The institutional effects of public–private partnerships on competition: unsolicited proposal projects

Abstract

Purpose In many countries that allow unsolicited proposals (USPs) for public–private partnership (PPP) projects, incentives are awarded to the initial proponent of the USP projects during the tendering process as rewards for initially making a proposal. Because of such a reward system, including the bonus system, USPs are commonly known to involve fewer tender participants. This paper aims to investigate the empirical relationship between the number of tender participants and the institutional factors of PPPs. Specifically, two institutional factors are examined: the use of USPs and the bonus system for initial USP proponents. Design/methodology/approach The ordinary least squares (OLS) and Poisson regression analysis is used in this study to analyze PPP data in South Korea. Findings This paper demonstrated that USP projects have fewer bidders participating in tenders than solicited projects. Meanwhile, the analysis showed that the bonus system as another component of the institutional framework did not account for the number of bidders in tendering. In the analysis by three different facility types (“Roads,” “Environmental facilities” and “Other” types) of whether the bonus system discouraged participation in the bidding, the authors found heterogeneous responses among the types. For “Roads” and “Other” types of projects, the existence of the bonus system reduced the number of bidders for USP projects, while for “Environmental facilities,” there was no negative relationship between bonus points and the number of bidders. In the analysis of whether there were fewer bidders when no bonus points were awarded, there was no statistically significant difference in the number of bidders for “Roads” and “Environmental facilities.” Social implications This study shows the possibility that other institutional factors apart from bonus points affect competition. The characteristic factors of USPs can affect the decision to participate in the tender from the perspective of potential bidders. Originality/value Recent studies on USPs have mainly focused on the strategies that ensure the effective management of USPs for PPP implementation. However, quantitative effects of USPs on the tendering process have not yet been addressed. The quantitative effect refers to something that may be estimated by quantity or that relates to the describing or measuring of quantity, such as the present attempt to account for the number of bidders.