COMMENTS ON GREEN PAPER ON PPP AND COMMUNITY LAW ON PUBLIC CONTRACTS AND CONCESSIONS

Transcription

1 COMMENTS ON GREEN PAPER ON PPP AND COMMUNITY LAW ON PUBLIC CONTRACTS AND CONCESSIONS 1. General The European Dredging Association is pleased to respond to the Commission Green Paper COM(2004)327. EuDA notes with satisfaction that the Commission confirms that public procurement law does not cover all forms of public-private partnerships. As underlined in the Green Paper, it is important to define the Public-Private Partnership at Community level. The Economic and Social Committee, in its advice CES 1192/2000 concerning publicprivate partnerships, has confirmed this unequivocally : A clear definition of concessions and a suitable framework for these (PPP) contracts are needed in order to enable them to develop Definition The Commission proposes to make a distinction between two groups of PPP : The purely contractual, with as sub-division BOT (Build-Operate-Transfer), DBFO (Design-Build-Finance-Operate), etc. contracts and public works concessions. The institutional PPP involving the formation of a separate organisational entity with mixed public and private participation. While it is true that there is no formal definition of PPP at Community level, several valuable attempts have been made to clarify the matter; Table 1 lists pertinent examples. It may be helpful to use different names for contractual PPPs (public-private cooperation?) and institutional PPPs. 1/15

2 Table 1 : Defining Public-Private Partnerships Public-Private Cooperation (definition) An agreement between a public body and contractor(s) to provide comprehensive works infrastructure and services, including project finance, while sharing project risks and benefits. EuDA proposal Comments A PPC may be realised in the form of Build-Operate-Transfer (BOT) contracts, Design-Finance-Build-Operate (DFBO) contracts or similar contracts where the private party takes responsibility for a considerable part of the project risk and the parties develop a relationship of mutual trust and respect. Public works concession (definition) (1) : A contract between a public body and a concession party for the execution or the design and execution of works whereby the compensation consists in the right to exploit the construction for a period of time, or in this right together with payment. Dir. 93/37/EEC (2) : An act (whether by contract or unilateral) whereby a public authority delegates to a private organisation the task of designing, constructing, financing, maintaining and operating an infrastructure for a predetermined extended period. CES 1192/2000 Comments This definition seems to group concessions with works contracts, which makes no sense. Specific for the concession are : Delegation Public authority retains ownership One could clarify by adding while retaining ownership. 2/15

3 Public-Private Partnership (Broad definition) A public-private partnership is a partnership between various public administrations and public bodies on the one hand and legal persons subject to private law on the other, for the purpose of designing, planning, constructing, financing and / or operating an infrastructure project. Kinnock High Level Group on PPP financing of Trans-European Networks (1997) Comments Under this definition the involvement of the private party can take a variety of forms such as concession agreements for design and operation, the commitments taken under the private finance initiative (PFI), or the forming of a dedicated project company where the public party has a seat on the Board. Public-Private Partnership (Narrow definition) A public-private partnership is a sustained, collaborative effort between government agencies and private organisations in which each of the partners shares in the planning of projects and programmes designed to meet a public need and contributes a portion of the financial, managerial and technical resources needed to implement those plans. Fosler & Berger (1982) Comments This definition implies the forming of a joint undertaking between the public and the private party. The mixed undertaking becomes a private entity with public service responsibilities. It could be argued that such an undertaking falls under the scope of Dir. 93/38/EC as a utility. This forms the typical category of institutionalised PPPs. 3/15

4 1.2. Classification In Fig. 1 public works contracts are classified in terms of responsibility for design work and project finance. This leads to 3 different groups of contracts; the differentiating feature, in terms of procurement, will be the drawing-up of tender specifications, the distribution of risks and responsibilities and the complexity of the negotiations. For a BOT type of contract long negotiations are typical before finalising contractual details, while a traditional public works contract can be concluded with comparative ease. Fig. 2 adds to the figure the hatched area that covers the class of contracts where closer public-private cooperation and partnerships are required. Fig. 2 also clarifies the notion that PPPs may take a variety of contractual forms. Fig. 1. : Classification of construction contracts BOT = Build-Operate-Transfer DBFO = Design-Build-Finance-Operate Who provides finance? Public sector Works contract Design & construct Turnkey Who is responsible for design? Public body Private contractor Finance through leasing BOT DBFO Private sector 4/15

