30 March, 2018
Under the Build, Build, Build program, the government intends to spend $158 billion over the next five years in public infrastructure projects. This means that by end of President Duterte’s term in 2022, infrastructure spending will reach around 7.3% of GDP, a significant increase from the 5.1% spending in 2016. This huge public spending for government infrastructure projects present vast opportunities for construction firms and other businesses related to it.
The government plans to reach this ambitious goal by forging more public-private partnerships through a transparent procurement process.
In relation to this, President Duterte earlier this year announced that for the procurement of projects under the Build, Build, Build program, government will adopt the Swiss Challenge. Understanding the concept of Swiss Challenge is therefore key in order for a prospective contractor to take part in the infrastructure boom.
Swiss challenge is procurement system accepted in several jurisdictions, including the Philippines. Authors and experts say that the term “Swiss Challenge” was coined to compare a government’s impartiality in awarding contracts to the private sector to Switzerland’s neutrality during the World Wars 1 and 2.
The term Swiss Challenge is described in Republic Act No. 6957, otherwise known as the Build Operate Transfer (BOT) law, as the system to be followed when projects are procured through unsolicited proposals from private sector. Section 4-A of the BOT law allows acceptance of unsolicited proposals for projects which do not require direct government guarantee, subsidy, or equity and more importantly, which involves a new concept or technology. Notably, Section 10.3 of the implementing rules allows it as long as the proposal involves a new concept or technology.
A project is considered to involve new concept or technology under Rule 10, Section 10.2 of the BOT law IRR if it possesses at least one (1) of the following attributes: (a) a process which significantly reduces construction costs, accelerates project execution, improves safety, enhances project performance, extends economic life, reduces costs of facility maintenance and operations or reduces negative environmental impact or social/economic disturbances or disruptions either during the construction or operation phase or (b) a process for which the proponent possesses exclusive rights, either world-wide or regionally or intellectual property rights.
Once the unsolicited proposal is shown to possess the foregoing, it will be subject to the Swiss Challenge before the project is awarded to the proponent.
Section 4-A of the BOT law describes Swiss Challenge procedure as follows:
- Original proponent submits an unsolicited proposal for a qualified project;
- Government will publish for three (3) consecutive weeks, an invitation for comparative or competitive proposals;
- The qualified project shall be awarded to the original proponent if no proposal is received for a period of sixty (60) working days;
- In the event another proponent submits a lower price proposal, the original proponent shall have the right to match that price within thirty (30) working days.
The foregoing process was summarized by the Supreme Court in the case of SM Land, Inc., v. Bases Conversion and Development Authority (G.R. No. 203655, 13 August 2014) where it defined Swiss Challenge as a system where “[a] third party can bid on a project during a designated period but the original proponent can counter match any superior offer.”
The government in advocating the Swiss Challenge also promotes modernization of infrastructure through intense private sector participation. Relevantly, the Supreme Court in SM Land, Inc., v. Bases Conversion and Development Authority explained that “the development and adoption by several countries of the Swiss Challenge scheme is attributed to the recognition that the private sector can be an important source of technical and managerial expertise, as well as financing, as evidenced by private companies’ practice of directly approaching governments with new and innovative project ideas through unsolicited proposals.”
It appears then that this administration’s inclination to Swiss Challenge scheme for the Build, Build, Build program is not only intended to enhance private sector participation. By favoring the Swiss Challenge, the government adopts a policy which gives a premium to innovation and the introduction of new technologies. This policy is beneficial not only to contractors and investors but also to the general public because it will pave the way for the modernization of Philippine infrastructures.
For further information, please contact:
Juan Paolo G. Alfonso, Angara Abello Concepcion Regala & Cruz (ACCRALAW)
jgalfonso@accralaw.com
