Competitive performance of public–private partnerships: unsolicited proposal projects and tendering rules in South Korea

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.