The Importance of Managing Unsolicited Proposals in Infrastructure

|

This page in:

Transparent, competitive bidding is a sound way for the public sector to buy goods and services. It is also standard procedure for Public-Private Partnerships (PPPs). Besides reducing opportunities for corruption, this approach generally attempts to achieve the best value for money and is perceived as fair by all stakeholders. When the sums involved are big, for example, in large infrastructure projects, transparency in government procurement becomes even more critical. Unsurprisingly, competitive bidding is considered best practice in most countries, not only in the public sector but also for corporations and institutions such as the World Bank Group.
 
This system works well when a government knows exactly what goods and services are procured for infrastructure development that best serve the public interest. But in many developing countries, governments may not have the requisite capacity and resources to define the scope of the project, or to prepare the tender documentation. Such situations often lead to inadequate infrastructure development. Sometimes the private sector uses such opportunities to proactively submit proposals for infrastructure projects on their own without waiting for a government initiated tender.
 
When the private sector submits such types of proposals, they are called Unsolicited Proposals, or USPs. USPs are an exception to the typical government-initiated approach and allow a private company to initiate the process. A private-sector entity (“USP proponent”) reaches out to the government with a project proposal to develop an infrastructure project. Typically, such a project may not have been identified within the government budget or policies, and the project’s purpose and need may not have been defined. In some instances, a USP may be nothing more than a mere idea or concept when it is presented to the government.

In those countries where government considers USPs, the motivation comes from:
 

  • A lack of financial and/or human capacity to identify, prioritize, prepare and procure projects;
  • The desire to avoid a lengthy competitive process in order to implement projects more quickly;
  • Government’s lack of resources for planning and funding necessary infrastructure development; and
  • The opportunity to tap into the private sector’s innovation and knowledge to identify value-for-money project solutions.
 
While USPs provide governments with an opportunity to develop infrastructure without public resources, they may also create several challenges. In addition, global experiences show that USP projects are far from fulfilling the motivations or expectations of governments, and the results of USP projects have been mixed. In some cases the lack of transparency also creates perceptions of corruption. Therefore, the challenge remains on how best governments should respond to such proposals.
 
If governments decide to take USPs on board, there are many important issues that they should consider:
 
  • How can USP proponents take part in fair, competitive bids on projects they designed?
  • How can USP proponents be compensated for the time and resources they put into developing the proposal?
  • How do you ensure that no fraud takes place?
 
Fortunately, with solid policies in place, these issues are manageable. Governments can consider USPs without compromising the public interest. Is there a single best way to manage USPs?  In short: No. What works best depends on many factors, including existing legislation, government capacity, and the infrastructure needs in a given country. How, then, to proceed?
 
A recent study by the Public-Private Infrastructure Advisory Facility (PPIAF) addresses these issues head-on. It analyzes global trends, examines key lessons learned, provides a lens for developing a country approach to USPs, and outlines strategies for managing USPs depending on the maturity and capacity of the country in question. It also provides an overview of the USP development and implementation process. Country case studies and examples illustrate many of the points raised.
 
We will be exploring many of these points in greater detail in future posts, and we will be glad to respond to questions or comments. Consider subscribing to the World Bank Group’s PPP mailing list to get more information about USPs as well as to get links to related information and resources.

Learn more about USPs and PPPs with the World Bank Group:
 
  • Visit PPIAF’s website
  • Visit the World Bank Group’s PPP website
  • Subscribe to the Word Bank Group’s PPP mailing list

 

Authors

François Bergere

Program Manager, Public Private Infrastructure Advisory Facility (PPIAF

Join the Conversation

Chris Shugart
February 02, 2015

If a country does not have the capacity to carry out full competitive tendering for PPPs, it is questionable whether it will have the capacity to do all that is required in Table 4 (pp. 37–39.).
In my experience, use of special competitive bidding procedures for USPs is often a non-transparent subterfuge for what is, in effect, single-source negotiations. In that case, it might be better just to call a spade a spade and broaden the circumstances in which single-source negotiations can be used – and focus on how to do it right.
There are certainly specific instances in which special competitive procedures to handle USPs can bring net benefits to the country. But the broader question is this: If such procedures are made rules of general applicability, for each such beneficial project that is realized, how many unsound and negative-value-for-money projects will also be let through the door, in many cases using the permitted procedures as a ruse to give the project to the favored company? The fact that USPs are sometimes of value is not, by itself, a good justification for changing the rules.
In my opinion, special competitive procedures for USPs are justified only if: (a) the project involves a novel and innovative idea that few other people have thought of; and (b) it is the kind of idea that, once grasped, is relatively simple to execute, and so there is no bar to others copying it. If it is not novel and innovative, then the potential for abuse is too great (and the project will be of a type that should already be under consideration). If it is relatively difficult to copy well, then the proposer should have a strong chance to win even in full and unbiased competitive bidding.

