Swiss Challenge Model: Applicability in the Infrastructure Sector

Public Private Partnerships (PPPs) have been hailed in the infrastructure sector of the country for their ability to bring together public and private entities towards the efficient development of infrastructure. It is an arrangement between a public authority and a participant of the private sector for developing, implementing and executing infrastructure projects wherein the private sector is responsible for financing or design, development, construction, maintenance or operation depending on the project.

In a PPP, the risks are allocated to the party that is better suited to undertake the risk. As consideration for developing the infrastructure, the private sector participant is entitled to receive payments for the services in the form of user charges or annuities or as agreed in the concession agreement entered between the public authority and private sector participant. The first step involved in awarding a PPP project is to identify a bidder and usually, this identification is done through a competitive bidding process.  Recently, the Swiss Challenge Model has also been developed as one of the methods for bidding for projects.  

Validity of the Swiss Challenge Model

Although implemented in several states like Rajasthan, Karnataka, etc., the validity of the Swiss Challenge Model was cemented in the 2009 case of Ravi Development v. Shree Krishna Prathistan & Others.[1] In this case, a suo moto proposal for the development of certain plots of land was made to the Maharashtra Housing and Area Development Authority (MHADA) by the appellant, Ravi Development, where the authority had decided to adopt the Swiss Challenge Method on a pilot basis. The award of the project to the appellant was challenged by several bidders on the grounds that it was unfair, and arbitrary, and conferred preferential treatment to the appellant.

The main contention of the respondents in claiming that the award of the project was arbitrary was that the proposal was not innovative in nature, which according to them was a pre-requisite for a project to be awarded under the Swiss Challenge Method. Based on the aforementioned contentions, the Bombay High Court struck down the bidding process and the contract for the project awarded to Ravi Development.

The High Court, however, failed to consider the fact that there was no such requirement of “innovativeness” specified in any of the bidding documents or the advertisement inviting the bids. Further, the participants of the bid were not only made well aware that MHADA sought to implement the Swiss Challenge Method on a pilot basis for the project, but also explained the process in detail while mentioning that the original proposer to the project would be given the right to first refusal. The participants also submitted an undertaking to this effect which clearly highlights their knowledge of the existence of an original proposer and also of the rights bestowed to him. Thus, the Supreme Court was of the view that with the existence of such a clear notice, the bidding process and the final award of the project could in no way be said to be unfair, arbitrary or seeking to confer preferential treatment upon the appellant. Therefore, the Supreme Court held the process to be valid to that effect.

The validity of this judgement holds good even today where the Swiss Challenge Method is no longer limited to the infrastructure sector alone. The Madras High Court in the case of M/s.Sri Devi Karumariamman Educational Trust  & Ors. v. Central Bank of India & Anr. [2] dealt with the adoption of the Swiss Challenge Method by the bank for the sale of secured assets. The decision in the Ravi Development case was relied on to note that the Swiss Challenge Model is not violative of Article 14 of the Constitution and that it is one of the permissible modes of awarding a contract or tender.

However, the beauty of this judgement comes out not in the manner that the validity of this method was upheld but rather in its ability to understand the prevalent gaps in its implementation. The Court highlighted the importance of having a set of rules and regulations that have to be followed in order to ensure that problems of unfairness, arbitrariness or ambiguity do not arise. In this regard, the Court proposed the following suggestions to State Governments: –

  • The State or Authority has to publish a) the nature of the Swiss Challenge Method and particulars in advance and b) the nature of projects that can come under such a method.
  • Further, the fields of the projects that can be considered under the method and the authorities that have to be approached for the project plans have to be mentioned or notified.
  • The State should also frame rules pertaining to the time limits on the project approval and respective bidding.
  • After a project is approved to be considered under the Swiss Challenge Method, the prescribed rules have to be followed.
  • An opportunity has to be accorded to persons interested in such developmental activities to participate in the venture and it has to be ensured that there is healthy competition between the developers.

These suggestions are not exhaustive, and the State is free to incorporate any other clauses for transparency and proper execution of the scheme.

Observations

The Swiss Challenge Method is a great alternative to other procurement methods as it encourages private entities to come up with solutions to infrastructural problems that may go unnoticed by the government. Further, by pooling resources and technically providing a platform to brainstorm for solutions, more efficient and optimal solutions can be identified and implemented and thus, more governments would seek to adopt this method. In such a situation, as the Court noted, it is important to have uniform rules and regulations to ensure transparency and clarity in the process.    

Thus, through the judgement in the Ravi Development case, the Apex Court was able to address the prevalent on-ground challenges and work towards a more successful future implementation of the Swiss Challenge Model. Although more on-ground issues can be identified only by continued implementation of this model, this judgement provides an adequate pre-cursor, encouraging such models that improve efficiency.

References:

[1] Ravi Development v. Shree Krishna Prathistan & Others. (2009) 7 SCC 462.

[2] M/s.Sri Devi Karumariamman Educational Trust & Ors. v. Central Bank of India & Anr. [C.R.P. No. 1790 of 2019, C.M.P. No. 11733 of 2019].

Image Credits:

Photo by cottonbro studio: https://www.canva.com/photos/MAEARkSehPM-white-metal-bridge/

The Swiss Challenge Method is a great alternative to other procurement methods as it encourages private entities to come up with solutions to infrastructural problems that may go unnoticed by the government. Further, by pooling resources and technically providing a platform to brainstorm for solutions, more efficient and optimal solutions can be identified and implemented and thus, more governments would seek to adopt this method. In such a situation, as the Court noted, it is important to have uniform rules and regulations to ensure transparency and clarity in the process.    

