An outline and overview of applications in Queensland

Issue

Considerations

Recommendations

1. The number of bidding rounds

• Multiple rounds are more suitable if coordination between landholders is required, but adds to complexity of process.
• More than one bidding round allows bidders to learn about the market.

Two bidding rounds preferred

Lessons from case studies: There were substantial reductions in some bid prices between bidding rounds in the Desert Uplands auction. Two rounds would have sufficed.

2. Sealed or open bid

Landholders are more likely to participate if their bid details are confidential.

Sealed bid preferred

Lessons from case studies: Sealed bids were used in all case studies

3. Discriminatory or uniform pricing

With discriminatory pricing, winning bidders get paid their asking level. With uniform pricing, winning bidders get paid the value of the second highest bid. With uniform pricing, there needs to be more control over what actions are offered.

Discriminatory bid preferred

Lessons from case studies: Discriminatory pricing was applied in all case studies

4. Reserve price

Reserve price may be necessary to reject over-priced bids, particularly if there is limited competition.

Reserve price preferred

Lessons from case studies: The highly inflated bids in the first round of the VIP highlights the need for a reserve price. Determining a realistic reserve price can be challenging and it is possible to leave it open ended and use the submitted bids as a guide (FBA tender). Both the VIP and QMDC tenders used the unimproved value of the land as a reserve price.

5. Equity and participation

• Maximum bid levels can be set to ensure maximum involvement by landholders. Having no caps on bid levels means a small number of efficient bids may get most of the funding.
• Landholders may increase their chances of success by entering multiple bids.

• Multiple bids preferred
• No cap on bid levels

Lessons from case studies: No issues revealed

1. Time period for contract

Longer time periods preferred, but there are government constraints on funding period available.

Contract length should match the project objectives.

Lessons from case studies: In most cases funding restrictions meant short term contracts of two years or less were applied. There was some evidence that this might be sufficient to encourage a change in management practice. Long term contracts are more suitable to cover long term opportunity costs/ production losses.

2. Payment periods

• There are benefits in tying funding to performance, but also in minimising the number of payments.
• A higher up-front proportion might be required to cover initial capital outlays.

Three payment points:

1. contract establishment

2. mid point

3. end of contract

Lessons from case studies: In most cases payment periods matched the contract period. There was a adverse reaction to the VIP program which required a long term outcome associated with a covenant but only provided payment for a 5 year management plan with no guarantee it would be extended. QMDC payments covered a 10 year agreement with full payment made in the first 2 years - leaving no incentive to complete the management agreement.

3. Form of security

Some conservation tenders have involved high levels of security, such as covenants over land titles. Simpler agreements are more likely to be accepted by landholders.

Simple contracts to be used.

Lessons from case studies: In the VIP, the requirement for a strict covenant had a very negative impact on participation. Case studies with shorter contracts appeared to be more successful. The EPA agreements were specifically for long term Nature Refuges.

4. Form of contracts

Preferable to have simple form of contract that is easy to understand.

Standard simple contract to be used, with bid forms to be attached as a schedule when signing agreements.

Lessons from case studies: In most cases simple contracts were used and appeared to be generally accepted by landholders.

5. Monitoring

Very simple process preferred

Use of progress reports and audits (with prior notice given) and photo points where applicable.

Lessons from case studies: There was some variation in the monitoring requirements in the case studies but in most cases a simple system was applied. In some cases additional monitoring requirements (additional to ensuring contract conditions are being met) were imposed to meet accountability requirements of the funding agency. While monitoring is an essential component, onerous requirements may have an adverse impact on participation.

1. Participation

Government funded incentive schemes generally aim to maximize participation. In competitive tenders there is a tradeoff between maximizing competition and not having too many unsuccessful applicants.

Focus on:

• Alignment
• Opportunity
• Engagement
• Contracting and
• Post participation

Details in the draft participation report

Lessons from case studies:Participation rates vary across and within case studies. Rates were very low in the VIP and not all funding was allocated. In QMDC, the soil tender had high participation and the vegetation tender had low participation.

The Desert Uplands auction required participation from a broader range of landholders to ensure spatial connectivity.

There is much to learn about who participates in auctions; what happens in the follow-up auctions and what happens when different industry groups are targeted.

2. Information workshops with a dummy auction game

Information workshops that include the use of a dummy auction game (full details in Desert Uplands Research Report #4) have proved useful and are well received by landholders.

These workshops are recommended as they help landholders learn about the scheme and the competitive bidding process.

