Aerial of Freeway bridge

By:  Atty. Nasha Jemimah R. Reyes, Associate

With the hopes of eliminating corruption, President Duterte voiced out early this year that he prefers “Swiss Challenge,” another form of public bidding, in relation to the procurement of government projects instead of the usual bidding process. As clarified by Presidential Spokesperson Roque, “Swiss Challenge” is only intended for big infrastructure projects.[1]

What is “Swiss Challenge”?

According to some articles, the term “Swiss Challenge” was based on Switzerland’s neutrality to any alliance during World War 1 and 2.[2]

On the other hand, a perusal of the enacted laws in the Philippines would show that this term is currently not mentioned on any law. However, there had been previous actions by the legislature to properly institutionalize “Swiss Challenge.” Specifically, Senator Nancy Binay introduced Senate Bill No. 1653 last 11 September 2013 to properly recognize “Swiss Challenge” in the laws of the Philippines even before the Duterte Administration.

Nevertheless, “Swiss Challenge” was cited in the Implementing Rules and Regulations (“IRR”) of Republic Act No. 6957 (“BOT Law”), as amended, as one which refers to the comparative bidding process in Unsolicited Proposals.[3] Furthermore, there were several Department of Justice (“DOJ”) Opinions[4] which discuss and recognize the validity of “Swiss Challenge” even outside BOT Law. It was even emphasized in the dissenting opinion of Justice Carpio in Suplico vs. NEDA that “[e]ven in Build-Operate-Transfer project where the proponent provides all the capital with no government guarantee on project loans, the law requires public bidding in the form of a Swiss challenge.”[5]

What is an unsolicited proposal?

The IRR of BOT Law defines an unsolicited proposal as a project proposal which is submitted by the private sector, (1) not in response to a formal solicitation or request issued by an Agency/Local Government Unit (“LGU”) and (2) not part of the list of priority projects as identified by Agency/LGU, to undertake Infrastructure or Development Projects which may be entered into by Agency/LGU subject to the requirements/conditions prescribed under the Rules.[6]

Section 10.1 of said IRR further enumerates the following conditions in order for an Agency/LGU to accept Unsolicited Proposals on a negotiated basis:

  1. the project involves a new concept or technology and/or is not part of the List of Priority Projects;
  2. no Direct Government Guarantee, subsidy or equity is required; and
  3. the Agency/LGU concerned has invited by publication, for three (3) consecutive weeks, in a newspaper of general circulation, comparative or competitive proposals and no other proposal is received for a period of sixty (60) working days.[7]

The same section also provides that if the Agency/LGU shall not receive a valid comparative or competitive proposal, then the project will be immediately awarded to the original proponent. Otherwise, if there is a comparative price proposal better than that submitted by the original proponent, then the latter shall have the right to match such proposal within thirty (30) working days from receipt of a notification regarding the result of the competitive bid. If the original proponent fails to match the comparative proposal, then the project contract shall be awarded to the comparative proponent; otherwise, it shall be awarded to the original proponent.[8]

In addition to BOT Law, local ordinances and the 2013 National Economic Development Authority (“NEDA”) Joint Venture Guidelines recognize unsolicited proposals as an alternative mode of proposing government projects.[9]

Several government projects have already been awarded through an unsolicited proposal such as: North Luzon Expressway (NLEX)-South Luzon Expressway (SLEX) Connector Road of the Metro Pacific Investments Corporation Group; the Metro Rail Transit Line 7 (MRT7) of San Miguel Corporation (SMC), and the Ninoy Aquino International Airport (NAIA) Terminal 3 by the Philippine International Air Terminals Company Incorporated (PIATCO).[10]

When does “Swiss Challenge” occur in unsolicited proposals?