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Impact of Budget on the Infrastructure Sector

The Budget 2023-24 facilitates infrastructure development by providing for the establishment of a finance secretariat and giving prominence to infrastructure projects and programmes.

Introduction

During the budget announcement on February 1, 2023, the Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman highlighted that India’s per capita income has doubled in around nine years, and the country’s economy is expanding so rapidly that it is set to become the fifth largest in the world. The same is in line with the vision for Amrit Kaal, namely: –

  • Opportunities for citizens with a focus on youth
  • Growth and Job Creation
  • Strong and Stable Macro-Economic Environment

The term “Amrit Kaal” was coined by the honourable Prime Minister, Shri Narendra Modi for the first time on the occasion of India’s 75th Independence Day in 2021. The same was done while unveiling the country’s plans for the next 25 years. The purpose of Amrit Kaal was to improve and enhance the citizens’ quality of life and bridge the gap between rural and urban areas. It also sought to embrace emerging technologies while minimizing government interference in the lives of the citizens. With this vision, the Prime Minister stated, “While India has achieved quick progress, there should be a ‘saturation’ of development and 100 percent achievement, with every hamlet having roads, every family having a bank account, and every eligible person having health insurance, a card, and a gas connection”.

Budget Implications on the Infrastructure Sector

In the budget speech, the Finance Minister also stated that the Budget 2023-24 will adopt seven major principles and priorities that would serve as “Saptarishi” for the next quarter-century, which is expected to serve as a guide through the Amrit Kaal. The Finance Minister further specified that the Government’s aim for this Budget 2023-24 includes a technology-driven and knowledge-based economy, as well as strong public finances and a thriving financial sector.

The seven areas that the Budget 2023-24 primarily focuses on include:

  • Inclusive development
  • Reaching the last mile
  • Infrastructure and investment
  • Unleashing the capacity
  • Green growth
  • Youth Force
  • Financial sector

Under the ‘Saptrishi’ mantras, the Finance Minister outlined seven of the Union Budget’s top priorities for the year 2023, one of them being Infrastructure and Investments.

It is usually perceived that investments have a significant multiplier effect that enhances mobility, enables trade, development of employment opportunities, and increases the overall economic output. According to the Budget 2023-24, “Capital investment expenditure will climb by 33 percent to 10 lakh crore ($122 billion), or 3.3% of GDP, for the third consecutive year. This is about three times the expenditure in 2019-20”. This is likely to maintain financial stability and provide a buffer against global headwinds. This is also accompanied by a prolongation of the 50-year interest-free loan to state governments for another year, with a significantly increased expenditure of 1.3 lakh crore ($16 billion), to stimulate infrastructure investment and encourage state governments to take complementing policy initiatives.

To enhance opportunities for private infrastructure investment, the Budget 2023-24 envisages the creation of a new framework, the Infrastructure Finance Secretariat. The Infrastructure Finance Secretariat will aid all parties in their efforts to increase private investment in infrastructure, such as trains, highways, urban infrastructure, and power, which rely mostly on public funds. In addition, an expert committee will analyse the Harmonized Master List of Infrastructure to recommend the classification and finance system. The revitalization of fifty new airports, heliports, water aerodromes, and advanced landing fields is sought through the improvement of regional air connectivity. Further, one hundred essential transport infrastructure projects for last and first-mile connections for ports, coal, steel, fertiliser, and food grains industries have been identified to significantly boost India’s logistics sector.

These budget measures expand on the government’s National Infrastructure Pipeline (NIP) and other programmes, such as “Make in India” and the production-linked incentives (PLI) programme, to promote the expansion of the infrastructure industry.

Conclusion

The hike in capital expenditure by 33 percent to Rs. 10 lakh crore for infrastructure development for 2023-24 will certainly give a huge boost to the economy while increasing employment opportunities. There are positive strides in terms of the establishment of a finance secretariat that will in turn attract more private investment and the setting up of an expert committee will facilitate the appropriate classification of infrastructure and suitable financing framework. The Budget also takes infrastructure in Tier-2 and Tier-3 cities under its ambit by setting up an Urban Infrastructure Development Fund (UIDF) of Rs. 10,000 crore per year which will also promote innovation and reforms. The provisions created for metro and mass rapid transit system projects, sanitation, and urban housing look favourable for the growth of the country’s infrastructure. By reviving the infrastructure as well as facilitating infrastructure development in the future, the Budget significantly contributes to the economic growth and productivity of the country.

Image Credits:

Photo by Vlada Karpovich: https://www.pexels.com/photo/golden-gate-bridge-4449624/

The hike in capital expenditure by 33 percent to Rs 10 lakh crore for infrastructure development for 2023-24 will certainly give a huge boost to the economy while increasing employment opportunities. There are positive strides in terms of the establishment of a finance secretariat that will in turn attract more private investment and the setting up of an expert committee will facilitate the appropriate classification of infrastructure and suitable financing framework. The Budget also takes infrastructure in Tier-2 and Tier-3 cities under its ambit by setting up an Urban Infrastructure Development Fund (UIDF) of Rs 10,000 crore per year which will also promote innovation and reforms. The provisions created for metro and mass rapid transit system projects, sanitation, and urban housing look favourable for the growth of the country’s infrastructure. 

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