Risk Management and Governance for PFI Project ... - Title Page - MIT

Tendering System
After understanding the legal system as described above, this section considers the system of public
procurement-related institutions. Table 14 describes the tendering systems for public works
implemented in different countries. The bidding and contract methods for public work contracts in
Japan are different from those in other countries because each country has created them to reflect
the features of its construction market, economic institutions, and practices.
The characteristic tendering systems in the US is based on competitive negotiated proposals and the
best value. Under the system of competitive negotiated proposals, the government presents
a ”Request for Proposal (RFP)” to bidders, and the bidders submit proposals to meet the needs of
the government. The government then examines and evaluates the proposals to choose a contractor
from among them. In this process, the government is allowed to discuss with bidders regarding
defects of their specifications, and the bidders are given the opportunity to revise their proposals
before the selection of a successful bidder. In this negotiation process, the government will not
disclose the names of other bidders, the number of these competitors, and the proposals made by
other bidders, and each bidder will make effort to create the best proposal to win a contract, which
will promote competitive pricing. In competitive negotiated proposals, the government needs to
predefine factors to be evaluated to ensure the “best value” for the government. The government
should always consider various factors, including price, quality, qualification of employees,
business management, and past performance. In evaluating these factors, it is required to attribute
more importance to a narrative description than to a quantitative evaluation and rating by scores,
and the evaluation results should be explained by narrative descriptions.
The biggest feature of Japan's traditional bidding system, however, is that it lacks competitiveness
compared to other countries. For example, the “designated competitive bidding system”, which can
preclude the general entering, is widely conducted for public works 22 . As for the criteria for being
awarded a contract, the lowest bid price was adopted as the principal criterion 23 , which can hardly
prevent collusive bidding. In addition, the Public Accounting Law does not permit any negotiations
for placing orders for public works, and the national government does not negotiate with bidders.
These characteristic institutions have eliminated the competition, formed a hotbed of bid rigging,
and created a mechanism that produces cozy relationships, including the protection of local
suppliers.
22 The open and competitive bidding system is conducted for large public works that are covered by the WTO Agreement
on Government Procurement.
23 In fiscal 1999, however, competitive bidding in which not only the bid price but also technical advantages and quality
are evaluated (called “technical proposal integrated evaluation system”) was also approved based on comprehensive
agreement with the Minister of Finance. It should be noted that the bidding method of PFI applies “Integrated Evaluation
Method (Open Tendering)” in principle rather than the lowest price as described above.
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