Lessons from case studies: The Mackay, Fitzroy and Desert Uplands auctions all successfully used this format with positive feedback from landholders.

3. Field visits

Field visits are the main format for detailed information exchange. Often it is necessary to collect information (part of the scoring process); the process can be explained in detail and a better understanding of the landholders' management practices and situation is gained.

The field visits are a very useful capacity building exercise for both landholders and agency staff. Assistance with paperwork can be provided so landholders' main consideration is their bid price.

Lessons from case studies: In general there is considerable advantage in the implementing agency using their own staff for field visits. However, there might be some issues of confidentiality. The VIP used third party staff for the field visits. They had a considerable impact on participation (both positive and negative) depending on their skills/ agency affiliation and/or local recognition. The use of a third party, non-local field officer worked very well in the BMRG dairy auction. It largely depends on the skills of the individuals.

4. Multiple bidding rounds

There is some concern that implementing more than one bidding round will put some landholders off the process. Attention needs to be paid about what information to feedback after the first round.

Two rounds are recommended. Broad information about the relative bid position of bidders can be given after the first round.

Lessons from case studies: Landholder feedback from the Desert Uplands auction suggests that landholders will accept more than one bidding round if it is clearly specified in advance. More research is required about how landholders might respond to different signals provided in the information feedback. In the Desert uplands auction landholders were told which quartile their bids were in (whether they are in the top 25%, second 25% etc). While this did encourage some to improve their bids, it did discourage some that were in the last quartile.

5. Bid assessment

• The bid scoring system should focus on environmental outputs rather than management inputs. There will always be a tradeoff between using a simple versus a more complex metric.
• A well designed metric will avoid the use of an expert panel where judgments are more subjective and open to perceptions of bias.
• There is increasing potential to use information databases and modelling software in a desktop assessment of bids.

• Focus on the assessment of environmental outputs rather than inputs.
• Maximise the use of desktop assessment in performance of the metric.

Lessons from case studies: A different metric or scoring system was applied in each case study which meant the outcomes from one could not be compared against another. While the mechanisms have suited local circumstances, there is a need for a more generic set of metrics to be developed.

The metrics can be designed to achieve very specific outcomes. For example, the metric applied in the Desert Uplands auction included a "linkage" score which successfully encouraged landholders to cooperate with their neighbours to align bids and form vegetation corridors.

6. Baseline standards/minimum management conditions

• There is continuing debate about "duty of care" obligations (which are not defined in Queensland) and whether any environmental improvement should be supported or only those that achieve improvements above some minimum standard.
• The specification of higher levels for final outcomes will tend to only involve (or select) landholders with better management practices.

There should be some baseline from which to measure an improvement and/or to ensure a high level of conservation condition is maintained.

Lessons from case studies: In the FBA auction a minimum management condition was specified which effectively excluded some landholders. In the Desert Uplands auction a certain percentage improvement was required based on the existing land condition which provided more opportunity for participation.

7. Cost effectiveness

• One of the cited benefits of a competitive tender is that the process provides more cost effective outcomes than the traditional fixed price grant scheme.
• Under a competitive tender landholders would normally only bid for the difference between the full costs of implementing an action and their net returns.
• One of the criticisms is that tenders discourage a cost share ethic.

• There is evidence to suggest tenders are cost effective in terms of the environmental outcomes that can be purchased at a given price.
• Competitive tenders are likely to be more efficient than devolved grants where changes in management actions involve private benefits.
• It is still unclear how the transaction costs of implementing a tender compare with a grant scheme.
• Cost share principles can be incorporated.

Lessons from case studies: The FBA biodiversity tender outcomes were compared with a fixed rate biodiversity stewardship scheme. To achieve the same outcomes would have cost 30% more under the stewardship scheme compared with the tender. None of the case studies directly compared the transaction cost of the tender compared with a grant scheme.

In the BMRG dairy tender bidders were required to state the amount they were contributing to the project to encourage the cost share principle.

8. Landholder evaluation

• There were initial concerns that the competitive nature of the tender process would not appeal to landholders and discourage participation
• Tenders have only involved relatively small numbers of landholders whose opinions have been recorded.

• Evaluation surveys have not highlighted any serious problems from landholders and the schemes have been generally well received.
• The one-on-one contact at the field visit has been particularly well received.

Lessons from case studies: Participant evaluation surveys have been conducted with landholders in Mackay, the Fitzroy and the Desert Uplands. Both the field visits and the auction workshops have been popular. Some landholders are finding it difficult to construct their bid price. More research is required in this area about what impartial assistance can be given without being too prescriptive.