Economic and financial analyses in the realisation of public projects are the basis on which decisions are made in the various stages of the realisation of the process. This applies to projects that are managed as public procurement procedures and to projects that are managed as public-private partnerships or concessions. Without an adequate economic and financial analysis and evaluation of the project, the public partner will be unable to successfully implement the public project and conclude a quality contract. Poor economic analysis is reflected in the subsequent price increases of public projects, numerous annexes and amendments to the public contract, additional works, requests for early termination of the contract, etc.
According to the current regulations, the basic legal source for preparing investment documents is the Decree on the Uniform Methodology for the Preparation and Treatment of Investment Documentation in the Field of Public Finance (hereinafter also: the Decree). According to Article 4 of the Decree, the threshold values that determine the preparation and consideration of each type of investment documentation at constant prices, including value-added tax are:
In the case of projects with an estimated value of less than EUR 100,000, the content of the investment documentation can be adapted accordingly (simplified), but it must contain all the key elements necessary for deciding on the investment and ensuring monitoring of the effects.
The minimum content of the above-mentioned documents is prescribed by the Decree on the Uniform Methodology for the Preparation and Treatment of Investment Documentation in the Field of Public Finance, but especially in the case of public-private partnership projects and concessions, it must be noted that the data obtained only by following the Decree will not be sufficient if we want to lead competently the process of creating a public-private partnership relationship and make an economic decision.
The first step in the efficient planning of a public contract is the correct calculation of its estimated value, which is the basis for choosing a legal procedure for awarding a public contract. However, the above should not be the only reason for preparing a correct calculation of the estimated value of the public contract, but the investment document defining the estimated value of the public contract should also be the basis for defining the criteria for evaluating and ranking bids. The Public Procurement Act (Zakon o javnem naročanju – ZJN-3) in Article 24 defines the methods for calculating the estimated value of procurement, clearly specifying that the choice of the method used to calculate the estimated value of procurement shall not be made by the contracting authority to put the estimated value outside the scope of this the Public Procurement Act.
From the perspective of the importance of economic analyses, the provision of Article 84 of the Public Procurement Act (ZJN-3) is important, and it stipulates that the criterion of the most economically advantageous offer is determined on the basis of price or costs, using a cost-effectiveness approach, for example by calculating lifetime costs, and may also include the best price-quality ratio, assessed based on criteria relating to quality and environmental or social aspects related to the subject matter of the public procurement.
Such criteria may comprise, for instance:
If we want to apply the criteria in the manner described above, of course, we need an economic analysis, which will be the basis for creating the criteria, and determining weights and formulas for their calculation, because otherwise, we will not be able to satisfy the principle of economy.
Therefore, we can conclude that the purpose of a quality and objectively prepared economic analysis of the specific subject of the procurement is to connect the calculated estimated value of the public contract with the definition of the criteria for the award of the public contract and the preparation of appropriate forms for the evaluation and classification of the received offers, whereby the economic analysis must also provide the contracting entity with arguments to justify the efficiency of the criteria used and the objectivity of the evaluation and classification of the received offers.
The project feasibility study must answer the question of whether the project is technically, legally and economically feasible and justified and must contain an assessment of all potential risks and their impact on the implementation of the project, as well as a cash flow projection, which will be the basis for calculating the profitability of the project. For this reason, it is important that the risks are known, estimable and calculable. In this regard, it should be stressed that risk assessment is always subject to subjective judgment, past experience and, last but not least, the assessor’s business intuition, even though risk assessment models are progressing extremely quickly and becoming more and more reliable.
Article 31 of the Public-Private Partnership Act (Zakon o javno-zasebnem partnerstvu – ZJZP) stipulates that, as part of the preliminary procedure, it is necessary to prepare a capital report, whether the economic, legal, technical, environmental and other conditions for implementing the project and establishing a public-private partnership have been fulfilled. An assessment of the economic feasibility of the project is also prepared as part of the report mentioned above. The rules for the preparation of the assessment mentioned above are determined in more detail by the Rules on the Content of the Eligibility of Execution of a Project According to the Model of Public-Private Partnership, which in Article 2 refer to the Decree on the Uniform Methodology for the Preparation and Treatment of Investment Documentation in the Field of Public Finance. It should be noted that the Decree is not adapted to public-private partnership projects, nor does it contain provisions that would be adapted to the specifics of public-private partnership projects. The key question is when public partners must prepare investment documents and which documents need to be prepared at which stage of the process of selecting a public-private partnership contractor. The fact is that when deciding to implement a project in the form of a public-private partnership, as a rule, not all the elements necessary for the preparation of documents in accordance with the Decree are known yet. What’s more, it is often only in the stage of the implementation of the public tender (e.g. in the competitive dialogue) that commercial risks are defined and distributed among the partners, the optimal conceptual solution is chosen, technical requirements are defined, etc., all of which significantly impact the preparation of investment documents.
The solution is offered by Article 3 (2) of the Rules on the Content of the Eligibility of Execution of a Project According to the Model of Public-Private Partnership, which stipulates that projects shall be evaluated based on the following criteria:
The provisions of the Rules on the Content of the Eligibility of Execution of a Project According to the Model of Public-Private Partnership are more flexible and less restrictive than the provisions of the Decree on the Uniform Methodology for the Preparation and Treatment of Investment Documentation in the Field of Public Finance, and are, therefore, more suitable for public-private partnership projects.
Therefore, the purpose of the economic analysis of public-private partnership projects is primarily to:
It is also necessary to draw attention to the provisions of the Certain Concession Contracts Act (Zakon o nekaterih koncesijskih pogodbah – ZNKP), which in Article 25 stipulates that in concession awarding procedures to which the ZNKP applies, a study of the concession feasibility must be made. The feasibility study of the concession award must:
The concession feasibility study must contain the following elements:
When granting a concession, it is very important to determine the assessment of the value of the concession itself, where, in accordance with Article 26 (1) of the ZNKP, the entire turnover of the concessionaire without VAT during the duration of the concession contract is taken into account, which the grantor assesses as compensation for the implementation of the concession and for goods and services related to the performance of the concession. That estimate shall be valid at the moment at which the concession notice or notice on the planned award of the concession is sent; in cases where such notice is not provided for, the grantor contacts the economic operator with which it will enter into a concession contract directly.
In Article 26 (2) of the ZNKP, it is stated that when determining the estimated value of the concession, which is calculated using an objective method, the grantor must consider the following:
It should also be expressly noted that the feasibility study must also be prepared in cases of in-house relationships. According to Article 13 of the ZNKP, this law does not apply to in-house relationships, except in the part that dictates the preparation of the concession feasibility study.
Last updated on 26 August 2022.