Justice Velasco, Jr.’s dissent in Asia’s Emerging Dragon Corp. vs. DOTC discussed the nature and process of “Swiss Challenge.”[11]

It was stated therein that “Swiss Challenge” occurs after the Agency/LGU concerned has invited, by publication in a newspaper of general circulation, comparative or competitive proposal and another project proponent submits a price proposal lower than that submitted by the original proponent. The original proponent shall then have the right to match the said price proposal within 30 days. If the “Swiss Challenge” process fails to produce a better offer, the right to the award will belong to the original proponent.[12]

“Swiss Challenge” Outside BOT Law

In Osmeña III vs. Social Security System (SSS),[13] the application of “Swiss Challenge” outside the BOT Law was challenged.

The resolutions of the Social Security Commission (“SSC”) in relation to “Swiss Challenge” were sought to be annulled by the petitioners therein.

The problem arose when SSS, under the direction and control of SSC, intended to liquefy its long-term investments such as its Equitable-PCI Bank (“EPCIB”) shares and to diversify the same into higher-yielding and less volatile investment products.|. |

SSS and Banco de Oro Capital (“BDO Capital”) eventually agreed on a Share Purchase Agreement in relation to the sale and purchase EPCIB shares at a premium of 30% of the then market value of the said shares.

The Commission on Audit (“COA”), in response to a letter-query, stated that the sale is still subject to the public bidding requirement under the COA Circular. However, the COA qualified its response with the following statement: “since activities in the stock exchange which offer to the general public stocks listed therein, the proposed sale, although denominated as “negotiated sale” substantially complies with the general policy of public auction as a mode of divestment.” The Department of Justice (“DOJ”) concurred with the COA’s opinion. Afterwards, the SSC passed a resolution approving the sale of the EPCIB shares through the “Swiss Challenge” method.

SSS then advertised an Invitation to Bid for the block purchase of the shares. The Invitation to Bid expressly provided that the “result of the bidding is subject to the right of BDO Capital . . . to match the highest bid.”

Petitioners asserted that a public bidding with a Swiss Challenge component is contrary to the COA Circular and that public policy requires adherence to a competitive public bidding in a government-contract award to assure the best price possible for government assets. Accordingly, the petitioners urged that the planned disposition of the shares through a “Swiss Challenge” method be scrapped.

Unfortunately, the aforesaid issue remained unresolved and the case became moot and academic because of the Banco De Oro (“BDO”) and EPCIB merger and the mandatory tender offer of SM Investments Corporation (“SMIC”), an affiliate of BDO Capital, to purchase the entire outstanding capital stock of EPCIB. Under any circumstance, SSS or SSC can no longer cause the implementation of the assailed resolutions, let alone proceed with the planned disposition of the shares, be it via the traditional competitive bidding or the challenged public bidding with a “Swiss Challenge” feature.[14]

Based on the foregoing, when can the “Swiss Challenge” method be utilized outside BOT Law?

There is yet no specific and clear law stating the same. In fact, doubts as to the application and validity of “Swiss Challenge” as another mode of public bidding will surely continue until a law which explicitly recognizes the same is enacted.

Nonetheless, with the rapid and constant growth of Public-Private Partnership projects in the Philippines, it shall only be a matter of time until the government would act upon this challenge of institutionalizing “Swiss Challenge.”

[3] Section 3.2, Revised IRR of R.A. No. 6957 (2012).
[4] DOJ Opinion No. 093, s. 2004 and DOJ Opinion No. 55, s. 2003.
[5] Suplico vs. NEDA, G.R. Nos. 178830, 179317 & 179613, 14 July 2008.
[6] Section 1.3.d.d, Revised IRR of R.A. No. 6957 (2012).
[7] Section 10.1, Revised IRR of R.A. No. 6957 (2012).
[8] Id.
[9] Alberto C. Agra, Public-Private Partnerships by Local Government Units Vol. 1, 15 January 2015.
[11] Asia’s Emerging Dragon Corp. vs. DOTC, G.R. No. 169914, 174166, 07 April 2009.
[12] Id.
[13] Osmeña III vs. Social Security System , G.R. No. 165272, 13 September 2007.
[14] Id.