5 Fig. 2. : Classification of construction contracts vs. PPP BOT = Build-Operate-Transfer DBFO = Design-Build-Finance-Operate Who provides finance? Public sector Works contract Design & Construct Turnkey Who is responsible for design? Public body PPP Private contractor Finance through leasing BOT DBFO Private sector 5/15

6 2. Questions raised in the Green Book 2.1. Contractual PPPs 1) What type of purely contractual PPP set-ups do you know of? Are there set-ups subject to specific supervision (legislative or other) in your country? EuDA as a European trade association is not in a position to answer the question. We are however pleased to note that the Green Book makes a distinction between the public works concession and the institutionalised PPPs. In several EU Member States a tendency exists to equate public works concessions with institutionalised PPPs; in the EU context they must be treated differently if only because of the differing legal (contractual) frameworks in e.g. northern and southern European countries. 2) In the Commission s view, in the context of a purely contractual PPP, the transposition of the competitive dialogue procedure into national law will provide interested parties with a procedure which is particularly well adapted to the award of contracts designated as public contracts, while at the same time safeguarding the fundamental rights of economic operators. Do you share this point of view? If not, why not? In the case of complex technology or advanced technology projects the competitive dialogue has certain advantages compared to the open or restricted procedure, in particular for the procurement of products. However : Contractors are still very concerned that the competitive dialogue provides insufficient guarantees to protect their intellectual property rights or innovative ideas. The alternative to offer design variants as supplement to a base tender provides more protection. It is not always optimal to proceed with the procurement process until the design is frozen. Our sector has positive experiences with an approach where the client selects a contractor on objective grounds in order to define the optimal technical solution. A reference price is set with a proviso of gain sharing. If the final price is lower the benefit is shared; if the price is exceeded, both parties share the excess costs. A gain-sharing scheme is always to be preferred to an inadequate tender specification. A PPP requires complex contractual and financial arrangements. The final result cannot be achieved via a single firm pricing round at the end, as seems to be the case in the competitive dialogue, but will be the outcome of a negotiated procedure. The compensation for often significant amounts of proposal engineering (in PPP projects also the costs of legal and financial advisors) should be an obligatory requirement. 6/15

7 3) In the case of such contracts, do you consider that there are other points, apart from those concerning the selection of the tendering procedure, which may pose a problem in terms of Community law on public contracts? If so, what are these? Please elaborate. Contractual PPPs involving financing are of interest for the realisation of larger (infrastructure) works. This favours large contractors and thus reduces the role of smaller contractors to that of subcontractors. 4) Have you already organised, participated in, or wished to organise or participate in, a procedure for the award of a concession within the Union? What was your experience of this? N.A. 5) Do you consider that the current Community legal framework is sufficiently detailed to allow the concrete and effective participation of non-national companies or groups in the procedures for the award of concessions? In your opinion is genuine competition normally guaranteed in this framework? EuDA wishes to remind that public works concessions require long-term stability, financial strength and local presence and we would normally expect that bids are prepared involving, as a minimum, local subsidiary companies. There have been examples of non-national groups that obtained contracts for PPPs (usually with the involvement of the EIB) and which also include concessions for exploitation. A very practical constraint for non-national tenders is that the period for bid preparation is usually insufficient to prepare a quality bid. 6) In your view, is a Community legislative initiative designated to regulate the procedure for the award of concessions desirable? Community law should not be detailed, only be a guideline. The new Directive 2004/18 on Coordination of procedures for the award of public works contracts, public supply contracts and public service contracts covers the concessions under Title III. The Directive essentially requires a public announcement of the wish to award a concession. The award procedure that is to be used is not specified and it would seem quite normal to apply the negotiated procedure for a candidate that has been selected on objective grounds. Provided the principles of the Treaty on these matters as highlighted in the Interpretative Communication on Concessions under Community Law (April 2000) can be respected, we see no need for further legislation. 7/15

