This is an important current issue that Governments should consider on a case-by-case basis, learning from experience. As such, it is outside the scope of this Review.
There are a number of initiatives that Governments could consider in respect of this issue, with the key objective being to prevent one or two consortia from strategically reducing competition. The key risk for Governments is that, where this reduced competition occurs, bidding parties that may provide a better holistic solution for Government may find themselves unable to offer certainty of finance. This feature is a particular problem for smaller projects, where there is capacity within the financial markets to support at least three fully funded bids, but where one or two bidders make exclusive arrangements with all of the "Big 4" banks. Other bidders may then be unwilling to put significant bid costs at risk, for fear that Governments will not select them either for the short-list or, ultimately, as preferred bidder because of their lack of financial support.
At the EOI stage, it may not be necessary for potential bidders to demonstrate current support from debt financiers if they have a clear track record of having been able to finance PPP projects (in the absence of a subsequent marked deterioration in their ability to do so).
For large-scale projects, the Victorian Government recently provided a good example of a solution for ensuring that bidders can bid them competitively and close them successfully while ensuring that Government retained the inherent benefits of the PPP model25.
We recommend that strategies implemented in respect of this short-term market capacity issue should be temporary in nature and not give rise to longer-term structural changes. Hence, Governments should continually monitor any change from current practise, with a reversion to standard PPP practises following any normalisation of financial markets.
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25 For its $3.5bn Desalination project, it provided a Syndication Guarantee, effectively underwriting a large part of the project senior debt. The project did not need to call on this guarantee, as the debt syndication was oversubscribed.