Market Sounding for PPP: 8-Item Question Template and Step-by-Step Guide

What Is Sounding

A dialogue-based market survey that gathers private sector opinions before a tender, which MLIT's guide describes as increasingly used by local governments

Market sounding is a dialogue-based market survey in which private sector operators are consulted for their opinions and ideas regarding a public asset, prior to the issuance of a public tender. The assumption that "operators will come if we open a public tender" is particularly risky for small-scale facilities in regional areas. Sounding functions as a safety mechanism that verifies in advance "whether the private sector actually wants to participate."

MLIT's guide introduces sounding as a practice that local governments have increasingly taken up in recent years[3]. In FY2019 the ministry itself held dialogues with private operators on 84 projects from 71 public bodies at six venues nationwide[1]. This article sets out a template municipal staff can use to build the questions for their own sounding.

Positioned as Phase 3 in 5 Steps to Implementing Small Concession, sounding is the most critical process determining whether a project succeeds or fails.

3 Types of Sounding

Characteristics and selection criteria for trial, pre, and market sounding — plus the three-phase model from Kaiseizan Park

Sounding comes in three varieties. Phased implementation of these types is the success pattern.

Trial Sounding

A method in which the facility is made available to the private sector for a set period (one week to one month) for experimental use — typically including food and beverage pop-ups or event hosting.

The Kaiseizan Park case[4] featured in 5 Park-PFI Success Cases conducted a one-month trial sounding in October 2020, awarding participants 5 bonus points in the public tender evaluation (out of 500). The logic behind this incentive design: early physical engagement with the facility — not just reading the specifications — translates directly into proposal accuracy.

Advantages: Issues not visible on paper — such as pedestrian flow, equipment condition, and actual demand — become apparent when private operators physically use the facility. Disadvantages: Requires time and cost to implement. Facility use permit procedures are necessary.

Pre-Sounding

A method for broadly gauging private sector intent at the feasibility study stage. Email or web form inquiries are common formats.

Advantages: Can be implemented at low cost and within a short timeframe. Collects opinions from a large number of operators. Disadvantages: Depth of dialogue is limited. Responses often remain at the level of "interested, but the details are unclear."

Market Sounding

A method involving one-on-one dialogue with individual private sector operators, conducted immediately before finalizing solicitation guidelines. Specific opinions are exchanged on project schemes, cost allocation, and enabling conditions.

Advantages: Enables concrete understanding of operators' participation conditions and challenges. Findings can be directly incorporated into the design of solicitation conditions. Disadvantages: Implementation typically requires 1–3 months. Care is required in publishing dialogue content to avoid disclosing information that could affect operators' competitive positioning.

The Logic of the Three-Phase Model

Kaiseizan Park followed a three-phase sequence: Trial (October 2020) → Pre (spring 2021) → Market (autumn 2021), before finalizing solicitation guidelines in 2022 and issuing the formal tender. This phased approach matters because information gathered at each stage feeds directly into the design of the next. Issues discovered in the trial appear as questions in the pre-sounding; participation conditions revealed in pre-sounding become the agenda for individual dialogue in market sounding. "Taking it step by step" is not additional cost — it is risk management.

Question Template and Design Intent

Each of the 8 items with 'why ask this question' — what the answers reveal and how to use them

The unit costs and amounts that follow are assumptions this article makes, not published statistics. They move a great deal with the building, the area and the line of business, so replace them with your own quotes and comparable local results.

The following template is provided for use in market sounding. For each item, the design intent — "why ask this question" and what the answer reveals — is explained. Understanding the intent makes customization to your facility's specific characteristics straightforward.

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1. Interest in the Facility

Questions:

• Level of interest in utilizing this facility (high / moderate / low / none)
• If interested, what type of use is envisioned?

Why ask this question:

The interest rating provides a quantitative indicator of the overall "market viability" of the sounding. Five participating companies all responding "low" means there is essentially no market — while a single participant responding "high" justifies deepening the dialogue toward concrete utilization. The "what type of use" question is designed to capture reuse ideas the municipality may not have considered. As the "opening question" intended to draw out private sector creativity, an open-ended format is essential.

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2. Preferred Business Content

Questions:

• Specific business content and type of operation
• Intended user base (target audience)
• Projected annual footfall or number of users

Why ask this question:

Asking about "operation type" identifies which sectors (food and beverage, welfare, education, tourism, etc.) actually have a market for this facility. When multiple operators are asked the same question, patterns like "food and beverage is most common" or "welfare dominates" become the basis for deciding which sector to prioritize in designing solicitation conditions. The "projected annual footfall" question is asked because it directly feeds into viability assessment. The same food and beverage operation looks very different at 50,000 versus 500,000 annual visitors — and the balance between rent, renovation cost allocation, and financial sustainability changes fundamentally. The figures operators believe are achievable are also referenced when evaluating the feasibility of business plans during proposal review.