8 7) More generally, if you consider that the Commission needs to propose new legislative action, in your opinion are there objective grounds for such an act to cover all contractual PPPs, irrespective of whether these are designated as contracts or concessions, to make them subject to identical award arrangements? EuDA is not in favour of further European rules for concessions or complex contracts. The award procedures for institutionalised PPPs and contractual publicprivate agreements are likely to differ. As concessions appear both as public works concessions in their own right and as an element of some institutionalised PPPs, one may expect more problems than solutions from adding legislation. The main concern is that all forms of PPP contracts are complex and sufficient flexibility in contract award is needed. 8) In your experience, are non-national operators guaranteed access to private initiative PPP schemes? In particular, when contracting authorities issue an invitation to present an initiative, is there adequate advertising to inform all the interested operators? Is the selection procedure organised to implement the selected project genuinely competitive? No opinion; it would seem odd that an initiative developed by the private sector is subsequently advertised for open competition. 9) In your view, what would be the best formula to ensure the development of private initiative PPPs in the European Union, while guaranteeing compliance with the principles of transparency, non-discrimination and equality of treatment? The mere phenomenon of a private initiative PPP underlines the fact that private entities seek to serve the public purpose by developing entrepreneurial initiatives and opportunities. Prior to discussing transparency, non-discrimination and equal treatment, it should be clarified how parties developing private initiatives for public needs may be rewarded. The fact that a solution is developed with private means to solve a problem with infrastructure should be recognised publicly as beneficial for society. A private initiative PPP should lead to a competitive advantage for the initiator. In this case we plead for clear guidance that recognises the private initiative and includes one or more of the following elements : Compensation for preliminary engineering work at the time of award. Preferential treatment in the award procedure. Right of first refusal. All 3 measures represent unequal treatment ; it would be intellectually honest to clarify that a private initiative that leads to the solution of a public problem is hardly compatible with the concept of equal treatment of other, less entrepreneurial contractors. In this case unequal treatment is not equivalent to discrimination! 8/15

9 We consider it urgent to resolve the uncertainty surrounding private initiative PPPs and remove hurdles that make contracting authorities hesitate about their appropriate response. Practice has shown that lower (regional) authorities are very uncertain about the way they may respond to private initiatives. 10) In contractual PPPs, what is your experience of the phase which follows the selection of the private partner? No comment. 11) Are you aware of cases in which the conditions of execution - including the clauses on adjustments over time - may have had a discriminatory effect or may have represented an unjustified barrier to the freedom to provide services or freedom of establishment? If so, can you describe the type of problems encountered? No comment. 12) Are you aware of any practices or mechanisms for evaluating tenders which have a discriminatory effect? We refer to the comments on this Green Paper submitted by the European International Contractors (EIC) : The contracting authority must provide comprehensive information to all bidders. 13) Do you share the Commission s view that certain step-in type arrangements may present a problem in terms of transparency and equality of treatment? Do you know of other standard clauses which are likely to present similar problems? No. PPP arrangements are by definition complex and involve contractual relationships between project developer and contracting authority, lenders, contractors, operators, etc. It is up to these parties to decide what should be in the contracts (market practice). The delicate balance of this structure could change over time, the financial commitments must be protected, the position and strength of the project developer may evolve over the years. The European legislation can guide the award of contracts, but it is impossible to legislate all the developments that may take place during the course of the concession period nor is this the role of the Commission. Step-in clauses (required by lenders) and other provisions to protect the future health of the project are common practice and should not be discouraged. 9/15

10 14) Do you think there is a need to clarify certain aspects of the contractual framework of PPPs at Community level? If so, which aspects should be clarified? As contract law is embedded in national law we see no reason to clarify the structure of PPP contracts at EU level. 15) In the context of (contractual) PPPs, are you aware of specific problems encountered in relation to subcontracting? Please explain. The project developer accepts major risks, both in the contractual PPP form and under the institutionalised PPP. The management of these risks must not be constrained by specific requirements on contracting. Even the option in Art. 60 of Dir. 2004/18/EC on public procurement to specify a minimum of 30% subcontracting for concessions is not appropriate. 16) In your opinion does the phenomenon of contractual PPPs, involving the transfer of a set of tasks to a single private partner, justify more detailed rules and / or a wider field application in the case of the phenomenon of subcontracting? / 17) In general, do you consider that there is a need for supplementary initiative at Community level to clarify or adjust the rules on subcontracting? We do not see any need for further rules. It should be understood that a private contractor having obtained the contract for a contractual PPP must be free to subcontract work in accordance with its own procedures, but within the restrictions laid down in the tender documents Institutionalised PPPs The institutionalised PPP is characterised by the creation of a mixed public-private entity to form the project company; this joint undertaking will put in place the necessary contractual agreements with other stakeholders. An example of such a relationship between (groups of) stakeholders is shown in Fig. 3. This procedure is very much a 2-step process : the selection of the private partner and the negotiation on ownership participation and other arrangements comes first. This will normally be done on the basis of a project outline plan, but without contract in place. The detailed contractual arrangements will develop after the establishment of a mixed project company. The focus of Community law should be on a fair process of partner selection. 10/15

