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General framework

i Types of public-private partnership

In the past, approximately 70 per cent of the PPP/PFI projects were conducted by build–transfer–operate (BTO) methods, which rely on the 'services fees' or 'availability payments' from the government to construct social infrastructures (typically, government buildings and public schools). However, we may see an increasing number of concession-type PFI projects, especially in the area of economic infrastructures, such as airports, roads and port facilities.

In the 2018 Action Plan, the national government categorises the PPP/PFI projects into the following four types. Type I is a concession scheme introduced by the revision of the PFI Act in 2011, where a public authority confers on a private entity the right to operate public facilities for a certain period of time. Type II is a scheme to attach an income generating facility, which may produce revenues to cover the costs associated with the project, to the existing facility. Type III is PPP projects to make use of unused or underused publicly owned real properties. Type IV is other traditional PPP/PFI projects, which typically rely on 'services fees' or 'availability payments' from the government. Although the national government believes that traditional type projects serve as a first step for the municipal governments, it ultimately hopes to see more concession-type PFI projects. The 2018 Action Plan (which has a target of reaching the total size of ¥21 trillion over the 10-year period from 2013 to 2022) allocates ¥7 trillion to Type I projects, ¥5 trillion to Type II projects, ¥4 trillion to Type III projects and ¥5 trillion to Type IV projects.

ii The authorities

In Japan, PFI projects are implemented, not only by the central government, but also by the municipal government at the prefecture, city, town and village level. At the national level, the sector ministries that govern the public facility will conduct the procedure to select the private business operator (e.g., the Ministry of Justice conducted the procedures for the Nara Prison PFI as it is in charge of national prisons and rehabilitation facilities, and MILT is sponsoring the Takamatsu Airport PFI as it is in charge of national airports). In addition, the Private Finance Initiative Promotion Office within the Cabinet Office plays a principal role in the PFI market in Japan, setting the general policy on PFI projects by issuing bills and guidelines and establishing action plans, among others, to support the promotion of the implementation of PPP/PFI projects.

iii General requirements for PPP contracts

The PFI Act sets out the general framework of the PFI projects, which governs most PPP projects in Japan. It requires that, when considering the implementation of public facility development projects, such services shall be procured from the private sector to the extent possible and suitable, and a publicly open procedure is in principal required when selecting the private business operator for the project.

To quantitatively assess the suitability and appropriateness of procuring the PPP/PFI method over other traditional options, value-for-money (VFM) analysis is conducted prior to selecting the PFI project by the relevant government. This analysis, which compares the life-cycle cost of the PFI project with the public sector comparator, helps the government to determine the model under which the public facility would be delivered at a greater VFM.

Public infrastructure facilities that are subject to PFI transactions under the PFI Act include the following:

  1. public infrastructures: for example, roads, railways, ports, airports, rivers, parks, water, sewage and industrial water facilities;
  2. public facilities: for example, government buildings and housing for government workers;
  3. public housing, and educational or cultural, waste treatment, medical, social welfare, rehabilitation, parking and underground facilities;
  4. telecommunication, heat supply, new energy, recycling, tourist and research facilities; and
  5. transportation facilities of vessels and aircrafts, etc., and satellites.

The terms of contracts under which the national government owes an obligation to pay for more than one fiscal year is limited to 30 years. Local governments and governmental organisations are not subject to such regulation. Notwithstanding, the Accounting Act and Preliminary Financial Results and Accounting Ordinance require that the deadline for the performance period be specified in the project agreement.

When a municipal government enters into a project agreement that involves an estimated project amount for the purchase or lease of the public facility above a certain threshold amount, the government is required to obtain an approval of the local council in advance.

In addition, a public bid is required for deals that are subject to the Agreement on Government Procurement of the World Trade Organization (AGP), and foreign entities may not be excluded from participating in procurement of PPP/PFI projects by the national government or local governments in accordance with the AGP.


