Swiss Challenge – an innovative bidding

A system which entails an appropriate price for an object is an ‘auction’. Auctioning methods have under gone radical change over the years. Inter alia ‘Request for proposals’ / ‘Public private partnership’ / ‘Swiss-challenge’ methods are popular incumbent methods used for government projects.

What’s Swiss Challenge? Swiss challenge is a sophisticated method of bidding, comprising of dual-round bidding, unlike usual ones. For instance, say government invites proposals for construction of a bridge. A ltd (a marquee real estate developer) submits a comprehensive proposal for the same, pegging the contract amount to INR 100 crores. The proposal of A ltd is thrown open to lime light. On the commencement of second round of bidding, other companies have a chance to match the proposal of A ltd. At the conclusion of second round, the contract is awarded to the bidder with best proposal. If better proposals surpassing A ltd’s were not received, then the contract is awarded to A ltd. (Due consideration is given for quality & price related aspects)

Significance of Swiss Challenge in Insolvency – The primary intention of a company filing for bankruptcy is to churn out the atmost of its realisable assets. Swiss challenge is indeed a boon vis-a-vis insolvency. Lets consider some pragmatic instances.

*Dalmia cements proved to be the highest bidder for taking over ‘Binani cements’. At a later stage, Ultratech cement came out with a proposal surpassing Dalmia cements. The Committee of creditors led by Indian Banks was ready to tweak the regulations to favor Ultratech’s offer.

*JSW steel turned out be the highest bidder for ‘Asian coat’ on the conclusion of bidding process. Post bidding, US based Interups Inc offered a better price for Asian coat. Whether the latter would be deemed acceptable by NCLT (National Company Law Tribunal) is a question to be answered in the days to come.

*Ruchi Soya was a bone of contention between Patanjali & Adani’s Wilmar (Consumer division of Adani Group). Surprisingly, Baba Ramdev himself made the presentation to committee of creditors in person. Eventually, Patanjali group took over Ruchi soya, owing to be a better bidder than Adani. However, Adani was the bestowed with the ‘right to first refusal’ in the process.

Notably, apex court of India upheld Swiss challenge method for awarding contracts. Lenders are open for unrestricted bidding, provided their haircuts stands receded. The method encourages the spirit of competitiveness in pricing mechanism. During initial stages, the purpose of swiss-challenge was to promote suo-motu innovative ideas. A developer can approach a government with his proposal and the same shall be subject to swiss challenge method.

Not withstanding its benefits, the government did not adopt to swiss challenge in the case of Defence deals. Albeit, proposals from ‘Eurofighter’ for rafale fighters would have costed less for the exchequer, the contract was awarded to ‘Dassault’, reiterating the bidder selection made previously. Swiss challenge enshrines cost efficiency, but paves for behemoths to turn cynical. An innovative proposal brought in by a novice developer may move out of his hands if its subject to swiss challenge, as powerful players in the industry would be more capacitated in terms of resources & time. Whether swiss challenege’s pros outweighs its cons, is highly contingent on the project taken into question.

Published by adithyaarunachalam

I'm a millennial, from Chennai, India. Passionate about building up a career in finance, I follow and stay abreast on news feeds. I'm a novice blogger, So feel free to pass on your conjecture to me @adithyaarunachalam@Gmail.com

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