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The Swiss Challenge Method

Infrastructural development and social development are critical inputs for the growth of the Indian economy. These projects are highly capital intensive and require huge investments. Our country is facing a lot of difficulties in implementing these projects due to the huge amount of investments required. Thus, union and state governments in India have introduced various models of Public-Private Partnership (PPP) to implement such development projects.

These models include Service Contract and Management Contract, Turnkey contracts, Lease contract, Private Finance Initiative, and Private ownership, Joint venture, Viability Gap Funding (VGF), Design-Build Operate (DBO), Built Own Operate (BOO) etc. However, in such models, projects are planned by the Government and executed by private partners. The Government may not plan many innovative projects and proposals due to various reasons, for such innovative projects the government intends to provide an opportunity to private sector participants to conceive an innovative project and submit the project for consideration. Such projects can be carried out under Swiss Challenge Method (SCM).

What is Swiss Challenge Method?

Swiss Challenge Method is one of the models by which government contracts can be awarded to private players. Without any instruction from the government, a private party can submit a proposal for development of an infrastructure project with exclusive Intellectual Property Rights. Then the Government has two alternatives for the proposal. First, the Government can buy the intellectual property rights from the original proponent and call for competitive bidding to award the project and second, the government allows other private players to submit their proposals, if any proposal is better than that of the original proponent then the original proponent is asked to match with the other proposal and if he fails to do so the project is awarded to the best bidder.

Detailed Process:

The original proponent submits an innovative proposal with project report to the Government Agency or local authority depending upon the jurisdiction of the proposal. The Government Agency or the local authority first evaluates the project and then forwards it to the Infrastructure Authority along with its evaluation within the prescribed time period for approval. The Infrastructure Authority then evaluates the technical, commercial and financial aspects of the proposal and decides whether the proposal is in line with the requirements of the State and whether the sharing of risks as proposed in the Concession Agreement is in conformity with the risk-sharing framework as adopted by the Government for similar projects and if the project is in the long-term objective of the government. If the Infrastructure Authority recommends any modification in the scale, scope and risk-sharing aspects of the proposal or the concession agreement, the Original Project Proponent will have to consider and incorporate the same.

If merit is found in such suo-motu proposal the Infrastructure Authority will require the Government Agency or the Local Authority to invite competing proposals using the Swiss Challenge Method. The original proponent will be given an opportunity to match any competing counter proposals that may be better than the original proposal, if the original proponent matches or improvises upon any such counter proposal the project shall be awarded to the original proponent, otherwise, the bidder making the competing offer will be allowed to execute the project. If the project is not awarded to the original proponent, the Government Agency or the Local Authority will reimburse the original proponent with reasonable costs that may have been incurred for preparation of the original proposal and the concession agreement. The original proposal and the concession agreement prepared by the original proponent shall be the property of Government Agency or the Local Authority.

Main Aims of Swiss Challenge Method:

  • Initiation in spotting an unidentified need and provide a solution for the same.
  • To bring in technology, finance, and expertise in execution among others.
  • To encourage induction of new technology and promotion of unique solutions which could result in value addition for the project.
  • To provide financially sustainable solutions.
  • To augment public-private partnerships in sectors or projects which are not covered under the current PPP framework.

Strengths of Swiss Challenge Method:

  • This method is very useful for governments that have limited technical and financial capacity to develop projects.
  • This method promotes innovation and incentivizes to propose new ideas.
  • It also reduces transaction costs.
  • If the project is awarded to the project proponent it can be implemented faster.
  • This method incentivizes private sector participation.
  • This method is a Potential route for furthering local projects that are not national priorities.

Weaknesses of Swiss Challenge Method:

  • There are risks of insufficient transparency and inadequate competition in the Swiss Challenge Method.
  • There is no legal validity of using this method when a counter-proposal contains different specifications than the original proposal.
  • There is no symmetry in bidding time given to bidders to prepare counter proposals in relation to the time taken by the originator for preparation.
  • It is very difficult to measure the monetary value of an unsolicited proposal when contract or project is not given to the original proponent.
  • There is no guarantee that that unsolicited bidder won't withdraw its offer.

Swiss Challenge Method in India:

At least half-a-dozen states in India have used the Swiss Challenge Method to award projects in sectors including IT, ports, power, and health. Gujarat included it in the Gujarat Infrastructure Development Act, 1999, and in 2006, amended the Act to provide for direct negotiation. It was subsequently made part of the Andhra Pradesh Infrastructure Development Enabling Act and Punjab Infrastructure (Development & Regulation) Act.

Rajasthan and Madhya Pradesh have included it in their guidelines for infra projects. At the central level, the Draft Public-Private Partnership Rules, 2011, allow the Swiss Challenge only in exceptional circumstances, that too in projects that provide facilities to predominantly rural areas or to BPL populations.

Presently, Swiss Challenge Method is in the limelight because, in recent past, Cabinet cleared a proposal to redevelop about 400 railway stations through 'open invitation' from interested parties. The parties will present designs and business ideas for commercial exploitation of Railways real estate - land and air space.

Stations are redeveloped by Indian Stations Development Corporation Ltd, a Special Purpose Vehicle (SPV) set up as a joint venture between IRCON (51%) and Rail Land Development Authority (49%). But given its inability to develop all stations, the SPV proposes to accept business ideas from private players. So reportedly the government is considering allowing private developers to submit unsolicited proposals for expressways. This will quicken the process of awarding the projects and building the roads.

Conclusion:
The Swiss Challenge method is one of the best models for planning and execution of projects for infrastructural development and social development. The application of this model of public-private partnership provides a fool-proof solution for the problem of requirement of a large number of investments for the execution of infrastructural projects, it also provides scope for innovation for better execution of such projects. Many innovative schemes, propagandas, and projects about which there was no prior planning are introduced to the Government by submission of various plans by different private players.

Swiss Challenge Method also provides the Government with various alternatives to execute a particular project. It is also adopted by various states like Andhra Pradesh, Kerala, Karnataka, Rajasthan, Gujarat and Punjab in different sectors such as Roads, Bridges, Health, Land reclamation, Canals, Dams, etc. The model has been successfully tried in countries such as Virginia, Costa Rica, Chile, South Africa, Sri Lanka, China, etc.

Therefore, the Swiss Challenge Method shall be considered as a potential model for the execution of such projects related to infrastructural and social development.[1][2][3]

End-Notes:
  1. https://www.magzter.com/article/Business/BANKING-FINANCE/Swiss-Challenge-Method
  2. https://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-know-about-swiss-challenge/article24194034.ece
  3. https://www.researchgate.net/publication/318484093_Swiss_challenge_method-An_innovative_public_private_partnership_model_in_India

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