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:
- Download the PPIAF study on USPs
- Visit PPIAF’s website
- Visit the World Bank Group’s PPP website
- Subscribe to the Word Bank Group’s PPP mailing list