The Cabinet Office has issued a Guideline on PFI Project Implementation Process (the Procurement Guideline) to provide explanation on the process and practical guidance for participating in the selection process. Most PFI projects are awarded to private business operators either through competitive public bid or open proposal procedure. The general steps to be taken in the selection process are as follows:

  1. the decision to initiate a PFI project is made after the relevant government examines the possibility of procuring PFI projects from the private sector;
  2. the implementation policy is announced by the relevant authority to the public;
  3. the relevant authority conducts a VFM analysis and determines the project to be conducted by the PFI method;
  4. the opening of a public bid is announced or a formal request for proposal is issued by the relevant authority and a formal selection process begins; and
  5. evaluation of the response or proposal from the bidders is conducted and the preferred bidder is selected and announced.
i Expressions of interest

If the relevant authority intends to procure PPP/PFI projects, it must publish an implementation policy of the PFI project that outlines the selection process for the PFI business and private business operator, allocation of responsibilities and risks among the parties, information on the public facility (such as location and size), financial aid or support to be provided, and other items necessary for the implementation of the PPP/PFI business. To procure information in relation to the implementation policy, the relevant authority may conduct market hearings or soundings prior to or after the announcement of the policy.

Sometimes, services and technical specification requirements are announced as early as concurrently with the announcement of the implementation policy to provide a better picture of the requirement to the interested parties at an early stage.

Publication of the implementation policy provides an important opportunity for the government to invite and assess expression of interest, and often comments and questions from the interested parties are solicited through the internet, and the government conducts hearing sessions.

ii Requests for proposals and unsolicited proposalsInvitation to bid and requests for proposals

In order to invite private sector parties to take part in the public tender or submit a proposal in response to the formal request for proposal (RFP) by the public sector sponsor, public bid documents or the RFP is generally made available to the public on a relevant procurement website. To communicate a clear intention of what is required in the evaluation process, the bid document or RFP package will normally include detailed requirement for services and technical specification and the evaluation criteria, and the basic terms and conditions of the project agreement (or the draft itself). The authority normally provides opportunities to the participants to pose questions and receive answers through the procurement website or hold a question and answer session. Participants are normally requested to submit with the RFP responses their funding plans and measures to ensure the effectiveness of the proposals.

Unsolicited proposals

The PFI Act was revised in 2011 to clearly define that unsolicited proposals of implementation policy for the PFI projects from private sector companies are permitted. Even before the revision, unsolicited proposals were allowed. However, as a result of the revision, the government is now obliged to promptly review the proposal and notify the proposing company of the result of such review without delay. This does not mean that the private party that made the proposal will necessarily be awarded the project. The government must separately initiate the public selection process and select the winner, provided that, when selecting the preferred bidder, the government must properly evaluate the contribution made by the proposing party.

iii Evaluation and grant

The PFI Act requires that a private business operator to implement the PFI project be selected through an open procedure. Upon selection, objective evaluation (including evaluation on the effectiveness and efficiency of the project) must be carried out, and not only the price, but also the quality of the services to be provided to the public must be taken into account so that the technology and managerial expertise and innovation of the private business operator will be fully utilised. Accordingly, most PFI projects are awarded to private entity either through public competitive bid or open proposal procedure (or competitive dialogue procedure). Evaluation of the responses or proposals will be in accordance with the scoring formula contained in the procurement document, with the participants' response or proposal evaluated based on the price they propose (quantitative points) and other aspects of the responses or proposals they submit (qualitative points), and the participant with the highest accumulated points selected as the preferred bidder.

If it is difficult to assess the technical component or specification requirement only with the response or proposal submitted by the participant, the government may ask the participants to make a 'technical proposal, in which case such requirement will be specified in the procurement document.

With regard to the negotiations during the selection stage, in the public bid procedure, requirements provided in the bid documents may not be modified or negotiated once the bidding procedure begins (provided that the bidders may be given opportunities to ask questions to the government in the public Q&A session). Whereas, in the public proposal procedure, the process is slightly more flexible, in that the relevant authority may have competitive dialogues with multiple bidders and the requirements and specifications may be amended as a result of such dialogues.

In selecting the preferred bidder, external consultant may be retained to provide objective advice or an evaluation committee (usually comprised of outside experts and professionals) may be established to ensure transparent and objective evaluation of participants' responses or proposals.

Once the private business operator is selected through the public procedure, such party must be announced promptly to the public. After the announcement is made, the relevant authority and the selected private business operator will enter into the project agreement.