Emerging International Trends

Over the past year, I have become increasingly aware of an emerging trend by governments to consider Unsolicited Proposals (USPs) as a panacea to unlock the inertia that they face in launching Public-Private Partnerships (PPPs) or for attracting much needed foreign investment in critically needed infrastructure. 

USPs have their merits in that they can they can introduce innovation, but they also expose governments – especially those which are PPP novices – to nefarious financial deals that can saddle governments with long-term debt and projects they cannot afford. An added complication is that government ministries might have projects imposed on them for which they do not have the required resources to determine their Value for Money (VfM) and bankability. 

Fast Tracking PPPs Through USPs

The question that always has to be asked is whether USP projects are in the interest of the government and its citizens. This is specifically true when ill-prepared government officials start talking about entertaining USPs as a way to fast-track PPPs. 

An important question that has to be asked of these officials is – What do you mean by fast-tracking projects? If it means providing the human and technical resources to adequately assess proposals from the private sector – i.e. making bureaucratic changes – that speed up the legally mandated processes, then there should be no concerns with this trend. Unfortunately, if one reads between the lines in many instances, the fast-tracking of USPs and PPPs in general can lead to circumvention of established government guidelines, which then exacerbate the problem on unwanted and unneeded projects.

Conflict of Interest

Another trend that seems to be emerging is hiring private sector “specialists” to be advisors to newly formed PPP units, which promise to speed up the procurement of PPPs.

This is a dangerous conflict of interest situation, as there is a highly likely possibility that PPPs will be “assessed” by former private sector “experts” who are too close to their former colleagues who are proposing proposals. If this trend continues, government could experience the development of situations where procurement rules are bent through promises of expediency and are then faced with a torrent of unsolicited projects are imposed upon ministries that do not want them or are ill-equipped to manage them.

Multilateral Development Banks and Donors

Most multilateral development banks and donors are concerned enough about this trend and its implications for countries’ burgeoning debt burdens and credit ratings that they are urging governments to be careful and to adopt very clear USPs guidelines.

The World Bank’s New Guidelines

Fortunately, the World Bank’s PPP Unit has recently published a new document of USPs – “ Policy Guidelines for Managing Unsolicited Proposals in Infrastructure Projects – Volume I – Findings and Recommendations.”

The authors of the guidelines state the following – “Governments are advised to use the documents in parallel, with the hope they will support the fair and competitive delivery of infrastructure projects that generate value for money and meet the public interest.”

They also state the following –

“When it comes to infrastructure projects, “unsolicited proposals” (USPs) represent an alternative to the traditional project initiation method where the private sector, rather than the government, takes the leading role in identifying and developing a project. In practice, many public authorities across the world resort to USPs motivated by the perspective of solving the challenges brought by their lack of capacity to identify and develop projects. However, many projects that originate as USPs experience challenges, including diverting public resources away from the strategic plans of the government, providing poor value for money, and leading to patronage and lack of transparency, particularly in developing countries. To ensure governments can mobilize the strengths of the private sector while protecting the public interest, USPs, when accepted, should be managed and used with caution as an exception to the public procurement method.”

It is important to note that it is recommended by the World Bank that USPs should be the exception to the public procurement method and not the rule.

However, if USPs are to be pursued, it is critically important that the focus on procurement standards and open and transparent procurement processes be followed.

World Bank USP Observations

Fifteen Countries were selected for the report from Asia, Africa, Latin America, as well as developed countries. 

The following observations about USPs were identified and included in the report. They include the following:

  • USPs do not allow public agencies to overcome technical or financial capacity constraints
  • Most USPs are not real innovations
  • USPs may be used to avoid competition and potentially engage in corrupt practices

The report goes on to say the following if USPs are to be considered:

  • It is important to create a USP enabling environment through enacting policies
  • Purposes and objectives of a USP policy should be articulated
  • Guiding principles should b established
  • High-level policy decisions must be made by governments regarding USPs

When governments develop USP policy, the World Bank recommends that:

  • Parameters are clearly defined
  • A process be established
  • Submission and evaluation criteria be developed

During the project development stage the World Bank advises the following:

  • Allowing the USP proponent to develop feasibility studies and structure the project limits competition during a competitive tender
  • Ensuring that equal bidding conditions are maximized when project development is undertaken by the public agency (assisted by external advisors)
  • Requiring that any involvement by the USP proponent in project development be governed by a project-development agreement maximizes transparency
  • Disclosing information about the project allows stakeholders to hold public agencies accountable and allows potential bidders to familiarize themselves with the project

A fair and open procurement process is critical if USPs are to be entertained. In this regard, the World Bank advocates the following:

  • In jurisdictions with well-developed tender procedures, referring to existing procurement procedures helps ensure transparency and accountability for USP projects
  • Competitively tendering USP projects is most likely to result in a well-structured PPP contract that maximizes value for money
  • Ensuring that an adequate period for competing bidders to submit bids is provided so that competition is not limited
  • Acknowledging that it is challenging to create equal bidding conditions when a USP proponent has a strong strategic advantage over its competitors
  • Developing a direct-negotiation protocol helps ensure that a negotiation process is well managed
  • Disclosure of key documents is critical for both competitive tenders and direct negotiations

Conclusions

In conclusion, relevant final recommendations are made in the report. They include the following:

  • Public agencies face challenges related to managing large numbers of low-quality USPs, and stimulating competition in tenders for USP projects
  • Governments that lack the technical and financial capacity to implement projects experience challenges with USPs due to the same lack of capacity
  • More experienced governments use various mechanisms to encourage private-sector innovation other than USPs
  • PPP projects initiated as USPs but developed by the public agency and competitively tendered appear to perform no better or worse than publicly initiated PPPs

It is my experience that USPs should be cautiously considered, especially in countries that have a past history of corruption or a poor institutional capacity to implement PPPs.

The private sector might be concerned that it is not given the opportunity to introduce innovation through USPs. It is recommended that well-intentioned private sector players complete a comprehensive due diligence to ensure that they do not get “burned” through the pursuit of USPs. The most common dangers to the private sector are reputational and threats to their intellectual property. 

Source: World Bank – 2017 – Policy Guidelines for Managing Unsolicited Proposals in Infrastructure Projects – Volume I – Findings and Recommendations.

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