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3. Facility Renovation and Development

Questions:

• Required renovation content and estimated costs
• Maximum renovation costs the applicant is willing to self-fund
• Development items to be requested of the municipality

Why ask this question:

The renovation cost question is one of the most important indicators of "how high the barrier to entry is." Many responses of "renovation is needed but self-funding is difficult" mean that private participation will not happen without a municipal subsidy or partial cost-sharing. Conversely, a response of "we can fund the full renovation ourselves" indicates that commercialization is possible without any municipal fiscal burden. "Development items requested of the municipality" is asked to identify the "trigger conditions" — what the municipality must provide to unlock private action. Without this information, setting solicitation conditions incorrectly creates the risk of zero applications because barriers to entry are miscalibrated.

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4. Business Conditions

Questions:

• Preferred project duration (number of years)
• Acceptable level of rent or usage fees
• Whether revenue sharing (returning a portion of sales to the municipality) is feasible

Why ask this question:

Asking about project duration is a way to understand operators' investment recovery logic. If an operator invests ¥10 million in renovation, recovery over 5 years requires ¥2 million per year; over 20 years, only ¥500,000 per year. When operators say "15 years minimum," that is the shortest feasible recovery period — and setting the project duration shorter means no operators will enter. The rent and usage fee question is asked to establish the "maximum the market can bear" as early as possible. A large gap between the municipality's expected revenue and the payment operators can afford means the project has low viability. Issuing a public tender without surfacing this gap in advance produces zero applications. This question makes the gap visible before it becomes a problem.

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5. Project Scheme

Questions:

• Preferred approach (PPP/PFI, lease, designated management, etc.)
• Solo participation or consortium
• If consortium, what structure is envisioned?

Why ask this question:

The project scheme question gathers the most upstream information needed to decide "which legal and contractual framework to use in designing the solicitation." If private operators respond that "a lease arrangement would be much easier to enter than a concession," that is a signal that designing the solicitation as a lease — rather than full Small Concession concession — may attract more participants. "Solo or consortium" is asked to identify the population of operators who cannot enter alone but could participate if paired with a specific partner. This information directly shapes the "eligibility requirements" design in the solicitation guidelines. Allowing consortium applications may increase the applicant pool substantially.

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6. Barriers to Entry

Questions:

• Issues and concerns in considering participation
• What enabling conditions are being requested of the municipality?
• Are there regulatory or permit-related hurdles?

Why ask this question:

This is the hardest question in the sounding to ask — and simultaneously the most important. Operators may hesitate to answer honestly, fearing that "critical comments might create a bad impression." But for the municipality, these answers are precisely the information needed to improve solicitation conditions. Asking about "regulatory or permit hurdles" surfaces ambiguities in advance — for example, "unclear whether a food service license can be obtained" or "unclear whether a building use-change application is required." Left unresolved, these grey areas lead operators to reason that "entry risks being stalled by permit problems" and decline to apply. Pre-emptive clarification is direct risk removal. This question should be the most carefully listened to in the entire sounding.

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7. Community Contribution

Questions:

• Local employment plan
• Community engagement policy (resident participation, local procurement, etc.)
• How would the operator handle public responsibilities such as disaster response?

Why ask this question:

The purpose of this question is not only to use the answers in proposal evaluation — it is also to gauge "whether this operator can speak concretely about community contribution." In Small Concession and Park-PFI, community contribution typically carries 15–25% of the evaluation weight. An operator who can already say, at the sounding stage, "we plan to hire 3 local staff" and "we aim for 30% local ingredient sourcing" is demonstrating a level of project concreteness that will translate into high scores in the formal proposal. A response of "we haven't thought about it yet" signals that the operator's project development is still at a very early stage. The quality of responses to this question can serve as a leading indicator of proposal quality in the public tender.

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8. Schedule

Questions:

• Earliest possible start date for participation
• Time required for preparation (design, permits and approvals, construction, etc.)

Why ask this question:

The schedule question verifies whether any operator "could respond to a public tender issued right now." If a genuinely interested operator says "at the earliest, two years from now," this surfaces the gap between the operator's readiness and the municipality's stated goal of "commercialization starting next year." Surfacing this gap in advance enables the municipality to consider adjusting the timing of the tender or extending the preparation period available to applicants. The time required for design, permits, and construction can also be directly used to design the tender schedule by working backward from the target opening date. The failure pattern of "rushed tender → operators can't prepare → low-quality proposals → difficult selection process" most often happens when this schedule question is omitted.

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How to Conduct Sounding

5-step process: announcement → registration → dialogue → results compilation → publication

Sounding is conducted in the following 5 steps.

Step 1: Announcement (2–4 weeks in advance) Post the implementation guidelines on the municipal website. Specify the overview of the target facility, the purpose of the sounding, application procedures, and dialogue scheduling. Posting on the MLIT platform additionally reaches operators outside the immediate region.

Step 2: Registration (2–3 weeks) Receive participation applications. Requesting advance submission of a company profile and a brief facility reuse proposal improves the efficiency of dialogue.

Step 3: One-on-One Dialogue (30–60 minutes per company) Conduct dialogue following the 8-item template. One-on-one, private, completely separated sessions are the principle — never seat multiple operators together, as this creates the risk of one operator's proprietary ideas being disclosed to competitors. Take notes for subsequent results compilation. Explain confidentiality protocols in advance.

