Earlier this year, President Duterte said he wanted to do away with public bidding for government projects. Instead, he batted for the Swiss challenge system. Supporters agreed with the President’s contention: “Let’s not have biddings anymore, because it’s slow.” Detractors countered that the Swiss challenge method is not necessarily faster, and that if it is faster, “haste makes waste”.
The traditional way for a government to provide public-works development is to put forward the project itself. That is, the government identifies what is needed and puts a detailed and hopefully complete proposal out for public bidding. The process for awarding the bidding is equally detailed and complete.
The Swiss challenge method differs substantially. The government identifies what the nation needs—a major infrastructure project like a new airport or something on a smaller scale, like new stations for an existing railway system. Based on this, a company can do its own feasibility study, decide costing and profits, and submit its proposal to the government. If the project proposal is reasonable and is initially accepted, the government offers the opportunity for other companies to challenge and perhaps beat the original proponent.
You will not find this method used in most developed countries. India, in particular, has used the Swiss challenge for some of its infrastructure development with mixed results.
The truth is that “public” bidding and the “private” awarding of government contracts have been subject to substandard completion and corruption. The award usually goes to the lowest bidder, which often cuts corners after submitting an unrealistically low bid just to get the deal. While the awarding process is supposed to be transparent and honest, we know that is not always—maybe often—the case.
In the Swiss challenge, the first company that offers the proposal is sometimes reimbursed for the cost of the feasibility study, particularly if it failed to get the project. This is being done in Chile and South Africa. The Philippines and South Korea do not do this. Other countries would buy the original study and then put the project out for competitive bidding. There is no set formula for this kind of business.
India is actually the model for the Swiss challenge, as the local and national governments have already used this method. Experience has shown that, the bigger the project, the more problems happen with the Swiss challenge. India has had good success, for example, with projects like the renovation of 400 railway stations. Its ambitious plan for 19,000 kilometers (km) of expressways was a failure because no single bidder felt confident enough to plan and bid for the entire project. Further, there were not enough companies that could even think to make a “challenge.”
The government relented and broke down the highway proposal to 16 more manageable pieces. In addition, some of the highway building was put on top priority, such as the 135-km Eastern Peripheral Expressway, the 66-km Delhi-Meerut Expressway and the 400-km Vadodara-Mumbai Expressway, which did not use the Swiss challenge.
Global experience, though, has shown that this method of infrastructure building can be more effective and efficient than the traditional “sealed-bid” process. Initially, it can tap into the private sector’s creativity, as government has a tendency to lack imagination and innovation. The “challenge” part of the process also allows other companies to come up with ideas that could improve on the proposed project.
However, caution must be exercised to ensure that a company does not try to “bite off more than it can chew” with a concept that is too ambitious. Also, local governments have had better overall success, maybe because local businesses know better what the local areas need.