Last year in June, the Andhra state cabinet approved the Swiss Challenge method amid much controversy.

Explainer Andhras Swiss Challenge method for building Amaravati and the storm over itFile photo: Facebook/Andhra Pradesh CM
news Explainer Friday, October 14, 2016 - 15:59

The High Court at Hyderabad, on Thursday, heard a petition by a city-based construction company challenging the Andhra Pradesh government's technical eligibility criteria and the process to submit bids under the Swiss Challenge method for the construction of Amaravati.

According to reports, Aditya Housing Company argued that the state had formulated tender conditions with an intention to eliminate Indian companies from participating in the bidding to develop the start-up area of Amaravati capital city.

In September,  following a petition filed by Aditya Housing and NVN Engineers challenging the government's decision to adopt the Swiss Challenge model, Justice MS Ramachandra Rao of the Hyderabad HC, had stayed the process and directed the state to file its response.

What is the Swiss Challenge method?

The Swiss Challenge method is a relatively new form of public procurement, wherein a government invites bids for a public project, and then publishes the bid, before inviting competing counter proposals to either match or better the initial proposal.

If a third party's bid is more efficient, the first bidder is asked to submit a fresh bid.

If the first bidder comes up with a better proposal, it gets the project, and if it fails, the one with the more efficient bid wins the project.

The government in return, will have to reimburse ‘reasonable costs’ incurred by the initial company in preparing the proposals, if they end up losing the contract.

Last year in June, the state cabinet approved the model for awarding the capital city's development project to the Singapore consortium of Ascendas-Singbridge and Sembcorp Development Ltd.

The government had subsequently floated a special purpose vehicle (SPV) – Amaravati Development Company – to take up various works for construction of the greenfield capital city on the banks of the Krishna river in Guntur district.

The Singapore consortium has a 58% stake in the SPV, while the remaining 42% is held by the Andhra Pradesh government.

In the case before the High Court, the selection of the developer for a 6.84-sq km start-up area in the upcoming capital of Amaravati is under question.

The petitioners are not arguing against the concept of the method, but rather it's implementation in this case and the alleged secrecy surrounding the contracts.

In an earlier session of the court, the counsel for the Aditya Housing Company argued that the state was conceding to the demands of foreign companies and keeping details of the construction contract under wraps.

The counsel also stated that the state had not disclosed anything about offers by foreign companies on revenue sharing. Such non-disclosures were not in keeping with the spirit of `Swiss challenge' method, he said.

However, AP's Advocate General claimed that state authorities had decided that disclosing details of tenders was not in public interest and therefore it was best to keep them secret. 

Claiming that the petitioner did not qualify to bid for the works and was trying to delay the project, he also argued that the details of the contracts were "proprietary information", to which the court stated that the argument could not be accepted to issues related to public works.

Is this the first time it is being used?

The Swiss Challenge method has been widely used in recent years, even by the central government.

In June last year, even as Andhra was attempting to implement it, the Centre gave its approval to redevelop 400 railway stations via this method.

According to reports, the Swiss challenge method has been used in India by various states including Karnataka, Rajasthan, Madhya Pradesh, Bihar, Punjab and Gujarat for roads and housing projects.

The method was also approved by the Supreme Court in 2009, which said that it "was a perfectly valid way of awarding contracts, especially when the bidders were told beforehand and had consented to it."

Controversy

There are advantages to the Swiss Challenge method.

The Indian Express reported:

The obvious advantages are that it cuts red tape and shortens timelines, and promotes enterprise by rewarding the private sector for its ideas. The private sector brings innovation, technology and uniqueness to a project, and an element of competition can be introduced by modifying the Challenge.

However, it is not without controversy.

The same report also suggests that a lack of transparency could be a problem, and that the method could potentially foster crony capitalism by allowing companies to employ dubious means to bag projects. 

For starters, the government will have to make all the details of the original proposal public, to allow third-party counter-proposals. But as is the case with Amaravati right now, the state often does not release the complete details of the contracts, citing "proprietary information"

Therefore, potential third-party bidders can only match or better the parts of the proposal that are in the public domain, which in-turn can be rejected by the government, claiming that the initial proposal with the withheld information was better.

In January this year, a panel led by the former Finance Secretary, Vijay Kelkar, had discouraged the Central government from following the ‘Swiss Challenge’ model of auctioning infrastructure projects in its report on ‘Revisiting and Revitalising the PPP model of infrastructure development.'

The panel's report stated that these very "information asymmetries" in the procurement process may result in a lack of transparency.

The report also questioned if there would a fair and equal treatment of potential bidders in the procurement process, as the government comparing the various proposals, may be biased.

Opposition parties in Andhra have also heavily come down on the state government’s method.

The YSRCP has persistently alleged that benami companies owned by the CM are involved in the Singapore consortium.

“The Supreme Court and the Government of India suggested the AP government not follow the Swiss Challenge model in developing Amaravati. But no suggestions were taken into consideration. Transparency is needed in why he chose only the Singaporean companies and not any other company,” YSRCP leader Botsa Satyanarayana had earlier said.

However, the jury is still out, as the Hyderabad HC has posted the case to October 17.

 

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