Step 4: Results Compilation Aggregate opinions from all operators by item. Extract common requests and challenges, and assess whether each can be incorporated into the solicitation conditions. Documenting "what was reflected and why" and "what could not be reflected and why" provides ready-made explanations when operators inquire after the tender is published.

Step 5: Publishing Results Publish a summary (number of participants, general trends in opinions) on the municipal website. Omit information that could identify individual companies.

Publishing and Utilizing Results

Publishing a summary attracts additional operators — the boundary between what to publish and what to protect

Publishing sounding results has the effect of attracting the next wave of operators. The fact that other operators have expressed interest encourages additional parties to consider participating in the public tender. Withholding results represents a missed opportunity.

What should be published:

• Number of participating operators (company names not disclosed)
• Trends in proposed uses (distribution of business types: food and beverage was most common, welfare was prominent, etc.)
• Common challenges to entry (renovation costs, project duration, permits and approvals, etc.)
• Direction of solicitation conditions informed by the sounding

What should not be published: Individual company names, each company's specific business plans, cost estimates, or proprietary know-how, and verbatim records of dialogue. These are subject to confidentiality obligations; unauthorized disclosure will reduce participation in future sounding exercises.

Cost Benchmarks and Decision Criteria for External Consulting

¥1.5–5 million for external consulting. Key decision criteria and the value of the consultant's private-sector network

When outsourcing sounding design and implementation to an external consultant, costs generally range from ¥1.5 million to ¥5 million (¥3–8 million when feasibility studies are included).

Decision criteria: External consulting is effective for municipalities conducting sounding for the first time, or for projects where major operators are expected to participate and question design precision will determine outcomes. Where prior sounding experience exists and staff expertise has been developed, in-house implementation is also viable.

A further reason to engage an external consultant is the private-sector network for participant recruitment. A consultant using industry relationships to actively invite participation — "we'd like you to consider this sounding" — reaches operator populations that a public announcement alone cannot. This is a practical tool for reducing the risk of zero participation.

How to Respond When Zero Operators Participate

Three approaches — condition easing, method change, and scope expansion — with a root-cause diagnostic checklist

If sounding yields zero respondents, address the situation with the following three approaches.

1. Easing Conditions

Consider adjusting conditions to lower barriers to entry: reducing rent, extending the project period, or expanding the municipality's cost share. Before deciding what to adjust, use the following diagnostic checklist to identify the root cause:

• Information did not reach target operators (announcement scope was too narrow)
• Conditions were too demanding (high rent, short project duration, full renovation cost on operator, etc.)
• Facility condition was too poor (seismic non-compliance, asbestos, etc.)
• There was simply no underlying demand (insufficient local population, visitors, or welfare service users)

If the root cause is the last one — no underlying demand — easing conditions will not solve the problem. A fundamental review of facility type or intended use is needed.

2. Changing Methods

Re-examine the Small Concession approach itself. If the concession format is too complex, consider switching to a lease arrangement; if the PPP/PFI Act procedures are burdensome, consider simplifying to a comprehensive partnership agreement. Explore downgrading the project approach.

Changing the method can expand the pool of operators who can realistically participate. For SMEs and NPOs in particular, a lease arrangement or partnership agreement is frequently more accessible than the procedural requirements of a full concession structure.

3. Expanding the Scope

Expand from the individual facility to a broader area-based development plan that encompasses the surrounding vicinity, thereby increasing the overall appeal for operators. Ikeda Town in Hokkaido, one of the municipalities MLIT selected to promote small concessions, covers three facilities together: the former Takashima Elementary School, the former Kuribayashi Clinic, and former staff housing[5] (see 7 Small Concession Cases). Packaging multiple facilities can be a solution when individual buildings are "too small to be viable on their own."

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Sounding is not merely a "listening" exercise — it is a process of co-creating a project through public-private dialogue. The quality of its design, especially a thorough understanding of "why each question is being asked," determines the success or failure of the public tender.

ISVD provides free support for sounding design, including question template customization, dialogue facilitation, and results analysis.

Guide

Three Types of Sounding and How to Choose

A detailed guide to the differences between trial, pre, and market sounding — and how to select the right type for your facility

Intro

What Is a Small Concession? A Plain-Language Explanation

Core concepts, eligible facilities, the three structural barriers, and the five-phase commercialization process

What to do next

In the order you can act on them, within the week you read this.

Step 3 can be done today, and it is how you learn when an expert dispatch call opens.

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References

Small Concession Promotion Policy — Ministry of Land, Infrastructure, Transport and Tourism, Bureau of General Policy (2024)

Guide to Market Sounding — Ministry of Land, Infrastructure, Transport and Tourism (2023)

Kaiseizan Park Park-PFI Project: Public Solicitation Guidelines — Koriyama City (2022)

Small Concession Platform — Ministry of Land, Infrastructure, Transport and Tourism (2024)

PPP/PFI Promotion Action Plan — Cabinet Office, Private Finance Initiative Promotion Unit (2024)