Procurement process

Relevant procedure

What procedures normally apply to a PPP procurement? What evaluation criteria are used to award a PPP transaction?

Many projects use the type of bidding process that evaluates both price and other elements of a proposal or an open-type proposal process. In these schemes, a predetermined point system is used to evaluate bidders based on the price they present for bidding (price points) and the proposals they submit for bidding (evaluation points), with the highest-scoring bidder selected as the winning bidder. Proposals are commonly evaluated by a review committee that includes external experts.

Consideration of deviating proposals

May the government consider proposals to deviate from the scope or technical characteristics of the work included in the procurement documentation during the procurement process, without altering such terms with respect to other proponents? How are such deviations assessed?

Projects with a large technical component often require a technical proposal. Where required, the procurement documentation will state that a technical proposal is required and how such proposals will be evaluated. Without such provisions, proposals cannot deviate from the scope specified in the procurement documentation. It is possible to use the public question and answer process to ask the government about proposals that deviate from the scope specified in the procurement documentation (that is, to what extent deviation from the procurement documentation is allowable). Further, in some projects, the procurement process affords bidders the opportunity for discussion in a competitive dialogue.

Unsolicited proposals

May government parties consider unsolicited proposals for PPP transactions? How are these evaluated?

As a result of the amendments to the PFI Act in 2011, unsolicited proposals from private companies are now accepted for PFI projects. If a private party submits an unsolicited proposal in accordance with the procedures set out in the PFI Act, the government party is obliged to consider the proposal and to notify the private party of the outcome. The method of evaluation is left to the discretion of each government party but guidelines prepared by the Cabinet Office stipulate that evaluation should take into consideration the necessity and feasibility of the proposed transaction, whether it is appropriate to implement it using PFI and the financial impact of the proposed transaction.

Government stipend

Does the government party provide a stipend for unsuccessful short-listed proponents or otherwise bear a portion of their costs?

There are no statutory provisions regarding such stipends, and they are not generally paid in practice. However, there have been PFI projects in which a stipend was paid to unsuccessful shortlisted proponents (including, for example, a PFI project for improvement of municipal primary and secondary school facilities in the city of Yokkaichi, in which bidders shortlisted for the first screening that were unsuccessful in the second screening were awarded a ¥2 million proposal stipend).

Financing commitments

Does the government party require that proposals include financing commitments for the PPP transaction? If it does not, are there any mechanisms during the procurement process to ensure that the applicable PPP transaction, once awarded, is financeable?

Generally, the government party requires bidders to explain the source of funds and bidder financial stability for the project as part of their proposals in the procurement process. Bidders will commonly submit a project finance term sheet or a ‘commitment letter’ from their bank as an attachment to the proposal submitted to the government party.

Legal opinion

May the government ask its counsel to provide a legal opinion on the enforceability of the PPP agreement? May it provide representations as to the enforceability of the PPP agreement?

Normally, the government does not ask its counsel to provide a legal opinion on the general enforceability of the PPP agreement, but it does ask for a legal opinion on individual points at issue when implementing projects. There are cases where the government is asked to provide representations on the enforceability of the PPP agreement, but that depends on each case. The government often makes representations on the enforceability of the PPP agreement in complicated, large-scale projects such as hospitals.

Restrictions on foreign entities

Are there restrictions on participation in PPP projects by foreign entities? May foreign entities exercise control over the project company?

The WTO Agreement on Government Procurement applies to projects ordered by the national government or ordinance-designated cities; foreign entities cannot be restricted from participating in PPP projects.

In any other projects, while there are usually no such explicit controls on foreign entity participation, participation is often restricted to bidders with experience of handling similar projects of a similar size in Japan or (especially in the case of local government) in the relevant region, which effectively prevents foreign entities from participating in such projects.