Unsolicited proposals and the Swiss challenge in India

What the World Bank found

India was one of the countries covered in the experience review behind the 2017 World Bank and PPIAF guidelines on unsolicited proposals ¹.

Public officials in India cited limited public capacity as a constraint on project development ¹. The guidelines group India with the United Kingdom and most of Western Europe as places that strongly discourage unsolicited proposals or do not allow them ¹.

A 2007 PPIAF working paper reviewed two Indian states. It said Gujarat gave the original proponent 30 days to match a better offer. It said Andhra Pradesh set no timeframe ⁶.

Andhra Pradesh: the 2001 Act

The Andhra Pradesh Infrastructure Development Enabling Act, 2001 was enacted on 10 October 2001 ². It defines an unsolicited proposal as one for a project not already started by a government agency or local authority ².

Under section 19(II) the Swiss challenge applies to Category II projects that a private firm starts. That firm is called the Original Project Proponent. The agency invites counter proposals, and the proponent may get a chance to match a more attractive one ².

If another bidder wins, the agency reimburses the proponent's reasonable costs of preparing the proposal. Government norms set those costs ². Act 3 of 2017 removed sub-clauses (iv) to (vii) of this part of section 19. It added a rule that the approach is followed subject to approval of the Competent Authority ².

Meghalaya: the 2020 office memorandum

The Meghalaya Finance Department issued Office Memorandum No. FEA.67/2020/02 on 7 July 2020. It appeared in the Gazette of Meghalaya on 6 August 2020 ⁵. It defines the Swiss challenge as procurement in which a third party may challenge an unsolicited proposal through open bidding and the original proponent may counter-match the best bid ⁵.

• The proponent sends an application and a pre-feasibility report to the Administrative Department ⁵.
• If the department finds the proposal unique, appropriate and in the public interest, it sends it through the Planning Department to the State Level Empowered Committee, chaired by the Chief Secretary ⁵.
• If the committee agrees, the proponent has three months to submit a full proposal with a Detailed Project Report ⁵.
• The proponent's bid value goes in a separate sealed cover and is opened with the other financial bids ⁵.
• If another bidder is lowest or most advantageous, the proponent may match within a maximum of fifteen working days. If it does not, the other bidder wins ⁵.
• The winning bidder pays the proponent's report costs before signing, capped at 0.10% of the bid value ⁵.

Supreme Court rulings

In Ravi Development v. Shree Krishna Prathisthan, decided on 11 May 2009, a bench of P. Sathasivam and K.G. Balakrishnan reviewed a Swiss challenge used on a pilot basis by MHADA for its land ³. The tender gave the original proposer a first right of refusal to match the highest bid ³.

The Court held that adopting the method was within executive discretion and was neither arbitrary nor unreasonable. It said the process was transparent, as all parties knew of the right of first refusal. It set aside the Bombay High Court order of 27 March 2008 ³.

In paragraph 30 the Court said the method should be publicised first. It suggested that states publish the method in advance, the types and fields of eligible projects, the authorities to approach, time limits and the rules after approval. It said all interested persons should get equal and sufficient opportunity to take part ³.

In National Highways Authority of India v. Gwalior Jhansi Expressway Limited, decided on 13 July 2018, the Supreme Court dealt with a contractual right of first refusal to match the lowest bid. It held that the right came into play only if the holder took part in the tender ⁴.