however,
it is also observed that many initiatives are not successfully implemented.
The authors’ experience in the maritime industry has identified that early private
sector involvement in the design and awarding of the Port PPP contract
significantly contributes to the success of a Port PPP. This article is aimed to
inform policy and decision makers, port authorities and terminal operators on the
added value of a competitive dialogue procedure in the awarding of Port PPP
contracts. The conceptual framework presented in this paper demonstrates that
especially for particularly complex projects early dialogue with candidates
contributes to improved overall project value by decreasing expected transaction
costs and increasing expected contract value.

1. Introduction
In recent decades, the international port sector has been structurally reformed,
allowing the private sector to enter the market for port and terminal management
and stevedoring operations. The increasingly dominant structure within which ports
are organised nowadays is the so-called landlord model. In this institutional setup, a
Port Authority (PA), which is usually a public body or a corporatised public entity,
is the landlord for various private Terminal Operators (TOs) offering cargo
handling and storage services to shipping lines or cargo owners. In a landlord
environment, private TOs usually lease their terminal from the PA and the
investments and operating activities are allocated amongst both the PA and the TO:
a so-called Port Public–Private Partnership (‘Port PPP’).
The awarding of a Port PPP contract is a highly specific activity as any Port
PPP requires a tailor-made solution in order to fit the specific objectives of the PA,
local circumstances and (supra)national legislation. Usually, this is not considered

*To whom correspondence should be addressed. E-mail: hsiemonsma@gmail.com;

wouter.vannus@mtbs.nl, www.mtbs.nl

Maritime Policy & Management ISSN 0308–8839 print/ISSN 1464–5254 online ß 2012 Taylor & Francis
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 64 H. Siemonsma et al.

day-to-day business for a PA. This complexity is one of the main reasons why
in the practice of awarding of Port PPP contracts many initiatives are not
successfully implemented. Unsuccessful awarding processes either result in a
suboptimal allocation of responsibilities and risks, significant implementation
delays or even cancellation of the project. In addition, it can become a financial
burden for both PA and private sector candidates, as the Transaction Costs (TCs)
involved are relatively high. Besides this, failed award processes can cause significant
reputational damage to the PA, which can result in decreased credibility for future
attempts to involve the private sector in its port. From the authors’ experience in the
industry, it appears that involving the private sector candidates for a Port PPP at an
early stage in the design and execution of the award process significantly contributes
to the successful awarding of Port PPP contracts.
A wide variety of typologies and definitions for different Port PPP awarding
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methods are used in the industry. UNCTAD [1], for example, proposed guidelines
for bidding procedures for the privatisation of port facilities. Pallis et al. [2] and
Theys et al. [3] explain direct negotiation, selection from a qualified pool,
competitive bidding and the tender procedure [4]. They define the difference
between a competitive bidding and a tender procedure as follows: in the
competitive bidding procedure, negotiations are held with the preferred bidder
after his appointment, whereas in the tender procedure, all contractual details are
specified in advance. They also provide empirical evidence suggesting that PAs may
prefer competitive bidding, since in this case, the terms of the concession do not
have to be specified in advance. There are several risks, however, when the
detailing of the contract is postponed towards the final negotiation of the contract.
These risks include significant delays and deal creep [5]. This research argues that
the advantages of a tender procedure (optimal transparency and fairness) and the
competitive bidding procedure (flexibility to optimise the contract details) can be
merged into one procedure: the competitive dialogue procedure. In such procedure,
shortlisted candidates are invited by the PA to submit suggestions for improve-
ments to the contract prior to the final submission of proposals and selection of
preferred candidate. Such improvements can relate to the proposed technical
solution or financial arrangements of the deal. The PA then chooses which
improvements are incorporated in the final contract. In recent years, there has been
a growing interest in the potential for integrating a competitive dialogue phase in
the award procedure [6].
This article is aimed at informing port policy and decision makers, PAs and TOs
about the added value of a competitive dialogue procedure in the award of a
Port PPP contract. Therefore, a conceptual framework is developed to assess the
contribution of the competitive dialogue procedure to the value of a Port PPP,
which contributes to the issue of ‘award procedure for concessions’ identified in the
research agenda proposed by Theys et al. [3]. The arguments supporting the
conceptual framework in this research are based on the authors’ experiences and
observations in the industry practice of awarding Port PPPs.
This article provides the definitions and scope of a Port PPP, success measures
and competitive dialogue procedure in Section 2. The conceptual framework applied
in this research to assess the added value of a competitive dialogue procedure in the
awarding of Port PPP contracts is presented in Section 3. The conclusions and
recommendations of this research are presented in Section 4.
 Awarding of Port PPP contracts 65

