Swiss Challenge Method in Government Contracts

Swiss Challenge method is one of the ways of awarding government contracts to private players. Without an invitation from government, a private player can submit a proposal to government for development of an infrastructure project with exclusive intellectual property rights. Then government has two options with it:

• Government can buy the intellectual property rights from the original proponent and call for a competitive bidding to award the project.
• Government allows other players with similar capabilities to submit their proposals. If any proposal is better than the proposal of the original proponent, the original proponent is asked to match with the other proposal. If he fails, then it would be awarded to the best bidder.

Is Swiss Challenge method new to India?

Many states in India are using this method of awarding contracts for roads and housing projects. Several states included it in their infrastructure development acts. The Draft Public Private Partnership Rules, 2011 allow the use of Swiss Challenge only in exceptional circumstances – that too in projects in rural areas or to BPL populations. In 2009, the Supreme Court of India has approved the Swiss Challenge method for awarding contracts.

What are the advantages?

Swiss Challenge method would encourage the private players to bring innovation, technology and uniqueness in development of projects. It will bring in cost efficiencies, cuts the red tape and shortens the project timelines.

What are the issues?

The Central Vigilance Commission (CVC) had earlier observed that there is a lack of transparency, and lack of fair and equal treatment of potential bidders in the Swiss Challenge method. It advocated fully transparent and competitive procedures for procurement for PPP projects. The erstwhile Planning Commission of India had advised some State governments to adopt Swiss Challenge method as an exception rather than a rule. Recently, the Vijay Kelkar panel on ‘Revisiting and Revitalising the PPP model of infrastructure development’ had discouraged the government from following the ‘Swiss Challenge’ model. Without a strong legal and regulatory framework, the method fosters crony capitalism and is also conducive to discretionary favours being shown to a private party by the government of the day. It is argued that this method shows bias towards the originator.

Is it suitable to India?

As there is no strong legal framework in India, it is suggested that this method may not be adopted for large scale projects where such projects are challenged in case of a lack of transparency or poor disclosures. Smaller projects can be awarded through this method. This method is more suitable to the projects where creativity and design and innovation are key determinants to project success.