Unsolicited Proposals and the Transportation Planning Process

The use of a PPP raises concerns that private investors may circumvent the transportation planning process set by state, regional, and local governments, specifically by allowing them to submit unsolicited proposals. The public concern is that the private sector will "cherry-pick" the most profitable projects, leaving the public sector with other needed, but less profitable projects (Buxbaum and Ortiz 2007). Others may argue that the most profitable projects might be those with the highest projected traffic and therefore the most needed. Attracting private investment for these projects would leave public funds available for other needed projects that may not be good candidates for PPPs.

An unsolicited proposal is a bid by a private company to the government for a project for which proposals have not been solicited. Unsolicited proposals are sometimes perceived to serve special interests or favor individual companies. Mean while, a variety of stakeholders including state representatives, law firms, private companies, and trade associations recommend elimination of state prohibitions on accepting unsolicited proposals (U.S.DOT 2004). Conversely, in a letter to state DOTs, Congressmen Oberstar (chairman of the House Committee of Transportation and Infrastructure) and Congressman DeFazio (chairman of the House Subcommittee on Highways and Transit) (2007), asserted that states should not allow unsolicited proposals because they circumvent the established planning process by favoring projects that are profitable to private developers. A response from the National Governors Association (NGA 2007), asserted that PPPs have been carefully evaluated by states to ensure that the public interest is protected, and that a PPP proposal where the public interest is not protected should not be considered.

The interested party's survey done for this synthesis confirmed this concern and provided some mitigation suggestions:

•  Require PPP projects to be consistent with state, local, and MPO transportation plans;

•  Prohibit PPP vendors from participating in project planning activities;

•  Limit or prohibit unsolicited bids; and

•  Provide sufficient time for submittal of competing proposals.

International experience suggests three methods that deal with unsolicited proposals in a way that introduces competition and transparency (Hodges and Dellacha 2007):

1.  The "Bonus System" invites additional competition but gives a small advantage to the unsolicited bidder. Thus,later bidders are incentivized to submit high-quality, low-cost projects, but may have slightly less incentive to submit at all. This system is used by Chile and South Korea.

2.  The "Swiss Challenge System" invites additional competition and gives the unsolicited bidder the opportunity to beat or match the new bids. This system is used by Guam, India, Italy, and Taiwan.

3.  The "Best and Final Offer System" involves multiple rounds of tendering and the original bidder is automatically guaranteed participation in the final round. This system is used by South Africa and Argentina.

British Columbia developed its Capital Asset Management Framework to standardize and streamline its PPP procurement process. The Capital Asset Management Framework follows a three-stage process of solicitation, evaluation/ negotiation, and contract award and allows for unsolicited proposals, but invites competitors to submit a better proposal. It adopts the Swiss Challenge System (Abdel-Aziz 2007).

PPP legislation in 18 states allows unsolicited proposals for PPP projects. One of the first laws to enable use of transportation PPP, Virginia's PPTA of 1995, allows private entities to submit both solicited and unsolicited project proposals and specifies similar steps to evaluate, select, and implement both types of projects (U.S.DOT 2004). Changes to the PPTA law in 2005 direct the program toward solicited proposals, although the Virginia DOT may still accept unsolicited proposal by statute. In the case of unsolicited proposals, Virginia has developed a quality control process in which unsolicited proposals are reviewed to determine if these are in the interest of the public sector and then make a decision on whether the project should be pursued. The Commonwealth's PPP guidelines provide that if the state decides to moves forward with the proposed project, competing proposals may be submitted within a minimum of 90 days if the project does not involve federal funding, or a minimum of 120 if using federal funding.

Buxbaum and Ortiz (2007) noted that short time periods for competing proposals may lead to inadequate competition among bidders. On the other hand, a long period may discourage private investors in submitting unsolicited proposals.