2. Definitions and scope of this research

2.1. Introduction to Port PPPs
Up to the last few decades of the previous century, the majority of ports were
under public rule, but since then, dramatic changes have sculpted the institutional
landscape of the stevedoring industry. Pressured by decaying port infrastructure and
confronted with poor service levels and high prices, the private sector was allowed
to enter the market to invest in terminals and compete on quality and price.
This process of port sector reform and private sector involvement has, in general,
been a national subject and each individual country has followed suit in its own way.
In the UK, for instance, entire ports have been privatised, whereas in Eastern Europe
and Africa, the ports remained in the public domain for a long time. In the recent
years, through public rationalisation and pressured by multinational organisations
(such as the EU) and International Financial Institutions (such as the World Bank),
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many nations in these regions have reformed their port sectors to facilitate the
involvement of the private sector.
Despite all the variations in private sector participation, the majority of
institutional frameworks in the port sector rely on cooperation of some sort between
a PA and a TO. The holistic term for such ‘cooperation’ is known as a Port PPP.
This cooperation is formally forged between the parties through Port PPP contracts.
In general, a Port PPP contract includes clauses which relate to (1) the allocation of
investment, operational and financing responsibilities and risks amongst both parties
and (2) clauses which protect the investors’ interest (PA and TO) and the public
interest (PA) such as the duration of the contract. A key challenge in structuring a
Port PPP is where to make the cut between public and private responsibilities and
how to protect both parties’ interests.
There is no generic answer to this question. In practice, however, the landlord
model, as described by the World Bank [7], has been widely applied. Although this
model suits many PAs around the world, specific circumstances and objectives make
other allocations of responsibilities and risks more feasible and attractive.
There are many examples of Port PPPs where a different allocation of
responsibility was applied. Two examples presented in Textbox 1 of Port PPP
structures give insight in variations between individual projects.
As illustrated in the Rotterdam and Monrovia examples, the way a Port PPP is
structured largely depends on the specific objectives of the PA and local circum-
stances. The main drivers behind a specific structure include (1) the experience of the
parties and their ability to manage and/or absorb risks, (2) the financial capabilities of
the partners, (3) the market power of the parties, and (4) local legislation. A typical
Port PPP structure as used in this research is visualised in Figure 1.

2.2. Measure of success of Port PPPs

The success of ports can be measured in various ways depending on the perspectives
of stakeholders and their specific objectives. For example, the Dutch government
measures employment, added value, company dynamics and private sector invest-
ments as indicators of the economic performance of its main seaports [8]. PAs
typically report cargo volumes and market shares as key indicators of their success.
TOs measure profit and customer satisfaction as a measure of success.
The measure of success used in this research is limited to the direct financial effects
of Port PPPs on the PA and TO as parties to the contract. The Discounted Cash
Flow (‘DCF’) method is applied in order to measure the Net Present Value (‘NPV’)
 66 H. Siemonsma et al.

Textbox 1. Examples of Port PPPs.

Rotterdam World Gateway, Rotterdam, the Netherlands (awarded in 2006)

In Rotterdam’s Maasvlakte 2 project, the PA invests in basic infrastructure, including land
reclamation and the quay walls. The (container) TO invests in the terminal superstructure,
including pavement, buildings and equipment. This setup is chosen because the Port of
Rotterdam is highly experienced in developing deep-sea container facilities (including
Maasvlakte 1), the scope of the development encompasses many different terminals, and it is
able to arrange financing against favourable conditions. As there is sufficient inter- and intra-
port competition, the operator is free to set its own tariffs and to implement its own client policy
(dedicated to certain shipping lines or multi-user).

Freeport of Monrovia Concession, Liberia (awarded in 2010)

In Monrovia, Liberia, the PA does not make significant investments in the terminal: the TO will
invest in reconstruction of the quay wall, terminal superstructure and equipment. The weak
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financial position and the lack of experience of the PA in developing these assets would have
resulted in increased project risk if allocated to this entity. Besides this, in the Monrovia
PPP contract, the general cargo and marine services (pilotage, towage, mooring) have also been
allocated to the TO. Rationale behind this broad concession scope is twofold. First, the
Government of Liberia expressed its ambition to transfer a maximum of investments and
operating activities in one concession to the private sector, therewith reducing the risk of
vanished market appetite for the remaining activities after awarding of the most attractive
activity of container handling. Second, the operational performance of marine services has been
poor for a long time, and if these services would continue to be managed by the PA, it might
have caused a significant risk exposure to the operational performance of the terminal. As the
Monrovia container terminal is the sole container terminal in the country and there are no
decent over-land rail/road connections with neighbouring countries, the TO practically enjoys a
monopolistic position. This position, if not properly addressed in the PPP contract, might be
harmful for the entire economy of Liberia. To protect the national economy, the PPP contract
also includes clauses on the tariff policy (tariffs caps), client base (multi-user terminal) and
service level (for stevedoring and marine services).

