Taiwan's Unsolicited Proposal Approach: Risks and Rewards

For one, the Proponent receives the exclusive right to negotiate with the Arranging Authority the project metrics upon which competitors may submit comparative proposals. This right affords the Proponent an unmatched level of interaction with the Arranging Authority and a much stronger negotiating position than private entities have through the "traditional" solicited BOT approach. With exclusivity, the Proponent has the opportunity to tailor the project parameters and the Invitation to Bid (including pre-qualification standards for competitors) to suit its strengths and compensate for its weaknesses, negotiate adequate intellectual property rights protections, and develop a working relationship with the public host, thereby putting itself in the best position to make an informed bid.

Further, the Proponent is granted one of two pre-defined advantages: the right to match a superior competitive bid, or a bonus (i.e., a percentage over which the Proponent's bid can exceed the best offer and still be selected). Typically, foreign unsolicited proposal systems do not offer the option but rather exclusively incorporate one advantage.

As noted, the granting of the exclusive right to negotiate the Invitation to Bid affords the Proponent an opportunity to tailor the terms of the project. Another advantage for the Proponent is Taiwan's relatively short 45-day period for the submission of comparative bids. It remains to be seen, but third parties may find it difficult to prepare and submit a credible challenge under such a time constraint.

There are, however, significant risks for the Proponent in pursuing a project through the unsolicited proposal scheme. Notably, the substantial up-front costs associated with market assessment and pre-feasibility studies, engaging the public sector to determine its needs and receptivity to the proposal and, above all, the preparation of the preliminary and detailed proposals. The Proponent must bear these risks with no guarantee of being awarded the project. Another concern regards compensation for violation of proprietary rights in the event that a Proponent's proposal is rejected and the government, pursuant to the Guidelines, then adopts the idea and proceeds through a solicited approach or undertakes construction and operation itself.

Protection measures granted the Proponent in compensation for bearing such risks, and the very short tendering period in the Taiwan model, however, seem to tip the scales in favour of the project being awarded to the Proponent. Indeed, critics of the unsolicited approach claim that such advantages to the Proponent could effectively discourage competition. Advocates, on the other hand, assert that the approach opens a new avenue for private sector initiatives that could accelerate the realization of urgent infrastructure goals, that the close public-private interaction inherent in the unsolicited approach ensures the needs of all concerned are addressed and that pitfalls common to many solicited BOT projects in Taiwan (e.g., unfair allocation of risk) can be resolved before signing. To its credit, Taiwan has implemented an innovative unsolicited proposal model that offers significant new opportunities for private sector investment. Taiwanese authorities, which have limited experience with PPP in general and unsolicited proposals in particular, will be put to the test to keep the private sector "honest", and to ensure not only that infrastructure development goals and policies are met, but that the process is fully transparent, balanced and fair.

Endnotes

1 Law for Promotion of Private Participation in Infrastructure Projects, promulgated February 9 2000.

2 The Guidelines distinguish two categories of unsolicited proposals. In Type I proposals, the private entity provides land for project utilization. In Type II proposals, the government provides or assists in the acquisition of such land and/or facilities. Type I process for a successful case would include proposal, evaluation and award (there is no project outline or competitive bidding in Type I).