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Abstract
Unsolicited proposals (USPs) are permitted in many countries for public–private partnership (PPP) projects. Despite the importance of a competitive and transparent environment throughout the tendering process, USPs are typically known to have low competition and collusive agreements. This study reviews unsolicited road projects implemented through PPPs in South Korea, and empirically examines the relationship between transparency, tendering rules, and competition. First, it discovers that the weights of the price (or quantitative) components of tendering rules differ between the competitive USPs group with more than one bidder and the noncompetitive USPs group with only one bidder. All else being equal, regression analysis reveals that USPs with relatively higher weights for the price (or quantitative) components tend to have more bidders during the tendering process. Second, regression analysis identifies a measure that affects competition for USPs. With transparent and objective tendering rules, the level of competition is determined by the measure that captures how much the bidders’ scores would increase if their toll rates were decreased. Finally, a case study demonstrates how strategic behaviors and collusive agreements arise among bidders under USPs where the tendering rules are partially transparent and the initial proponents can reorganize their consortium during the tendering process. This study’s findings will contribute to expanding research on transparency and competition in tendering rules, as well as improve USPs in designing tendering rules to enhance competition.
Acknowledgements
The authors would like to thank the Editors, Florence Phua and Pablo Ballesteros-Pérez, and the four anonymous referees for their helpful comments and suggestions on our earlier draft. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Korea Development Institute or the Public and Private Infrastructure Investment Management Center. Moon acknowledges that this work is supported by a research grant from Seoul Women’s University (2024).
Disclosure statement
The authors identify no potential conflict of interest to disclose.
Data availability statement
The data that support the findings of this study are available from the corresponding author upon reasonable request.
Notes
2 Transparency International (https://www.transparency.org/en/what-is-corruption).
3 Chau et al. (Citation2024) also reports the results from the Vietnam Provincial Competitiveness Surveys in which more than 50 percent of the private companies agree with the survey questionnaire “paying a commission is necessary to win procurement contracts”.
4 In 2005, the BTL type was introduced for social infrastructure such as schools and military housing (KDI-PIMAC, Citation2020). The BTL type is considered the government-pays mechanism, called the “availability payments” mechanism, where a return on investment can be reimbursed by the government.
5 According to KDI-PIMAC (Citation2022), 66 road projected were implemented through PPPs from 1992 to 2021 (Table V-3). 48 projects were unsolicited while 18 were solicited (Table V-12).
6 The Public and Private Infrastructure Investment Management Center (PIMAC) which is dedicated to reviewing and evaluating public investment projects including major government-financed projects and PPP projects in order to improve efficiency and transparency in their implementation.
7 Lorentziadis (Citation2010) argues for the possibility of the emergence of an unfair evaluation process in which too much emphasis is placed on particular evaluation factors. In this study, we focus on Price Factors. The maximum points placed on Price Factors are not quite different across the projects examined in this study.
8 With probability the bidder could incur a cost associated with preparation of tender documents.
9 More detailed information can be found at https://infrainfo.kdi.re.kr/pv/intrcn/infrainfoIntrcn.do.
10 The participating bidders’ characteristics are not available either.
11 Local governments are divided into high-level and low-level local governments. The number of high-level local governments is 17 (Seoul, Sejong, six metropolises, eight provinces, and Jeju). The number of low-level local governments stands at 226 which consist of 75 cities (si), 82 counties (gun), and 69 districts (gu).
12 It should be noted that total costs do not fully reflect complexity and technical sophistication such as bridges, soil conditions, and the quality of materials.
13 We use 2015 US dollar to South KRW purchasing power parities (PPPs) of 1/857.483 from OECD.
14 The bonus system is a mechanism under which the initial USP proponent receives bonus points in the evaluation stage of the submitted bids during the open tendering process. Bonus points give the initial proponent an advantage over the other bidders. Countries using the bonus system generally have a certain percent of the total points.
15 Please see Moon et al. (Citation2023) for the institutional features of bonus points in South Korea and the empirical relationship between bonus points and the number of bidders.
16 The 3-year government bond rate is included to control for exogenous variations in estimating both models. Time effects (year and quarter of public announcement for projects) could be incorporated into the model as dummy variables, but the sample size is not sufficiently large to do so. Instead, the yield on the government bonds is introduced. For the same reason, a linear relation in construction duration and operation duration is assumed even though a quadratic is less restrictive than a simple linear specification.
17 Our finding is consistent with Kumar and Raj (Citation2019) that identify the influencing factors of the contractors’ bid decisions. One of the top-ranked factors is total bid value.
18 Attribute is set to one in some RFPs and takes a value greater than one in others. See Table A-2 in Appendix.
19 We find that many RFPs take the same evaluation formula for toll rates and government subsidies. See Table A-2 in Appendix.
20 Nonparametric regression requires more observations than linear regression to produce consistent estimates. Cameron and Trivedi (Citation2005) highlight that nonparametric methods slice the data in several dimensions, leading to too few observations in each slice.
21 Munsan, a town of Paju, Gyeonggi Province, is close to the edge of the Demilitarized Zone (DMZ). Gwangmyeong, a city in Gyeonggi Province, borders Seoul to north.
22 See Project ID #26 of Table A-1 in Appendix.