State Equity

Debt Debt

Port PPP contract

Public port Concession fees Private terminal
Port dues authority operator Operational
Operational Operating expenditures
expenditures revenues

Infrastructure (Infrastructure)

Superstructure

Equipment

Figure 1. Typical Port PPP structure.

 Awarding of Port PPP contracts 67

of future cash flows directly generated by the project for these parties. This method
is commonly applied to project appraisal and to support investment decisions. In the
DCF method, the NPV is determined as per Equation (1).
X
T
CFin  CFout
NPV ¼ ð1Þ
t¼0
ð1 þ rÞt

This research takes into account the project cash flows before financing activities
for both the PA and TOseparately. The relevant incoming cash flows (CFin) are
revenues from operations, the relevant outgoing cash flows (CFout) consist of TCs,
investment costs and operational costs. For each party, the internal rate of return
of its relevant cash flows should be compared with the applicable discount rate (r).
The discount rate of the PA represents the financial costs to the PA of the project.
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The discount rate of the TO represents its weighted average cost of capital, which
is the financial cost of both debt and equity for the TO of the project.
From the DCF method, it follows that the drivers of increased NPV of a project
are (1) increased and/or accelerated revenues, (2) reduced and/or postponed TCs,
operational costs and investment costs, and (3) minimised financing costs. These
value-increasing effects can be achieved by providing effective incentives for the
parties responsible for the different project components. Therefore,
risks should normally be borne by the party best able to assess, control, and manage
them, or by the party with the best access to hedging instruments, the greatest ability
to diversify risks, or the lowest cost of risk-bearing. The aim is to ensure that the party
with the ability to reduce risks has incentives to do so and that the remaining risks are
borne by the party for which it is least costly [9].

2.3. Competitive dialogue procedure

2.3.1. Competitive dialogue versus restricted tender procedure. In order to inves-
tigate the added value of a dialogue phase in an award procedure, this research uses
the restricted tender procedure and competitive dialogue procedure [10] as set out
in the guidelines and procedures for the award of public works contracts, public
supply contracts and public service contracts by the European Commission (‘EC’)
through EU Directive 2004/18/EC (‘Directive’) [11]. As presented in Figures 2 and 3,
the steps in both procedures include selection of candidates based on pre-
qualification criteria, followed by the invitation of a restricted number of candidates
to submit tenders. The key difference is the inclusion of a competitive dialogue
phase, which allows for fair comparison of the procedures.
The Directive spells out that the competitive dialogue procedure is for use in the
awarding of complex contracts, where there is a need for the contracting authorities
to discuss all aspects of the proposed contract with candidates (Textbox 2). Such
dialogue would not be possible under open and restricted procedures [12].

2.3.2. Does a competitive dialogue procedure apply to Port PPPs? Relevant to

PAs in EU member states is whether a competitive dialogue procedure applies to the
award of Port PPPs in the Europe Union. Therefore, the following questions should
be answered:
(1) Is the award of a Port PPP bound to the public sector procurement
Directive?
 68 H. Siemonsma et al.

Market notification

Pre-qualification of candidates

Submit final tender documents to candidates

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Evaluate candidates’ tenders and select preferred

candidate

With preferred candidate:

tender clarification and contract finalisation

Contract signature

Figure 2. Restricted tender procedure.

Market notification

Pre-qualification of candidates

Dialogue phase
number of solutions / candidates can be reduced where
set out in descriptive document

Submit final tender documents to Candidates

Evaluate candidates’ tenders and select preferred

candidate

With preferred candidate:

tender clarification and contract finalisation

Contract signature

Figure 3. Competitive dialogue procedure.

 Awarding of Port PPP contracts 69

Textbox 2. EU Directive 2004/18/EC, recital 31, on competitive dialogue procedure.

EU Directive 2004/18/EC, recital 31: ‘Contracting authorities which carry out particularly
complex projects may, without this being due to any fault on their part, find it objectively
impossible to define the means of satisfying their needs or of assessing what the market can offer
in the way of technical solutions and/or financial/legal solutions. This situation may arise
in particular with the implementation of important integrated transport infrastructure projects,
large computer networks or projects involving complex and structured financing the financial
and legal make-up of which cannot be defined in advance. To the extent that use of open or
restricted procedures does not allow the award of such contracts, a flexible procedure should be
provided which preserves not only competition between economic operators but also the need
for the contracting authorities to discuss all aspects of the contract with each candidate.
However, this procedure must not be used in such a way as to restrict or distort competition,
particularly by altering any fundamental aspects of the offers, or by imposing substantial new
requirements on the successful tenderer, or by involving any tenderer other than the one selected
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as the most economically advantageous.’

