Disincentivising overbidding for toll road concessions

4 │ INTERNATIONAL PRECEDENT FROM OTHER SECTORS
41
International precedent
from other sectors
In this section, the focus shifts away from the toll roads sector to other sectors that have faced similar issues.
Section 4.1 introduces the approach of the UK DfT to introducing ‘competition for the market’ in passenger rail
franchising. This provides important insight into best practice from an international comparator, but also highlights
that issues surrounding overbidding are not confined to the toll roads sector.
The UK 3G spectrum auction discussed in section 4.2 outlines the steps taken by the Radiocommunications Agency
to achieve efficiency in the allocation of radio spectrum.
Finally, the CAPEX menu forecasting regime adopted by Ofwat, the regulator of the water sector in England and Wales,
is presented in section 4.3. While not directly comparable in terms of the overbidding problem, this regime could
represent an innovative solution to the problem of incentivising truthful revelation of forecasts by corporations that
stand to gain by ‘gaming’ the system.
4.1 UK Department for Transport
Passenger rail services in the UK have been delivered through franchising since the privatisation of British Rail’s
passenger rail operations under the Railway Act 1993. The franchises are competitively procured and form an
agreement between the DfT and the privately owned train operating companies (TOCs). The DfT’s objective in
awarding franchises to bidders is to provide passengers and taxpayers with a safe, reliable service and VfM.
This section reviews the procurement process currently adopted by the DfT to draw out lessons for procurement
best practice.
4.1.1 The procurement process 106
Pre-qualification
Before issuing an invitation to tender (ITT), the DfT requires bidders to complete a pre-qualification questionnaire,
which is used to narrow down all submissions into a small field of ‘high quality’ bidders. The DfT has noted that it
believes the optimum number of bidders in the franchising process to be between three and five (since this balances
the need for competition against keeping the costs of the bidding process low). 107 The companies that pre-qualify are
those that score highest against two equally weighted criteria in their questionnaire responses:
••
demonstration of a ‘proven track record of service delivery and financial management in relevant areas of
activity’, including an assessment of any past failure to deliver on contractual commitments;
••
demonstration of ‘appropriate outline plans and experience for the development and management of the
Franchise’.
Only those three to five companies that make it through the pre-qualification phase are issued with an ITT.
106 Department for Transport (2011), ‘A guide to the railway franchise procurement process’, December.
107 Ibid.
47