SWISS CHALLENGE METHOD

As the name itself suggest Swiss Challenge System is a new bidding process to help private sector initiative in core sector projects. It's an offer made by the original proponent to the government ensuring his process to be best (in terms of effectiveness including both the factors cost and time) by his initiative as a result of his own innovative approach or on the demand of the government to perform certain task. It entails a private sector enterprise (the original proponent) sou motu identify a project and then going to the government with the proposal.

A Swiss challenge is a form of public procurement in some (usually lesser developed) jurisdictions which requires a public authority (usually an agency of government) which has received an unsolicited bid for a public project (such as a port, road or railway) or services to be provided to government, to publish the bid and invite third parties to match or exceed it.1

ScopeAs per PPP cell, Govt. of Karnataka Swiss Challenge is applicable for either an "Innovative" OR "Suo-Moto" proposal.2

The Gujarat Infrastructure Development (Amendment) Act, 2006 prescribes the project with Swiss Challenge System to be one of the following nature:

1. A project which is innovative or involves proprietary technology or franchise which is exclusively available with the person globally.

2. A project wherein competitive public bidding has failed to select a developer.3. A project to provide social services to the people including community services and public utilities.4. An infrastructure project which is an essential link for another bigger infrastructure project owned

or operated by the same person.3

JustificationThis system provides companies with considerable incentives to propose new ideas. If they are able to propose a sufficiently innovative idea there is likelihood that the company gets the contract. However, the system also allows other companies to submit a better proposal within due proposed time and hence this system allows a competitive platform for everyone. At the same time, it protects the government from making expensive mistakes if the idea is not specific to the originating company and other companies are able to provide the services at a lower price.

Problems with the systemAs each system contains some inevitable flaws and certainly Swiss Challenge System is no exception to it. Some of the problems which were experienced while implementing this system are, like it is not clear in the system as to what procedure to adopt when the challenger's counterproposal contains different specifications than the original proponent's proposal. Even time constraints on counterproposals gives an obvious competitive advantage to the original proponent, as the amount of time and efforts he has already spent while preparing the project will always be more than the time the challenger gets. 

1 Wikipedia.org2 Guidelines for procurement of PPP Projects through Swiss Challenge Route.3 Schedule III (sub-section 1 of section 10A)

Constitutional validity of swiss challenge methodIn the Landmark case of Ravi Development v. Shri Krishna Prathisthan4, the Supreme court approved the constitutional validity of swiss challenge method. The Supreme court setting aside the decision of Bombay High Court of holding swiss challenge method as wholly unfair, unreasonable, arbitrary, illegal and contrary to law held that The method is transparent inasmuch as all the parties are well aware of the "right of first refusal" accorded to the "originator of proposal". As per the method which was known to all the parties the originator of the proposal must in consideration of his vision and his initiative be given to the benefit of matching the highest bid submitted. The said method is beneficial to the government inasmuch as the government does not loose any revenue as it is still getting the highest possible value. In view of shortage of land, increasing cost in housing sector, the Central and State Governments recommended strongly for public private joint ventures and in the said category Swiss Challenge method is the acceptable democratic method as compared to other options. To make public-private participation an effective approach Swiss Challenge Method or any other encouraging concept should be duly publicized first. The effort of public-private participation can only be possible when private entities are aware of such scheme. Also in the scheme of availing a new system thorough rules and regulations are needed to be followed otherwise unfairness, arbitrariness or ambiguity may creep in.The Supreme court in this case also made certain suggestions for ensuring smooth implementation of swiss challenge project in the future, thereby reducing any allegations of arbitrariness and ambiguity. Some of the suggestions were:

1. The State/Authority shall publish in advance the nature of Swiss Challenge Method and particulars;

2. Publish the nature of projects that can come under such method;3. Mention/notify the authorities to be approached with respect to the project plans;4. Mention/notify the various fields of the projects that can be considered under the method;5. set rules regarding time limits on the approval of the project and respective bidding:6. the rules are to be followed after a project has been approved by the respective authorities to be

considered under the method.7. All persons interested in such developmental activities should be given equal and sufficient

opportunity to participate in such venture and there should be healthy inter se competition amongst such developers.

State discretion to adopt any method in tender processIn Siemens Public Communication Networks Pvt. Ltd. and Anr. v. Union of India and Ors.5, the Supreme court held that the State, its corporations, instrumentalities and agencies have the public duty to be fair to all concerned. Even when some defect is found in the decision making process, the court must exercise its discretionary powers under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference the court should interfere.

In Air India Limited v. Cochin International Airport Limited6, it was held that the award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision considerations which are paramount are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of

4 (2009) 7 SCC 462 5 2009 (1) SCJ 6346 (2000) 1 SCR 505

invitation to tender and that is not open to judicial scrutiny. It can enter into negotiations before finally deciding to accept one of the offers made to it. Price need not always be the sole criterion for awarding a contract. It is free to grant any relaxation, for bona fide reasons, if the tender conditions permit such a relaxation. It may not accept the offer even though it happens to be the highest or the lowest. But the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. Though that decision is not amenable to judicial review, the court can examine the decision-making process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness.

In Monarch Infrastructure (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corporation and Ors7, the court laid down following principles with regard to legal position on the question of tender process and award of contract:

(i) The Government is free to enter into any contract with citizens but the court may interfere where it acts arbitrarily or contrary to public interest.(ii) The Government cannot arbitrarily choose any person it likes for entering into such a relationship or to discriminate between persons similarly situate.(iii) It is open to the Government to reject even the highest bid at a tender where such rejection is not arbitrary or unreasonable or such rejection is in public interest for valid and good reasons.

The Apex Court in Tata Cellular v. Union of India8 held that the present trend in all the jurisdictions, points to judicial approach of non-interference unless the action impeached is absolutely arbitrary and mala fide. If the Government as owner of public sector undertaking invites a partner for joint venture and disinvests its share or its financial interest, there should be very strong reasons and grounds for interfering with the decision of the Government in choosing a preferred participant.

7 AIR 2000 SC 22728 AIR 1996 SC 11, (1994) 6 SCC 651