(2) Are Port PPP contracts complex?

The first question should in principle be answered from a legal perspective. In the
Communication on a European Port Policy (the ‘Communication’) [13], the EC
states that although the Directive does not apply to service concessions
the relevant case-law of the Court of Justice has pointed out that, when Member States
grant service concessions which are not covered by the Directive on public procurement,
public authorities are bound by an obligation of transparency implying that their
initiative is adequately advertised, that the procedure is fair and non-discriminatory,
and that it can be reviewed. The obligation of transparency consists of ensuring,
for the benefit of the tenderer, a degree of advertising sufficient to enable the concession
to be opened up to competition, and impartiality of the selection procedure to be
reviewed.
Although it appears from the Directive and Communication that the public
procurement rules stipulated in the Directive do not apply from a legal perspective,
Notteboom [14] reported that many PAs in practice award their concessions through
some form of competitive award procedure. The survey conducted in this research
indicates that 74% of the port concessions investigated in Europe were awarded via a
competitive process. Apparently, most PAs in Europe adhered to the principles
of transparent, fair and non-discriminatory awarding of Port PPPs even prior to the
publication of the Communication.
In order to answer the second question, whether Port PPP contracts are complex,
the Directive sets two conditions for a project to be labelled as complex. Contracts can
be considered as particularly complex where contracting authorities: (1) are not
objectively able to define the technical means capable of satisfying their needs or
objectives and/or (2) are not objectively able to specify the legal and/or financial make-
up of a project. It can be argued that Port PPPs generally satisfy either or both of the
above conditions, especially when PAs have no or limited experience in organising
award procedures and/or have (over) ambitious objectives for the project.
As the Directive provides comprehensive consideration of the applicable
procedures for public procurement of specific contracts, the authors argue that
from a practical and economic perspective, the Directive provides solid and practical
guidelines, or acts as a source of inspiration to PAs in Europe and elsewhere in the
 70 H. Siemonsma et al.

world, for decisions on the type of award procedure (restricted tender versus
competitive dialogue) for their specific Port PPPs. Especially when a Port PPP is
particularly complex, a competitive dialogue procedure gives way to a more
collaborative approach to defining the optimal deal solution, while adhering to the
key principles of public procurement: transparency, fairness and equality amongst
candidates.

3. Framework to assess added value of competitive dialogue procedure

3.1. Introduction
As discussed in Section 2.2, this research uses the NPV of future cash flows generated
by a Port PPP project as the measure of success of the transaction (‘Transaction
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Value’ or ‘TV’). Section 2.1 presented the scope of this research as being the typical
case of a PPP contract between a PA and TO. Therefore, the total TV can be
expressed as the sum of the TV to the ‘PA’ and TO ‘TO’ (Equation (2)).
NPVTV ¼ NPVTV,PA þ NPVTV,TO ð2Þ
Figure 4 conceptually presents the following two categories of cash flows that
together determine the overall TV to the parties (Equation (3)):
(1) Cash flows associated with the work that individuals or organisations have
to put into the project in terms of effort, time and various expenditures
in order to obtain relevant information with which to negotiate contracts,
including the process of bargaining and enforcing them (‘TC’) [15]; and
(2) Cash flows generated from the execution of the Port PPP contract by
project implementation (capital expenditures and financing) and operation
(revenues and operational expenditures) during the term of the contract
(‘Contract Value’ or ‘CV’).
NPVTV ¼ NPVTC þ NPVCV ð3Þ

Cash flow

Time

Transaction costs (TC)

Contract value (CV)

Figure 4. Conceptual visualisation of TCs and CV.

 Awarding of Port PPP contracts 71

Combining Equations (2) and (3) result in the TV to the parties as expressed by
Equations (4) and (5).
NPVTV,PA ¼ NPVTC,PA þ NPVCV,PA ð4Þ
NPVTV,TO ¼ NPVTC,TO þ NPVCV,TO ð5Þ
From Equations (4) and (5), it follows that a competitive dialogue procedure
makes a positive contribution to the overall TV when any of the following effects
are realised as a result of including a competitive dialogue phase in the award
procedure:
(1) the NPV of TCs of the PA is lower [16]; and/or
(2) the NPV of TCs of the TO is lower [17]; and/or
(3) the NPV of CV of the PA is higher; and/or
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(4) the NPV of CV of the TO is higher.

