Compensations to unsucesfull biders – a means to attract the best participants to tenders

Lithuania has ambitious plans regarding the development of the public infrastructure. With the help of international private business (partners), the plans for the near future include reconstruction of the road Vilnius-Utena (project value approx. EUR 170 M) and construction of the national stadium (project value approx. EUR 80 M), besides, an operator able to ensure sustainable development of airports of Vilnius, Kaunas and Palanga will be sought.

To create a high-level infrastructure and get the best out of it at the lowest public sector costs, it is necessary to attract experienced market participants with international experience in similar projects. One of the means to increase the attractiveness of large-value public infrastructure development tenders, for instance, those implemented by way of public-private partnerships – the payment of a compensation to participants thereof to cover a part or all costs of the preparation to take part in the tender. Such practice may not only help to ensure the quality of high-level offers, but also accelerate the implementation of the project itself.

High costs of participants are linked, in particular, to the implementation of complex public-private partnership tenders based on a competitive dialogue. During the preparation for the participation in an infrastructure development project, participants of a tender may have to draw up a technical design and investment designs as well as conduct legal, financial and environmental checks. Since quite a lot of problems in the implementation of public-private sector projects are caused by errors made during the design stage, it is necessary to ensure the highest quality of design works already in early stages of a tender so that later on project implementation problems are avoided; high-level design services are also related to high costs and additional efforts for tender participants.

If tender participants knew that participation expenses would be reimbursed, they would be encouraged to try and identify additional value-added solutions. Besides, a compensation for losers creates a safer environment for the submission of the best offers, therefore, it may attract to infrastructure projects not only national companies, but also foreign entities which, otherwise, might not be so interested in such tenders due to high costs involved.

Certainly, partial or full reimbursement of tender participants’ costs would increase the public sector costs. Irrespective of that, the payment of such compensations may not only attract more tender participants, but also ensure smoother project implementation if the payment of compensations is linked to financial closure of projects or it is provided for that a compensation is paid only where a participant does not initiate disputes against decisions taken during procurement.

Compensations may also help to address the problem of confidentiality of offers. A participant which lost the tender may not be sure that its proposed solutions are not used by the organiser of the tender later on in the implementation of the project. In addition, the organiser of the tender may be interested in using, even if partially, the best solutions of a loser-offer in order to implement the project in the best possible manner. If it is provided for that the organiser of the tender acquires the right to use, for a compensation, the materials included in the content of a loser-offer, this problem could be resolved.

When is it worthwhile paying a compensation and to whom?

As is demonstrated by the practice of other countries, a compensation for participants is envisaged in tenders where the participants are required to design and construct a certain facility and subsequently operate it.

A compensation is paid to participants the offers of which were in conformity with the conditions of a tender and were shortlisted, but did not win the tender. A compensation to cover the costs of preparation of an offer may be paid to all shortlisted participants or to the participant which remained second, etc. A compensation to participants which lost is paid from the public sector resources or the obligation to pay a compensation may be established for the participant which wins a tender.

A compensation should not be paid if a project is refused because it does not pay to implement the project from a financial point of view, etc. A compensation is not paid, either, in cases where a participant’s offer is not in conformity with the tender conditions or a participant refuses to transfer to the organiser of a tender the rights to the materials included in the content of its offer. Certainly, it is advisable to provide for at least partial reimbursement of expenses where the implementation of a project is refused for political or other subjective reasons.

What should be the rate of a compensation to be paid?

The tender documents should provide for clear reimbursable expenses which should encourage participants to try and submit offers of the best quality. As a rule, reimbursable expenses include participants’ travel expenses and expenses related to drawing up technical and design documentation. While providing for compensation for participants’ expenses related to their participation in a tender, the highest rate of reimbursable expenses is usually established.

The rate of a compensation may also be differentiated according to the final rating of offers. For instance, a participant which ended up in the second place may be compensated for 40 per cent of the costs of drawing up an offer or a technical design, in the third place – for 30 per cent, etc.

Each project implemented on the basis of a public-private sector partnership is characterised by individual features, therefore, a decision to apply the mechanism of compensation for expenses should be taken in each individual case, taking into account the value-for-money principle.

Lithuanian legal acts regulating public-private sector partnerships and concessions do not regulate the questions of application of compensations to participants of a tender.


Feliksas Miliutis, Senior Associate, Law Firm GLIMSTEDT

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