Governments often receive proposals directly from private investors. These proposals can be a good source of innovative ideas for the Government, and can help Governments identify new project concepts. However, unsolicited proposals are difficult to manage and can be a source of significant mischief.
Direct negotiations generally take longer, are more expensive and are more likely to fail than projects procured through competitive processes.21 Directly negotiated arrangements are also more vulnerable to challenges by new Governments or opposition groups-without the validation of a transparent, competitive process, direct negotiations are more vulnerable to claims of bias, corruption, incompetence and inappropriate use of Government resources.
| Key Messages for Policy Makers |
| • Select good projects. Garbage-in-garbage-out; say "no" to bad projects • Select robust, viable projects for PPP, these are more likely to be financed on a competitive basis and are therefore more likely to provide value for money. Projects suffering from bad design, dubious demand or weak fundamentals (even if politically popular) are more likely to fail, and may weaken the entire PPP program in the process. • If a project needs Government support, get approvals early to avoid wasting time and money on projects that do not meet viability and value for money criteria, and the awkward position of Government rejecting support for a project only after preparation. • A good, transparent selection process (for commercial rather than political reasons) can reassure investors and increase competition. Projects selected for political reasons or priorities will create a perception of increased political risk amongst investors. • Prepare the Government to play its part from project development to expiry. Even where a comprehensive PPP is envisaged, the Government will play an essential role in monitoring and regulating the project and the sector. • Be ready for challenges. In any long-term relationship, change happens. PPP is, above all, a partnership, and it needs to be designed with challenges, changes and resolution in mind. Problems need to be elevated to appropriate levels of management before they become disputes or worse. • Consider all stakeholders. PPP will have a direct influence on some stakeholders (in particular employees and management) and may raise political or philosophical concerns amongst many more. While absolute consensus will never be reached, the Government needs to consult widely, understand fundamental concerns and address them. |
Where permitted, the circumstances allowing the award of the project without competitive procurement should be limited. The cases where this might be acceptable would satisfy most or all of the following criteria:
• where the project is of short duration and a small value
• the project is critical to national defence or national security
• there is only one possible source of the services (due to the skill set of the provider or intellectual property)
• where there have been repeated efforts to implement a competitive process, but with no success, yet there is one party willing to undertake the project on the same terms that failed to attract competition
| Box 4.2: Benchmarking |
| Where a project is not subject to competitive pressures, or that competition is insufficiently robust, the Government should submit that project to benchmarking to verify that the price represents best value as compared to similar projects, in the sector and in similar countries. This can be a challenging process where equivalent projects are not readily available, or where relevant information is not available. |
Whenever a project is proposed to be awarded without competitive procurement, the mechanism to apply for such a waiver should be managed by an appropriately high level authority. The decision process should be made public and transparent; to allow other stakeholders to comment if they have issues, and there should be a mechanism for those disgruntled stakeholders to appeal against the decision. These mechanisms help protect the decision and the project from vulnerability to legal and political challenge.
Where competition is not possible or practicable, legislation often provides for market testing to ensure that the pricing and terms agreed for an unsolicited proposal meet market standards (are consistent with what the Government would have achieved through competition). A robust, independent feasibility study in invaluable in such circumstances. Wherever possible, unsolicited proposals should be subjected to competitive bidding, in pursuit of the best deal for the contracting agency and to manage the perception of corrupt practices through transparent competition.
Some countries reject unsolicited proposals outright, providing no benefit or compensation to those offering such proposals. In particular in countries without the resources and sophistication to manage unsolicited proposals, this offers a robust method to avoid the complications and dangers of unsolicited proposals; but also deprives the Government of the advantages.
Mechanisms have been developed to encourage unsolicited proposals, while also ensuring that competitive tendering is used, where possible, when selecting the best investor.22 These mechanisms involve a careful review of such unsolicited proposals to ensure they are complete, viable, strategic and desirable. The project is then put out to competitive tender, with the proponent of the unsolicited proposal receiving some benefit, for example:
• proponent pre-qualified automatically,
• a bonus on the proponent's scoring in the formal bid evaluation (i.e. additional points allocated to the proponent's total score when its bid proposal is evaluated),
• a first right of refusal, enabling the proponent to match the best bid received (also known as the "Swiss challenge"), in some cases only where the proponent's bid score is within a defined margin of the best bid,
• the right to automatically participate in the final round of bidding, where there are multiple rounds of bidding (the "best and final offer" system), and
• compensation paid to the proponent by the Government, the winning bidder or both.
| Box 4.3: Unsolicited Bids in Colombia |
| The Ministry of Transport, DNP (the planning agency) and the MoF enacted detailed regulations regarding the acceptance of unsolicited proposals from the private sector.a If accepted as a viable project, an unsolicited proposal must then go through a competitive, open procurement.b The proponent participates in this selection process like any other bidder. If the proponent's bid is not selected, however, then the winning bidder must reimburse the proponent for certain of its expenses, as approved by the responsible Government agency prior to the start of the tender process. In such case, the proponent is responsible to the winning bidder for the quality of the relevant studies. |
| a MOT Decree No. 4533 of 2008. b See requirements of Laws 80 of 1993 and 1150 of 2007. |
The unsolicited proponent is often viewed as having an unfair advantage, so any preference given (such as a right of first refusal or bonus during bid evaluation) may stifle competition.23 A more robust approach is to use competitive tendering, but without any advantage to the unsolicited proponent. Instead a fee is paid to the proponent if he does not win the bid, as compensation for the value added by his efforts to develop the project. The fee should be sized to reflect actual benefit of the proposal to the Government.
_________________________________________________________________________________________________
21 See inter alia: "Getting value for money from procurement," National Audit Office (UK); Inadomi, Independent Power Projects in Developing Countries: Legal investment protection and consequences for development (2010).
22 Hodges and Dellacha, Unsolicited Infrastructure Proposals: How Some Countries Introduce Competition and Transparency An International Experience Review, 2007.
23 This is not the case in countries like Chile, with a very sophisticated regime that gives confidence to other bidders that the proponent will not have an unfair advantage in the process.