The above is represented in Equation (6) which combines Equations (2), (4)
and (5).
NPVTV ¼ NPVTC,PA þ NPVTC,TO þ NPVCV,PA þ NPVCV,TO ð6Þ

3.2. Transaction costs

Williamson [15] distinguishes the following types of TCs: (1) searching and
information, (2) drafting and negotiating the agreement and (3) monitoring and
enforcement. He also argues that these TCs are influenced by the following five
factors: (1) human behaviour of opportunism with guile and (2) bounded rationality
[18], (3) asset specificity, (4) uncertainty of the transaction and (5) frequency of the
transaction. Below, a pragmatic qualitative assessment, based on industry practice,
is provided for the likely impact on the three types of TCs of including a competitive
dialogue phase in the award procedure, taking into account the assumptions
impacting on TCs.

3.2.1. Searching and information. The PA may face a lack of information needed
to draft the project information memorandum, request for proposals and PPP
contract (together known as the ‘tender documents’) often as a result of lack of
experience in organising award procedures and/or (over) ambitious objectives for
the project that are difficult to translate into reasonable project requirements in the
tender documents. Dialogue between public and private parties early in the award
procedure facilitates the efficient and effective exchange of information amongst the
parties. Prior to the dialogue phase, candidates are selected to participate in the
award procedure on the basis of their relevant experience. From their experience,
candidates have access to the relevant information required for the parties to discuss
the specifics of the transaction. Hence, despite of the cost of organising a dialogue
phase, the PA and candidates have a platform for efficient and effective exchange of
relevant information, resulting in a net savings in the costs of obtaining information.

3.2.2. Drafting and negotiating the agreement. As a result of the interaction

between the parties prior to submission of the tender documents to the candidates,
the PA can draft the tender documents with more rationality as the information is
more comprehensive, the complexities of the project have been thoroughly addressed
 72 H. Siemonsma et al.

Textbox 3. Empirical example of contractual issues resolved during competitive

dialogue procedure.

Authors’ recent involvement in the awarding of a Port PPP contract where the guiding principles
of the competitive dialogue procedure were applied resulted in significant improvements of the
contract prior to the submission of the final tender documents to the candidates. Key
contractual topics that were addressed and (to a large extent) resolved during the dialogue phase
included: duration of the contact, phasing of investments, performance guarantees, exclusivity
on operations, service rate caps, events of default and early contract termination compensation.
As a result, all candidates were enabled to prepare an optimised bid in a fair and level playing
field. The finalisation of the contract only resulted in a limited number of suggestions for
changes in the contract by the preferred candidate.
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and possibly resolved, sufficient time is taken to make rational decisions and ideally
all relevant decision makers have ‘buy-in’ for the final solution to the deal.
In addition, the deal structure defined in the contract during the dialogue phase
is likely to have significant buy-in from candidates. Hence, there is no firm ground
for extensive negotiation of the contract after the selection of the preferred
candidate. This argument is supported by the fact that early competitive dialogue
amongst parties constitutes a track record of information and comments on the
contract by the candidates. As there are multiple candidates involved in the dialogue
phase and the PA is allowed to reduce the number of candidates at this stage, the risk
of human opportunistic behaviour is minimised. Candidates demonstrating such
behaviour are easier to identify due to inconsistency with the behaviour of other
candidates.
Early certainty on the outcome and course of the award procedure for candidates
contributes to the credibility, efficiency and effectiveness of the transaction.
Increased commitment of candidates to the transaction can also be achieved by
the PA through demonstrating its capabilities during the dialogue phase and drafting
tender documents that are reasonable and realistic, and in line with the dialogue
results. Textbox 3 provides an empirical example of contract improvements as a
result of a competitive dialogue procedure.

3.2.3. Monitoring and enforcement. Monitoring and enforcement of the Port PPP
contract can become an unnecessarily large administrative burden for both parties
when the contract contains many managerial provision such as monitoring Key
Performance Indicators (‘KPIs’), and enforcing penalty and bonus regimes. TCs can
be reduced by optimising the monitoring and enforcement requirements under the
contract. In practice, however, there is a tendency to overdo monitoring of Port
PPP contracts and focus too much on detailed operational KPIs, whereas the KPIs
should be aligned with the strategic objectives of the PA [19]. A competitive dialogue
procedure can contribute to optimised monitoring and enforcement of the contract
by discussing the actual high-level strategic objectives of the parties and coopera-
tively identifying the most suitable KPIs to safeguard their interests.
In order to take into account the risk of cost savings and overruns as a result of
(1) inefficient award procedures and/or (2) redoing the award procedure due to initial
failure of the procedure, the distribution of possible TCs is assumed to be adequately
represented by a simple triangular risk distribution with a minimum and maximum
 Awarding of Port PPP contracts 73

Frequency

EVTC,RTP EVTC, CDP NPV of

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transaction cost
Transaction cost distribution in a restricted tender procedure (RTP)
Transaction cost distribution in a competitive dialogue procedure (CDP)

Figure 5. TCs distribution for a low complex project.

