To tender or not to tender? Unsolicited investment proposals

The following is an article by the Jamaica Civil Society Coalition.

There has been an ongoing discussion within and outside of the public sector on the issue of public procurement - the process of government outsourcing to the private-sector for the provision of infrastructure, public goods and services.

One of the aspects of the process that is being debated is the matter of competitive tendering. There is a growing sentiment being expressed by some policymakers and parliamentarians, which appears to be diminishing the very principle of competition as a driver of efficiency.

Most recently on Friday, May 31, 2013, Opposition MP Delroy Chuck shared his opinion during an interview on the morning radio show 'Jamaica Speaks'. He expressed his view on the matter of how the Government of Jamaica ought to treat unsolicited proposals, which are those that are not requested or initiated by the government, but instead, originate from a private party.

Mr Chuck said, "Strategic investments, strong investments where sensitive ideas have been brought in, you can't open it to tender. Let me be very clear that the contractor general and those who believe in a contracting process of tendering, it is not an appropriate way to get investment. I am not denying there can be the taint of corruption, or the perception of corruption, but when an investor comes in with his money willing to spend it, to say to him, we have to put it out to tender to see if they can compete with your idea, cannot make sense ..."

It is total investment foolishness. The investor comes to spend, say, a billion US dollars. He puts certain proposals to you. Are you now to say that it is fine, but I must now put it out to tender to see if anyone else can compete on better terms?"

We've Got Company

The answer to this question posed by Mr Chuck is a resounding yes. That is exactly what the Government decided when it approved its Public-Private Partnership (PPP) Policy in December 2012.

Jamaica is not alone in having such a policy. It is, for example, a requirement that the World Bank stipulates for ALL PPP projects that request its funding. It is the policy held in the United States, Chile, Argentina, India, Indonesia, Taiwan, Sri Lanka, Costa Rica, Hong Kong, South Korea, Nigeria, Mauritius, the Philippines, South Africa, to name a few. We are not alone in the challenges we face with procurement processes, corruption, or the solution.

In her response to MP Chuck, the 'Jamaica Speaks' host cautioned, "We must always look at the mischief that we are trying to cure and we must come up with an amendment [to the procurement policy] that will allow the country to feel comfortable about what we are doing, it must be transparent, open, clear that there is no act of corruption, but we have to get this process expedited."

It is important to note that the 'mischief' to be prevented is not solely one of corruption but also the simple failure to get the very best value in delivering a public service or good for our country.

The Jamaica Civil Society Coalition (JCSC) fully supports the provision of the PPP Policy for competitive tendering. To be clear, our position relates to projects with the private-sector that involve the provision of public goods and services.

This stems from the rudimentary premise that regardless of the arrangement made between a public and a private entity, whether the Government makes any upfront financial contribution or not, if a private party fails to realise a reasonable rate of return and opts to pull out, the project will almost certainly be bailed out by the taxpayer, as these services are vital for the well-being and functioning of the country.

Transparency and fairness are essential preconditions in public procurement. Those sympathetic to Mr Chuck's position would argue that while in this case, a tender process would enhance transparency, it would almost obliterate fairness, as introducing competition would:

Fail to protect the intellectual property rights of the investor and thus discourage innovation and the entrepreneurial spirit.

Reduce the already short line of investors coming to Jamaica.

The JCSC appreciates that on the surface of it, the position taken by MP Chuck might appear fair. It must first be understood that the tender methodology employed for public-private partnerships and/or unsolicited proposals is fundamentally different from traditional procurement.

With an unsolicited proposal, the Government is not providing potential bidders with the details of the investor's idea or proposal. Instead, the Government is inviting other potential investors to submit an alternative proposal that could deliver the same or better outcome, possibly more cost-efficiently.

If done properly, tendering presents absolutely no threat to the proprietary rights of any investor's proposal. There are different approaches that can be used to not merely protect, but compensate the investor's intellectual property and contribution to the project.

Swiss Challenge

In Jamaica and the majority of the countries mentioned above, one option is the Swiss Challenge. The tenders are submitted and the bids are assessed primarily based on financial and technical merit. The investor who initiated the project does not have to participate in the initial bidding round. He/she waits until a preferred bid is identified, is then advised of the financial proposal that is now before the Government, and is given the opportunity to match or beat that cost. If he/she is able, the project is awarded to them, and usually at a cost more attractive for the country than what was initially presented.

Ultimately, what the JCSC research indicates is that there are tried-and-proven best practices in the science of procurement that have seen the successful delivery of both solicited and unsolicited projects in reasonable development and execution time frames in other jurisdictions.

The JCSC is confident that we can get it right and that we can have a process that fosters investment, minimises the opportunity for and perception of 'mischief' and, ultimately, will improve the service delivered to the public. It will not happen any time soon, however, if our policymakers diminish the value that competitive tender can and does afford.

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