The Hindu Business Line : The Swiss Challenge System

Under the system, the government makes the unsolicited project proposal of a private party public and calls for better terms from others within a specified time.

S. Murlidharan

The Swiss Challenge System (SCS), briefly, is about proposals taken to government and government authorities by private parties, unsolicited. The operative word is unsolicited. Why should they do so? To be sure, they may not be entirely driven by altruism.

To get the government interested of course there must be an element of altruism or public good in it. The private party might have got brainwave from what he has seen abroad or what he has read while doing his thesis. Apparently, he must have smelt attractive profits from it.

The role of SCS

Now, it is for the government to examine whether it is worth implementing. If it is sold on the idea, it cannot straightaway award the contract to the private party who has made the proposal because that would invite charges of nepotism. It is here the SCS comes handy.

The government makes the proposal public and calls for better terms from others within the specified time with the original player having the right to improve upon his terms in the light of what his challengers have brought to the table.

Unsolicited projects are debatable. While sceptics may smell something fishy in them, pragmatic people consider them with the same approval they accord to private initiative in science. Yes, there is a lot in common between the patent regime and SCS.

But for the patent regime, scientific inventions would have dried up for want of recognition and financial incentive engendered by the limited monopoly. The price one pays for patent is disclosure so that after the patent period, the invention belongs to the public domain. Something similar happens under SCS and its adjunct unsolicited projects. The government obviously cannot be the repository of all the wisdom though it is admittedly the monarch of all it surveys as far as public goods are concerned. That is why Public Private Partnerships (PPPs) have blossomed all over the world. And PPP has spawned unsolicited projects which has a sinister ring to it but need not be demonised, according to their proponents, if a proper system of SCS is put in place.

Patent, in the realm of scientific inventions, is all about private initiative. Ditto for unsolicited projects. Both are subjected to challenge. While unsolicited project proposals are allowed to be challenged before the project is awarded, patents run the risk of being challenged in perpetuity, as it were. Be that as it may.

Many countries including India are sold on the idea of SCS. In the Philippines and South Korea most of the public projects are executed under the SCS mode. In India, the governments at both at the Centre and the States have embraced the idea enthusiastically with a caveat from the Central Government that though a variant of PPP, the Government would not have anything to do with the funding of the project.

And on May 12, the apex court cast its imprimatur on the concept while quashing the order of the Bombay High Court which had frowned upon SCS in MHADA vs Shree Osta Builders.

Flip side

While SCS has many adherents amongst the market enthusiasts, there are many who are worried about its flip side. The person making the original proposal gets a head-start.

In fact, he approaches the government only after studying every facet of the problem and its solution. The challengers typically get 60 days time to submit a better proposal and are hence at a severe disadvantage. Having had the first mover advantage, he ensures that he is going to bag the contract come what may. Because being the first mover, he has greater and deeper insight into the project.

Second, in all likelihood he would have heavily padded his project cost and returns and it would be kid’s play for him to tone down his ambition in the light of the challenge mounted. That is why critics say that bonus system is better than SCS. Under the bonus system, the one making the original proposal does not get the first right of refusal — he only gets, say, a 10 per cent price preference for his pioneering efforts.

SCS is supposed to be a transparent system, the one that gives others a fighting chance to better the terms set by the original proposal. But the first mover advantage coupled with the first right of refusal conferred on the one bringing in the original proposal could well sow the seeds of scandals in the making with the prime allegation being that the system has but a veneer of transparency.

SCS then could be in the doghouse for the same reason the Swiss banking laws are — lack of transparency.

(The author is a Delhi-based chartered accountant.)

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