Frequency

EVTC, CDP EVTC, RTP NPV of

transaction cost
Transaction cost distribution in a restricted tender procedure (RTP)
Transaction cost distribution in a competitive dialogue procedure (CDP)

Figure 6. TCs distribution for a high complex project.

possible value, and a most likely value (i.e. the mean). The Expected Value (‘EV’) of
the TC is the average value of the presented distribution.
Figure 5 shows the conceptual visualisation of a case where a Port PPP of low
complexity is awarded in a procedure with or without a competitive dialogue phase.
This conceptual case demonstrates that the risk on TC savings or overruns without
a competitive dialogue phase is relatively small but the EV of the TCs is increased.
As a result, the EV of the TCs increases due to the inclusion of the competitive
dialogue phase.
Figure 6 demonstrates a case where the project has such complexity that the
risk of TC overruns is significantly higher than in the project of low complexity.
The effect of improved risk management of the TCs as a result of the competitive
 74 H. Siemonsma et al.

dialogue procedure is modelled as a lower maximum value than in the restricted

tender procedure. In the case of a complex project, the EV of TCs is lower under the
competitive dialogue procedure.

3.3. Contract value

As discussed in Sections 2.2 and 3.1, the CV is determined in this research by the
following cash flows generated as a result of the execution of the Port PPP contract:
(1) revenues, (2) operational costs, (3) investment costs and (4) financing costs.
Below, the potential contribution of a competitive dialogue phase to improved CV is
assessed by the type of cash flow.

3.3.1. Maximised revenues. It is in the interest of both parties to ensure early

revenue generating capacity of the project. There may be creative or innovative ideas
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to optimise certain procedures and ensure timely or accelerated delivery of the

project. Another way of adding value to the project is to increase cargo volumes
(at a similar price level) by improving the competitiveness of the project. The
competitive dialogue phase provides the opportunity to include such ideas in the
tender documents from the experience and innovative capacity of candidate TOs.

3.3.2. Minimised operational costs. Participation of candidates in fine tuning the

scope of the Port PPP contributes to the optimal allocation of operating activities.
Transferring operational activities and the associated costs and benefits from the
PA to the more experienced private TO increases the operating efficiency of the
activity to the overall benefit of the project. On the other hand, some operating
activities related to the project but with a wider scope than the specific terminal can
better be conducted or outsourced to a third party by the PA (e.g. providing
bunkering facilities).

3.3.3. Minimised investment costs. Similar to the optimisation of operating costs,

the allocation of investment responsibilities and risks requires comprehensive
analysis in order to define the optimal deal structure. The allocation of responsibility
and risk is considered optimal when the expected investment costs are lowest without
compromising the quality and revenue generating capacity of the asset. Purchase
of equipment is a typical responsibility of the TO as it is likely to have more
bargaining power than a PA and is able to optimise such purchases from its global
portfolio perspective. Construction of terminal infrastructure, such as quay walls
and land reclamation, can sometimes better be allocated to the PA, for example
when the Port PPP project takes place in a larger development scheme of which the
project is only a part. In such case, economies of scale for the total development
could result in the total investment costs being lowest to the PA.

3.3.4. Minimised financing costs. Bankability and financing costs of a Port PPP
contract depend on a wide variety of risks to which the financiers of the parties are
exposed under the project. The lower the risk exposure of a party, the more beneficial
the financing costs to be charged by the financiers, which improves the overall CV
of the deal. Therefore, it is a key value driver of any Port PPP to allocate the risks to
the parties that are most capable of managing a risk (e.g. purchase of suitable
equipment based on experience), transferring a risk (e.g. transfer construction risk to
the building contractor), hedging a risk (e.g. hedge currency exchange risk), insuring
 Awarding of Port PPP contracts 75

Frequency

EVCV,RTP EVCV, CDP NPV of

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contract value
Transaction cost distribution in a restricted tender procedure (RTP)
Transaction cost distribution in a competitive dialogue procedure (CDP)

Figure 7. CV distribution for a low complex project.

