RebelGroup (or “Rebel”)—the majority Dutch firm with offices in Rotterdam, Antwerp, Manila, Johannesburg, and Washington D.C.—has been advising governments on the development of infrastructure projects for 15 years. Over the past decades, Rebel has both experienced and shaped some of the major trends in the global infrastructure market—including a significant growth in the use of public-private partnerships (PPPs).
PPPs allow a government to engage a private company for the construction, maintenance, operations, and financing of an infrastructure project in a long-term contract that—through its focus on optimal risk allocation and performance incentives—maximizes value to society. PPPs have relieved many governments from the cost overruns and delays that traditionally plagued infrastructure projects, allowing more projects to be delivered on-time and on-budget.
The growth in PPPs, however, has also been accompanied by a rise in “unsolicited proposals”—a trend which has not been without controversy. A World Bank initiative aimed to help resolve this controversy, dispel common myths, and fill a critical policy gap by providing concrete guidelines.
How does typical project-planning work for infrastructure PPPs?
In a typical PPP, the government plans an infrastructure project based on a detailed analysis of sectoral needs and gaps. For example, a large employment center several kilometers outside a city might prompt a transportation agency to propose a light-rail project to ease commuter access. Or, an overflowing city landfill might result in a proposal for a new recycling center.
Typically, government agencies have long “wish lists” of projects, which are prioritized based on government plans and available funds. Once a preferred project is selected, it must be studied in detail—technical consultants develop preliminary designs; legal consultants study potential risks; and financial consultants assess costs and revenues. Finally, the public agency is ready to take the project “to the market.” It requests proposals from private bidders in a competitive process in which the most favorable proposal—the one that maximizes value for society—is selected for implementation.
How are “unsolicited proposals” different?
“Unsolicited proposals” follow a slightly different—and more unconventional—path. A private firm (a “proponent”) approaches a public agency at its own initiative and proposes to develop and implement an infrastructure project that the government may, or may not, have thought of.
Such a proposal can have its benefits—sometimes, the private sector may propose solutions that the government may not have considered. Often, however, unsolicited proposals wreak havoc on public planning—particularly in countries where infrastructure planning may be less well-developed.
Public officials may not know what to do with the unsolicited proposal, and it may distract them from focusing on priority projects. An unsolicited proposal may be approved without assessing whether it represents the “best deal” for society. In the worst cases, an unsolicited proposal may be used as an opportunity to conduct a closed-door negotiation with a single bidder—raising the risks of corruption, nepotism, and overall misuse of public money.
A World Bank initiative aims to fill a policy gap
The World Bank has warned about the challenges of unsolicited proposals for the past decade. However, to date, no guidelines existed to help governments manage them.
Part of the difficulty in developing global guidelines was countries’ different approaches. South Africa allowed unsolicited proposals as part of its PPP framework but—after a few failed experiences—was strongly discouraging them. Colombia, on the other hand, was actively using them to speed up its fourth generation of highway concessions. And, whereas the United Kingdom and most European countries had decided not to allow unsolicited proposals, Italy had relied on them for many years, engaging in fervent debates about the most appropriate reward for the private proponent.
In 2015, the World Bank selected Rebel to help close this policy gap by developing global guidelines based on a review of countries’ experiences.
The main recommendations
The resulting policy guidelines answered some of the key questions that governments face.
- Should a government allow unsolicited proposals? That depends. Rebel concluded that unsolicited proposals were neither good nor bad perse—but that their usefulness depended on how they were managed. Governments unable to ensure the public interest were urged to avoid unsolicited proposals altogether. All other governments could consider them—if they fit within their overall infrastructure strategies.
- How should unsolicited proposals be managed compared to ‘regular’ PPPs? Rebel recommended that governments avoid creating deviations from existing laws and regulations, encouraging unsolicited proposals to follow the ‘regular’ PPP processes.
- What about the feasibility studies—can private proponents develop them? Preferably not. Rebel recommended that most feasibility studies be undertaken by the government. Limiting the role of proponents in the development of these studies was found to strengthen the government’s ability to negotiate a “good deal” for citizens.
- Can governments negotiate unsolicited proposals directly with the proponent? Only in very exceptional circumstances. Rebel recommended that, to the extent possible, all unsolicited proposals be subject to a competitive process. Only if a project did not attract market interest could it be negotiated directly with the original proponent.
For more information on these policy recommendations, refer to the final report, which can be found here: https://ppiaf.org/documents/5367?ref_site=kl
Rebel around the world
The policy guidelines on unsolicited proposals are just one example of Rebel’s advisory work for the World Bank. Rebel recently supported the IFC to successfully close the first PPP in the Kyrgyz Republic, and supported the World Bank to design a new framework for Indonesia’s Ministry of Finance. Rebel is also supporting the World Bank in several countries to identify infrastructure projects, prepare these projects, develop new PPP frameworks, and provide capacity-building to successfully implement PPPs.
For more information, contact Marcel Ham at email@example.com