Creating Competitive Tension

Many private companies submit unsolicited proposals with a view to directly negotiate a contract for the proposed project—creating the problems described in Benefits and Pitfalls of Unsolicited Proposals. Competitive Procurement or Direct Negotiation describes some circumstances in which entering into direct negotiations may make sense, as well as some less well-founded arguments often presented for doing so. Direct negotiation of unsolicited proposals describes several preparation requirements for those procuring authority that wish to directly negotiate an unsolicited proposal.

The alternative is to subject unsolicited proposals to a competitive process. Some countries accept proposals and simply follow the normal competitive procurement process. However, this is relatively unlikely to generate large numbers of USPs, since the proponent receives no direct return on its investment in the project idea other than the benefits of more familiarity with the project than potential competitors in a tender and potential reputational benefits.

Other countries adapt the competitive tender process, to provide some advantage or compensation to the project proponent for developing a project, while retaining competitive tension and ensuring transparency. There is no international consensus on the best way to subject unsolicited proposals to competition and at the same time allow sufficient incentives for the private sector to submit USPs. Several approaches have been adopted to incentivize the USP proponent:

• Automatic short-listing—a two-stage bid process is used, in which the highest-ranked bidders from the first stage are invited to submit final proposals in a second stage (see Managing the Bid Process). The proponent is automatically included in the second stage. This approach is used in the South Africa roads sector, as set out in a South Africa Roads Agency policy note (ZA 2004a).
• Bid bonus—the proponent receives a scoring advantage—typically defined as an additional percentage added to its evaluation score—in an open bidding process. This approach is used in Chile, where the bid bonus can be between 3 and 8 percent of the financial evaluation score (in addition, the proponent is reimbursed for the cost of detailed studies (CL 2010c).
• Right to match— The right to match (also known in some countries as 'Swiss challenge') has presented significant anti-competitive properties—in the Philippines under the right to match approach, all 11 PPP contracts awarded from unsolicited proposals by 2006 went to the original proponent. It operates like this: Following an unsolicited approach, an open bidding process is conducted. If unsuccessful, the proponent has the option to match the winning bid and win the contract.
• Developer's fee—the proponent is paid a fee by the government or the winning bidder. The fee can simply reimburse some project development costs, or be defined to provide a return on developing the project concept and proposal. This is one option for dealing with unsolicited proposals permitted in Indonesia under the presidential regulations governing PPP (ID 2005). It is to be noted that the developer’s fee option is different from the other incentives presented above in the sense that it does not apply as an advantage during the bidding process.

Examples of Procurement Strategies for Unsolicited Proposals provides further examples and references. These alternatives have not all proved equally effective at enabling competition. Chile, for example, is a clear exception—of 19 concessions awarded from unsolicited proposals as of 2015 only seven were awarded to the original proponent.

Examples of Procurement Strategies for Unsolicited Proposals