Frequency

EVCV,RTP EVCV, CDP NPV of

contract value
Transaction cost distribution in a restricted tender procedure (RTP)
Transaction cost distribution in a competitive dialogue procedure (CDP)

Figure 8. CV distribution for a high complex project.

a risk (e.g. insurable force majeure, political risk insurance) and/or absorbing a risk
that cannot be managed by either party (e.g. non-insurable force majeure). Early
involvement of the parties’ financiers allows for optimal drafting of the contract
from a bankability and financing cost perspective.
The range of outcomes of the CV of the Port PPP is also represented as a
triangular distribution of values. The impact of optimal allocation of project risks
and responsibilities as a result of the efforts of the PA and candidates during the
dialogue phase is reflected by (1) the increased most likely CV under a competitive
dialogue procedure and (2) the reduced spread around the most likely outcome
reflected by a minimum and maximum outcome. Figures 7 and 8 demonstrate that
the positive effects of the dialogue phase are achieved in both low- and high-complex
projects; the impact, however, is likely to be higher in the latter case.
 76 H. Siemonsma et al.

3.4. Conditions for the applicability of competitive dialogue

This research has focused on competitive dialogue’s largest disadvantage which is
its relatively high TCs, and competitive dialogue’s potential benefit which is the
increased CV that may outweigh these increased TCs. It should be noted, however,
that there are important conditions attached to the applicability of a valuable
competitive dialogue procedure in order to benefit from the upside potential offered
by this approach. Section 3.2 mentioned the factors influencing TCs amongst which
were included human behaviour of opportunism with guile and bounded rationality.
It is observed in industry practice that when the parties involved in the deal act with
opportunism with guile or bounded rationality both the TCs and CV could be
negatively affected. For example, in the case of information asymmetry between the
PA and the TO, it may be that the final contract is more favourable to one party than
the other with a suboptimal (i.e. reduced) overall TV as a result.
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Especially in developing countries, where PAs lack the knowledge of implement-

ing Port PPPs and are dealing with experienced global private companies, the
risk exists that private parties abuse this situation to their benefit. This risk could be
mitigated through safeguarding in-house legal, financial and transaction expertise
within the PA, or by the involvement of specialised external advisors experienced
in Port PPP transactions.

4. Conclusions and recommendations

4.1. Conclusions
This research is aimed at developing a conceptual framework for the assessment
of the added value of a competitive dialogue procedure to the awarding of Port PPP
contracts. The impact of a dialogue phase on the NPV of TCs and CV for both the
PA and TO was investigated by comparison of a restricted tender and competitive
dialogue procedure.
As the awarding of a Port PPP contract involves considerable risks, this research
has argued that the ex-ante estimate of TCs and CV are more adequately expressed
by the NPV of their expected value than the NPV of their most likely value. Based on
the TC economics theory published by Williamson [15] supported by the authors’
experiences and observations in the Port PPP industry, the likely impact on expected
TCs and CV was elaborated for projects characterised by low and high complexities.
The conceptual framework demonstrated that in the case of complex projects the
EV of TCs is likely to decrease as a result of improved risk management when a
competitive dialogue procedure is adopted instead of a restricted tender procedure.
For low-complexity projects, the EV of TCs is likely to increase as the increased most
likely value of the TCs cannot be offset by the improved risk profile of the award
procedure.
Early interaction during the competitive dialogue phase between the PA and
candidates generally results in an optimised allocation of responsibilities and risks to
the benefit of the overall expected CV. This positive impact of the dialogue phase
on the CV was found to be applicable to both low- and high-complexity projects,
although this effect is assumed to become more significant as the complexity of the
project increases.
On the basis of this research, it can be concluded that a competitive dialogue
procedure, if and when executed by experienced professionals, (1) adds value to
Port PPP transactions for complex projects and (2) only adds value to Port
 Awarding of Port PPP contracts 77

PPP transactions for low-complex projects when the increased CV outweighs the
increased TCs.

4.2. Recommendations
On the basis of the analysis and conclusions from this research, the authors advise
port policy and decision makers, and especially PAs, to make a well-considered
choice of the most applicable award procedure for their projects. Especially in the
case of complex projects, a competitive dialogue procedure provides a valuable
approach to ensuring the successful award of Port PPP contracts.
On the basis of this research, additional issues for further research have been
identified:
(1) This research focussed on the added value of a competitive dialogue
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procedure in comparison to the restricted tender procedure. In practice,

however, a wider variety of forms of private sector participation in the
design and award of Port PPP contracts are observed in the industry, such as
a market consultation. Therefore, a comprehensive comparison of alterna-
tive award procedures with early private sector involvement may provide
more insight into the most suitable procedures for specific circumstances.
(2) The conceptual framework for assessing the added value of a competitive
dialogue procedure can be further refined or tested by empirical evidence.
Port PPP projects awarded through such procedures, and other industry
sectors where competitive dialogue is more commonly applied, may be
sources of inspiration.
(3) In order to give PAs a better understanding of the practical application
of competitive dialogue procedures, the critical success factors, possible
negative effects, and lessons learned require further investigation and
empirical evidence.

