At the recent G-20 Finance Ministers and Central Banks
Governors' meeting in Cairns in September 2014, the OECD made
mention of new innovative approaches such as the proposed
"Inverted Bid Model", and "asset recycling"
that has been adopted in Australia, in the development of new ways
of funnelling financing into infrastructure projects.
The OECD is developing a taxonomy outlining the options and
instruments available to institutional investors for investing in
infrastructure. There is a focus on new forms of investment such as
partnerships between banks and institutional investors, risk
mitigation mechanisms, and new procurement/bidding models to reduce
In Australia, the Inverted Bid Model is an example of an
innovative new bidding model that has been specifically designed to
support long term equity investors (such as superannuation funds)
investing in infrastructure projects. It was developed recently by
Industry Super Australia (ISA) in conjunction with the Complex
Program Group to support alignment of longer term equity investors
investing in infrastructure projects.
Under the Inverted Bid Model, the traditional bidding process is
in effect reversed through a two stage bid process in which the
government will identify and select its preferred equity partner
first on the basis of the bidder with the most competitive IRR, and
then there will be separate tenders for the construction, operation
and maintenance elements and debt funding required for the
The Inverted Bid Model is an attempt to level the playing field
for genuine long term equity investors, who seek to make a
reasonable return over the life of an asset by investing over the
longer term to improve services and facilities to meet demand (and
not shorter term returns through the initial bid structuring and
The model is intended to address the issues that can arise under
the current PPP model in respect of short-term bidders building
long-term infrastructure. Click here to
view a diagram showing the current model versus the Inverted
Some of the current criticisms with the current procurement
High bid costs and long procurement timeframes creating
barriers to competition
Poor value for money
High whole-of-life transaction costs
According to ISA, if the Inverted Bid Model is adopted, bid
costs can be expected to fall from 1.5% to 0.8% of the total value
of the project, and procurement lead times can be reduced from 17
months to 12 months. Given such potential benefits, the Inverted
Bid Model warrants close consideration.
Corrs has been assisting the Complex Program Group with the
development of the Inverted Bid Model.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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