By Oliver Dundo
Member of Mashora’s Network of Experts
Submission of single bids in public-private partnership (PPP) projects is becoming a reason for concern for project participants and particularly the contracting authorities. It occurs in either of the two tendering stages. In some projects, a single bid is received at the request for qualification stage while in some at the request for proposal stage despite having received more than one at the RFQ stage.
The PPP procurement process is characterised by principles of transparency, competitiveness and neutrality. It is also based on the common principles of good governance. Different countries have different regulations governing PPP procurement.
The common elements in the procurement process of all countries however are that a procurement process is followed that promotes competition and strikes a balance between having sufficient time to procure the bid competitively and managing the cost of the entire procurement process.
In every PPP procurement process, the core objective is to acquire the best proposal that serves the government’s purpose and provides value for money. A typical PPP procurement is open, unbiased and provides equal opportunity to all prospective bidders.
PPP procurement works towards avoiding costly retendering and encourages wide participation of the prospective bidders. It also avoids the perception that the process pre-favours a particular party.
PPPs employ a two-stage tendering process whose advantage is the avoidance of costly design exercises in the first stage. In a tendering process, there is a possibility that no bid will be submitted which constitutes a clear process failure.
It is equally a possibility that only one bidder submits or more than one bidder submits but only one meets the requirements to constitute a valid/responsive bid.
This article focuses on the second possibility (where only one bidder submits) which has the potential of placing the contracting authority in an awkward position.
The most recent example is the University of Milan in Italy which received one bid in the tender for its new multimillion campus development PPP project to be located in Milano Innovation District as reported by InfraPPP.
Submission of a single bid not only raises the questions of what might have been the root cause but also how to deal with it without compromising the principles governing the PPP procurement process.
What are the established potential causes for receiving a single bid?
There are no universally accepted causes for the submission of a single bid. The reasons will vary from project to project based on a different set of circumstances. There are however some common reasons which have been mooted as the likely causes and are highlighted below:
Poorly structured project: PPP structuring means the allocation of responsibilities, rights and risks to each party to the PPP contract. This should be done in such a way that the key commercial terms fit into the overall development process. PPP structuring aims to ensure the project will be technically feasible, economically and commercially viable, and fiscally responsible. Above all, it provides value for money. Where this is not achieved, the project is likely to be unattractive by being perceived too risky to the private partner hence a low bidder turnout is likely to be experienced.
Inadequate time to prepare and submit offers: PPP procurement as has been mentioned above exudes special characteristics owing to the particular complexities the projects come with. One of these is that adequate time is usually required to prepare and submit bids which are longer than in traditional procurement. The basis of sufficient time is usually to enable bidders to conduct proper due diligence, analysis, assess the project and the contract from different dimensions. Where this is not provided, there is a risk that the bidder turnout will be lower.
Inadequate market sounding: Before the tender launch, it is a good practice to interact with the market and the private sector to inform them about the project. Market sounding is usually a process of reaching out to interested private parties to get some initial feedback from the market feasibility of a proposed PPP project. Project basic information such as type of services to be procured, demand for such services, PPP option, likely term of the PPP contract, parties’ obligations in broad terms, revenue sharing proposals, financing of the project as well as exit arrangements. This helps the contracting authority to understand what the market is willing to offer and guide it in clarifying potential inconsistencies or amend the tender documents as appropriate.
The challenge of a single bid is that it places the contracting authority (CA) in a weak bargaining position due to a lack of an alternative bidder to turn to if no satisfactory outcome is agreed. It also results in a preconceived idea that there is already a favoured party even before an evaluation begins.
Dealing with a single bid: What factors to consider?
What does the country PPP Laws say about single bids? The first port of call upon receiving one bid is to find out what the PPP laws of the particular country provide in regards to the submission of a single bid. In Kenya for example, if no serious adverse consequences are likely to occur if the tender process is allowed to go on, then the CA should go ahead with the evaluation of a single bid. The CA however is permitted by law to cancel a tender process at any time before the execution of the contract if fundamentally serious adverse consequences are likely to occur if the tender process is allowed is to go on. Any such cancellation must be approved by the PPP Committee.
Does the single bid provide value for money as presented? The second concern is whether that bid is likely to provide value for money. In some countries, where it appears that the bidder believed the process would be competitive and is in full compliance with the requirements, then thorough due diligence can be conducted before that sole bidder is selected.
Is the government’s negotiation power with the private impaired by accepting a single bid? Other countries seek to protect the government’s position by limiting the aspects of a bid that can be subject to negotiation. The Philippines PPP Implementing Rules and Regulations allows direct negotiations in cases of a single bid but only concerning the bidder’s financial proposal and its rate of return. This ensures the bidder cannot negotiate for a change in risk allocation. Even so, a good outcome is not guaranteed in terms of value for money.
Can it be compulsory not to accept fewer than two bids? Some governments work toward preventing such a situation by laying down a requirement that there has to be a minimum of two valid bids for the CA to award a contract. In such cases, it is, therefore, a good practice that the CA reserves the right to terminate the tender process if only one bid is received and either retender or restructure the project with a view of making it more attractive to the private sector.
The World Bank procurement guidelines provide that, where a CA anticipates a lack of effective competition, a rejection of all bids is justified. However, where the bid was satisfactorily advertised, the qualification criteria were unduly restrictive and prices are reasonable in comparison to the market value, then the single bid may be considered valid. Where the low turnout is associated with a deficiency in the tender, then it can be re-packed and retendered.
International PPP experts’ opinion on dealing with single bids
David Baxter, “Overall – I maintain that if only one bid is received that the project should be retendered”.
Lieven Jacquemyn, “ A single bid can be problematic. Governments should reconsider the scope and whether to retender. It seems the scope was not very attractive, or the qualification criteria too stringent. Proceeding with one bid does not provide necessary competitive tension”.
Nitin Suri “It is the trickiest situation in a PPP project when the single bid is received. In India in some departments; there is a mechanism of treating a single bid also. When a project is bid out the first time; at least 3 bids need to be available; then on 2nd time of bidding it can be reduced to 2 and on the third time of bidding even single bid can be considered”.
Sharifah Hamzah, “Negotiations with the Government took over a year and some fell through after a year of negotiations when they couldn’t agree on the financial portion”.
Some PPP experts across the world have also proposed that there needs to be a split of mega projects into smaller biddable projects to make them more attractive.
PPPs are complex and full of surprises one of which is the submission of a single or no bid at all. To avoid such surprises, project participants especially the advisors should think of more innovative solutions like structures that will attract the private sector.
Further, market sounding should be intense and indications be taken seriously. This ensures that proper research into private sector interest in a project is done before procurement. Not to mention, adequate time needs to be granted to the prospective bidders to reach out to other like-minded firms and put together competitive proposals.