5 Steps to Implementing Small Concession — From Concept to Operator Selection [2026 Edition]

Small Concession project development proceeds through the following 5 phases. The overall timeline is approximately 2 to 4 years, with clearly defined deliverables at each phase.

For a general overview of the Small Concession framework, see What Is Small Concession?.

Key Actions

This phase deepens internal municipal understanding of PPP/PFI. Specific tasks include the following:

• Briefing the mayor: Provide a concise overview of Small Concession and its expected benefits, and obtain top-down direction to proceed
• Coordination with relevant departments: Finance (budget), property management, planning (alignment with comprehensive plan), and the department responsible for the target facility
• Council communications: Proactive information sharing to dispel misconceptions about PPP/PFI as "outsourcing to the private sector"
• Study visits to leading cases: Visits to municipalities featured in 7 Small Concession Cases, or participation in seminars hosted by the Small Concession Platform

Common Failure

A significant number of municipalities bypass this phase and proceed directly to sounding. The result is that sounding findings, when brought back to the internal organization, are met with responses such as "we were not informed" or "this will not pass the council," causing the entire process to collapse.

Available Support

Free platform membership provides regular distribution of seminar information and leading case studies.

Key Actions

Conduct an inventory of idle facilities and narrow down candidates for Small Concession.

• Compiling an idle facility inventory: List all idle public facilities — former schools, historic townhouses, former government buildings, former clinics, former recreational facilities, etc.
• Formulating an area vision: Consider not only individual facilities but also the desired future of the surrounding area. Approach from the question "What do we want this area to become?" rather than "What should we do with this facility?"
• Collecting baseline data: Current building conditions (seismic compliance, presence of asbestos, estimated renovation costs), surrounding population trends, transportation access, and existing comparable facilities

Example Evaluation Criteria

Key Actions

This is the most critical of the 5 phases. Establishing in advance whether private operators are interested in participation prevents the outcome of "zero applications" after the public tender.

• Conducting market sounding: A dialogue-based market survey in which private operators are asked about ideas for utilizing the facility and the conditions for participation
• Publishing results: Publishing a summary of sounding results ensures transparency and can attract additional operators
• Determining the direction of the project scheme: Based on sounding results, determine the preferred approach (concession, PFI, lease, designated management)

For a comparison of available approaches, see A Comprehensive Comparison of 7 Public-Private Partnership Methods.

Key Considerations in Sounding Design

• Question items: At minimum, ask about interest in the facility, desired business content, necessary enabling conditions, and barriers to entry
• Participation incentives: Offering bonus points in the public tender to sounding participants increases participation rates (in the Kaiseizan Park case, participants received 5 bonus points)
• Phased approach: Where possible, a two-stage approach — Trial (social experiment) followed by Market Sounding — is ideal

Available Support

The specialist dispatch program under the Small Concession Formation Promotion Project provides municipalities with advisory support on sounding design at no cost.

Key Actions

Building on sounding results, rigorously test the project's viability as a business enterprise.

• Feasibility study: Integrated analysis covering current facility conditions, market analysis, project scheme design, and financial simulation
• Financial simulation: Year-by-year projections of initial investment (renovation costs), operating costs, and revenue estimates, with quantitative evaluation of project viability using NPV (net present value) and IRR (internal rate of return)
• Risk allocation design: Determine how to distribute risks between public and private parties — demand variability risk, facility deterioration risk, force majeure risk, and others

Cost Estimates

Outsourced feasibility study costs typically range from ¥5 million to ¥20 million, depending on facility scale and scope of analysis. The national "Leading Public-Private Partnership Support Project" (cap of ¥20 million) can significantly reduce the municipality's actual out-of-pocket burden.

Key Actions

• Drafting solicitation documents: Clearly specify scope of work, cost allocation, project period, and selection criteria. The Ministry of Land, Infrastructure, Transport and Tourism's Word-format template serves as a useful reference
• Designing evaluation criteria: A scoring framework that goes beyond price alone is recommended — for example: quality of business plan (40–60%), community contribution (10–20%), operational structure (10–20%), and cost reduction (10–20%)
• Proposal review: Document screening followed by presentations. Establish a selection committee that includes external experts
• Operator decision and agreement execution: Basic agreement → detailed design → permits and approvals → construction → opening

Key Considerations in Evaluation Criteria Design

Evaluation criteria in which "the lowest-cost bidder wins" should be avoided. Price-weighted evaluation creates a high risk of service quality degradation during the operational phase. In the Kaiseizan Park case featured in 5 Park-PFI Success Cases, "cost reduction" was allocated only 70 points out of 500 (14%), with greater weight placed on the quality of the business plan and community contribution.

Failure 1: Skipping Phases

A municipality proceeds to sounding (Phase 3) without first achieving internal consensus (Phase 1). When sounding results are brought back, they are met with opposition from the council or an "I wasn't informed" response, and the entire process reverts to zero.

Failure 2: Omitting Sounding

The optimistic assumption that "operators will come if we open a public tender" leads to a public tender with zero applications. In regional municipalities with populations of tens of thousands, a public tender without prior sounding carries extremely high risk.

Failure 3: Price-Weighted Evaluation

Selecting the lowest-cost operator results in service quality degradation during operations, generating resident dissatisfaction. In some cases, operators ultimately withdraw from the project entirely.

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Where to begin among the 5 phases depends on the current situation of your municipality. If internal understanding is already well developed, facility selection (Phase 2) may be the appropriate starting point; if a candidate facility has already been identified, sounding (Phase 3) may be the right entry point.

The critical principle is not to skip phases. Each phase's deliverables serve as inputs to the next; omitting any step will invariably create problems downstream.

ISVD provides free consultations to help identify where your municipality currently stands in this process and co-design a concrete action plan for the next steps.

References

Small Concession Promotion Policy (2024)

Small Concession Formation Promotion Project: Call for Specialists (2026)

Small Concession Platform (2024)