Disincentivising overbidding for toll road concessions

1 │ INTRODUCTION
1Introduction
1.1 Research brief
This study looks at ways to disincentivise overbidding for toll road concessions. Overbidding is to bid more than an
asset’s value or worth, typically in an auction context. Although from a seller’s perspective in a private sale, this may
be acceptable (perhaps even desirable), such behaviour could have less desirable consequences for infrastructure
concessions when the sellers—state procuring agencies—retain strong economic and political interests in, and
exposure to, the asset being transferred temporarily to private sector stewardship.
The study has a forward-looking and international focus. Although reference is made to domestic past practice, the
emphasis is on looking at lessons from other countries, which might be used at a practical level to shape toll road
concessions, contract design, bid submissions and evaluation, and contract award in Australia in the future.
The study is one of a number of related initiatives being pursued by the Department of Infrastructure and Transport
(DIT), aimed at improving the planning and delivery of public infrastructure projects.
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In June 2011, the Bureau of Infrastructure, Transport and Regional Economics (BITRE) published an international
review of the traffic forecasting performance for toll roads, and proposed possible risk-mitigation measures. 2
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Also in June 2011, a Patronage Forecasting Symposium in Canberra examined optimism bias and error in
predictions of toll road use, and made specific recommendations for future practice. 3
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In December 2011, GHD/RBconsult published a report—commissioned by BITRE and building on the findings of
the Symposium—that investigated in detail the reasons behind over-optimistic forecasts of demand for a number
of Australian toll roads. 4
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In February 2012, the DIT published a consultation paper on potential remedies for managing demand
forecasting and patronage risk in public–private partnership (PPP) toll road projects, seeking the views of
industry participants and other interested parties. 5
The findings of this report feed into, and should be viewed in the broader context of, the microeconomic reforms that
the Australian government is currently investigating for the toll roads sector.
2 Bureau of Infrastructure, Transport and Regional Economics (2011), ‘Review of Traffic Forecasting Performance Toll Roads’, June, available at
www.infrastructure.gov.au/infrastructure/public_consultations/files/attach_a_bitre_literature_review.pdf
3 Bureau of Infrastructure, Transport and Regional Economics (2011), ‘Patronage Forecasting Symposium: Summary of Outcomes’, June, available
at www.infrastructure.gov.au/infrastructure/public_consultations/files/attach_b_patronage_forecasting_symposium.pdf
4 GHD and Bain, R. (2011), ‘An investigation of the causes of over-optimistic patronage forecasts for selected recent toll road projects’,
December 8th, available at www.infrastructure.gov.au/infrastructure/public_consultations/files/attach_c_gdh_report.pdf
5 Department of Infrastructure and Transport (2012), ‘Addressing Issues in Patronage Forecasting for PPP/Toll Roads’, Consultation Paper,
February, available at www.infrastructure.gov.au/infrastructure/public_consultations/files/patronage_consultation_paper.pdf
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