Acknowledgement
The authors thank Robert Schot for his constructive suggestions for improvements
of this research.

References and notes

1. UNCTAD, 1998. Guidelines for Port Authorities and Governments on the Privatization of
Port Facilities. Geneva, Switzerland: UNCTAD.
2. PALLIS, A. A., NOTTEBOOM, T. E. and DE LANGEN, P. W., 2008, Concession agreements
and market entry in the container terminal industry. Maritime Economics and Logistics,
10(3), 209–228.
3. THEYS, C., NOTTEBOOM, T. E., PALLIS, A. A. and DE LANGEN, P. W., 2010, The economics
behind the awarding of terminals in seaports: Towards a research agenda. Research in
Transportation Economics, 27(1), 37–50.
4. In the recent years, many countries and supranational bodies such as the European Union
and also International Financial Institutions such as the World Bank and the African
Development Bank have stipulated stringent procurement regulations, which apply to
Port PPPs to an increasing extent. These regulations are aimed at opening up markets,
improving competition and rationalising on public expenditures, and are typically
embedded in some form of competitive award procedure.
 78 H. Siemonsma et al.

5. Deal creep means the risk that the winner of a competitive award procedure manages to
realise such changes in the conditions and terms of its bid and the contract that it creates
an unfair competitive advantage towards the other candidates participating in the award
procedure.
6. WORLD BANK, 2009, Attracting Investors to African Public-Private Partnerships:
A Project Preparation Guide (Washington, DC: World Bank).
7. WORLD BANK, 2007, The World Bank Port Reform Tool Kit, 2nd ed. (Washington, DC:
World Bank).
8. DUTCH MINISTRY OF TRANSPORT, PUBLIC WORKS, and WATER MANAGEMENT, 2009,
Economische betekenis van Nederlandse zeehavens 2007 (Economic Performance of
Dutch Seaports 2007). Dutch: Dutch Ministry of Transport, Public Works and Water
Management.
9. KERF, M., 1998, Concessions for Infrastructure: A Guide to their Design and Award
(Washington, DC: World Bank).
10. The Directive defines these procedures as follows: ‘ ‘‘Restricted procedures’’ means
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those procedures in which any economic operator may request to participate but only
those economic operators invited by the contracting authority may submit a
tender. ‘‘Competitive dialogue’’ is a procedure in which any economic operator may
request to participate and the contracting authority conducts a dialogue with the
candidates admitted to that procedure, with the aim of developing one or more suitable
alternatives capable of meeting its requirements, on the basis of which the candidates
chosen are invited to tender’.
11. EUROPEAN COMMISSION, 2004, Directive of the European Parliament and of the Council
of 31 March 2004 on the Coordination of Procedures for the Award of Public Works
Contracts, Public Supply Contracts and Public Service Contracts. 2004/18/EC. Brussels:
European Commission.
12. OFFICE OF GOVERNMENT COMMERCE, 2006, OGC Competitive Dialogue Procedure:
The Competitive Dialogue Procedure in the new Public Contracts Regulations. http://
www.ogc.gov.uk/
13. EUROPEAN COMMISSION, 2007, Communication on a European Ports Policy. COM (2007)
616 Final. Brussels: European Commission.
14. NOTTEBOOM, T., 2008, The Awarding of Seaport Terminals in Europe: Results from
the ITMMA Survey Commissioned by ESPO. Belgium: University of Antwerp, p. 28.
15. WILLIAMSON, O. E., 1985, The Economic Institutions of Capitalism (New York: The
Free Press).
16. The TCs of the PA do include the costs of managing all the candidates during the award
procedure.
17. The TCs of the losing candidates during the award procedure are left out of
consideration in this research as their impact on the CV is assumed to be negligible.
18. Bounded rationality means: (1) imperfect and incomplete information; (2) the complexity
of problems; (3) human information-processing capacity; (4) the time available for the
decision-making process; and (5) the conflicting preferences decision makers have for
organisational goals.
19. PORT STRATEGY, 2009, Key Performance Indicators: Keep it simple, Port Strategy, May,
pp. 20–21.