François Bergere
February 20, 2015

Thank you very much for your very useful comment. Your comment brings up some of the important points discussed in this study and one to consider more closely in the future. This is an ongoing work and a priority topic the World Bank PPP group is tackling currently and we will take your feedback into the current ongoing work. The study was based on the reality that many countries are dealing with the challenge of managing USPs and the fact that the number of USPs submitted to governments is growing. This study encourages creating a framework to manage USPs, and the framework should be based on the capacity level of each country and it should be an continuous improvement in conjunction with their capacity and maturity on PPPs. One of the reasons competitive bidding procedures are recommended as highlighted in the blog article is to help avoid the perception of corruption and fraud. While acknowledging that in some countries the results of such competitive process have not yielded the intended result due to variety of reasons including capacity of the Government, we should try to address this through creating an internal discipline of conducting a competitive process. For example, the decision on competitive process should be made based on sufficient market sounding and feedback from other participants. The study highlights that engaging with key stakeholders in the process improves the outcome of the project compared to the alternative option of ignoring other parties involved in the process. The key factors identified in Table 4 give guidance and suggestions to governments and their advisors through practical measures that should be considered when designing the USP framework that is appropriate to the specific circumstances of the each country and capacity level. The need for country-specific strategy in developing the framework is at the center of this study’s recommendation. We appreciate your suggestions and thank you in advance for your continued contribution on this agenda.
François

Marcos Siqueira
March 13, 2015

If a competitive procurement process is likely to be biased to a specific company, legitimizing previously held negotiations, as Chris points it, for all the same reasons, not conducting a competitive procurement process will hardly lead to abetter deal.
What I am trying to say is that, probably, the best way to do a single-source negotiation right is to submit it to a competitive pressure. Hopefully, under the watchful eyes of other potential investors, unfair choices made by governmental officials would be inhibited somehow.
I just can’t see single-source negotiations providing effective VfM, even if government is full with the best intentions. This is for the very fundamental reason of information asymmetry between the private operator and the government. In other words, government will never know a good deal, even if it sees it, under non-competitive procedures.
Finally, capacity to appraise USP is certainly an issue. But wouldn’t it also be an issue under direct negotiations too?
I agree that project that are not novel neither innovative, there is potential for abuse. However, I do not think direct negotiations can help to solve it.
In my perspective, dealing with USP for over 7 years, only market forces can deal with this in any satisfactory way. Naturally this depends upon a really open tender, which is, to some extent, the recommendations of PPIF report.
I would be happy to discuss this issue further…

François Bergere
April 30, 2015

Dear Marcos,
 
Thanks for taking your time to comment on the blog. One of the main reasons for the forum is to dialogue on the issues faced by developing country governments  and we appreciate your feedback. On the first point you made, we agree that regarding applying competitive pressure to single-source negotiations will be better than without inducing any sort of diligence. For example, this could be done through open book contracting or some form of hybrid approach where pricing can be compared against a shadow bid or market benchmarks. One of the findings of the study is that applying “a rigorous competitive procedure after acceptance of the project is expected to optimally contribute to creating value-for-money and will also reduce the number of opportunistic USPs.” As you point out market forces have the ability to deal with this issue satisfactorily. As you rightly pointed out, the capacity of governments to appraise and negotiate USP issue is paramount, regardless of single-source or competitive procurement. The core focus of our report is on the need to improve the government capacity before accepting USPs.
 
You might also note that, the study looks at different income and capacity levels of countries and provides some recommendations on how to deal with these issues. For low level capacity countries the study recommends to introduce and enforce simple and clear set of rules and procedures for the USP process as well as obtaining (external) capacity to manage USPs. (Page 43- http://www.ppiaf.org/sites/ppiaf.org/files/publication/UnsolicitedPropo…).
 
To support our clients’ capacity to manage USPs, the World Bank and PPIAF are about to develop model policy and guidance for USPs and tools for operationalization and institutionalization. This includes best practice USP model policy framework as well as training materials to support capacity building to manage USPs with 2-3 “pilot” countries to “road-test” the USP Model Policy framework.
 
We will be happy to get your comments and feedback on this work. We hope to post the outputs developed from this work in our website (www.ppiaf.org) and also to continue further blog discussions on this.
 
Francois