11 The private partner will often be a holding company with diverse in -house capabilities that may be utilised in the project realisation; alternatively it may be a general contractor that maximises the amount to be subcontracted. 11/15

12 Fig. 3. : PPP - Role of Stakeholders Lenders Loans Securities, reimbursement Public partners Subsidy, grant or equity Benefits PPP project company Equity Dividends Private partners e.g. D+C contract e.g. O+M contract Construction contractors Operation contractors 12/15

13 We submit that the PPP project company with majority private ownership is no longer comparable to a public contracting body and should not be subject to the same rules for tendering. At most one could consider obligations similar to the utility directive, but one could also argue the case that a mixed PPP falls under private contract law. 18) What experience do you have of arranging institutionalised PPPs and in particular, in the light of this experience, do you think that Community law on public contracts and concessions is complied with in such cases? If not, why not? As outlined in the introduction on institutionalised PPPs, we are of the opinion that the initial partner selection is subject to the general principles of community law, but the subsequent phase of contract placement with partners, in-house divisions or subcontractors should leave maximum freedom to the PPP project company. We see no conflict with Community law. 19) Do you think that an initiative needs to be taken at Community level to clarify or define the obligations of the contracting bodies regarding the conditions requiring a call for competition between operators potentially interested in an institutionalised project? If so, on what particular points and in what form? If not, why not? The only obligation that may have to be clarified is the requirement to publish the search for partners followed by a transparent and fair selection process. 20) In your view which measures or practices act as barriers to the introduction of PPPs within the European Union? The main barrier to the introduction of PPPs at a wider scale within the EU is a widespread uncertainty amongst contracting authorities on which rules to apply to what kind of public contract. This represents legal uncertainty and potential exposure for the contracting bodies as well as for private partners. In particular the lack of guidance on how to treat private initiative PPPs acts as a formidable barrier to tapping entrepreneurial iniatives. 21) Do you know of other forms of PPPs which have been developed in countries outside the Union? Do you have examples of good practice in this framework which could serve as a model for the Union? If so, please elaborate. No comment. 13/15

14 22) More generally, given the considerable investments needed in certain Member States in order to pursue social and sustainable economic development, do you think a collective consideration of these questions pursued at regular intervals among the actors concerned, which would also allow for the exchange of best practice, would be useful? Do you consider that the Commission should establish such a network? An example of reflection at EU level on PPPs was the Kinnock High Level Group. In the final reports one finds a fairly complete overview of good practices, reference models and implementation problems. We have seen little evidence from the side of the Commission to deal with the Kinnock recommendations during the past 8 years. Prior to forming new networks the existing analysis should be evaluated and the recommendations implemented. In summary, when reflecting on the position of PPP under community law, the most urgent issue to clarify is the nature of the existing obligations for each separate category. Our understanding is the following : Notification procedure Works contract (BOT, DBFM, etc.) Public works concession PPP with mixed project company Private initiative PPP PP PP (publication) PP (publication)?? Tendering PP Com Law Com Law? Selection / award procedure Requirements for subcontracting? PP Com Law Com Law? No (PP) * No No PP = Public Procurement Directive 93/37/EEC resp. 2004/18/EC. CL = Community Law : transparency, equality of treatment, proportionality. * The Directives contain options, but no requirements for subcontracting. The position of the public works concessionaire and the mixed PPP project company is not entirely clear under public procurement law. A case could be made that both forms of project companies should be treated as Utilities as in Dir. 2004/17/EC. This, however, would require an amendment to the Directives. More generally it is the opinion of EuDA member companies that for such complex contractual arrangements as PPPs only minimal regulatory obligations at Community level should apply. The opportunity must be published and the partner selection must be made on objective grounds, with maximum transparency. Once the partner has been selected the contract can be negotiated following the negotiated procedure. 14/15

15 In some Member States it is common practice to require potential subcontractors to a PPP project company to take an equity position in the project company. This demand could lead to the obligation for subcontractors to consolidate part of the financing debt on the balance sheet. This practice may be seen as discriminatory and limits in any case the enthusiasm of potential subcontractors for PPPs. The practice can be circumvented by providing state guarantees, but this in turn undermines the principle of private financing. 15/15