The Development of Public Private Partnership Projects Impact on the In-House Counsel

Transcription

1 International In-house Counsel Journal Vol. 4, No. 13, Autumn 2010, 1 The Development of Public Private Partnership Projects Impact on the In-House Counsel OUAHIDA BENDJEDOU Legal Counsel, Bouygues Construction, France I. Introduction 1. Development of public private partnership projects The development of science, technology and economic growth have always been a leitmotiv for many countries to prove they are wealthy and growing countries, these progresses having often been expressed towards highly equipped public infrastructure facilities and efficient public services provided. However, the race against the continuing development of new technologies, and the need for public authorities to meet these new technologies requirements through their public infrastructure facilities, led a lot of countries to a serious level of indebtedness which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s and which could have not been covered by the sole public revenues. In Europe, with the entry into force of the Maastricht Treaty and the adoption of the euro as the unique currency, the European Union Member states have been asked to conform to an economic and budget discipline, particularly by reducing their public debt below 60 % of their gross domestic product. Nevertheless, the need of public infrastructure facilities is continuingly growing, as public authorities need: on one hand, to rehabilitate their existing facilities which lack efficient maintenance services, and on the other hand, to possess brand new public infrastructure facilities, build in accordance with the last building techniques and fully equipped with the new generation technologies, which are the obvious indicator of a wealthy economy these two concerns being in the line with the general tendency of answering to current sustainable development requirements (as environmental preoccupations, energy savings, etc ). This paradox encouraged the governments to change their public procurement model standard, regarding public infrastructure facilities and this is how the public-private partnership projects appeared in the public procurement scene both in industrialized countries and emerging economies. With the Private Finance Initiative program launched in 1992 by John Major s government, the British have been the first to adapt their public procurement scheme, analyzing the sharing of risk between the public and the private sector, and the cost born by public authorities. International In-house Counsel Journal ISSN print/issn online

2 2 Ouahida Bendjedou Public private partnership projects mostly concern large-scale projects in transportation, medical care, energy, water systems, etc, but how is this new public procurement model working?. 2. Definition of public private partnership projects To enable public authorities to provide efficient public services at a lower cost, public private partnership projects turned out to be a solution to reduce public indebtedness and to involve the private sector and use its means and competencies in order to share the risks of such projects and the benefits. More precisely, public private partnership projects are a financing mechanism by which a public authority is entrusting a private partner with the management of the financing, design, build, maintenance and operation during a period between 15 to 30 years of a public infrastructure facility owned by this private partner, in consideration of which the public authority will pay a rent to the private partner during the operation period for the use of this facility. The private partner will often take the form of a limited liability company specifically created by financial investors and industrial companies, the latter holding interests in the design-build and facilities management subcontracts. Below is the typical contractual scheme implemented for this type of projects: As the scheme reveals it, public private partnership projects request the intervention of many economic actors, each with its scope of expertise and obligations, and every one of them working to achieve the following shared goals:

3 Public Private Partnership Projects 3 the sharing of responsibility for the provision of the infrastructure facility (with generally a significant level of risk being taken by the private partner), a long-term commitment by the public sector to the provision of quality public services to consumers through contractual arrangements with private sector facilities managers and operators, and better value for money and optimal allocation of risk (for instance, by exploiting private sector competencies (managerial, technical, and financial) over the project s lifetime and by promoting the cross-transfer of skills between the public sector and private partners). III. Bouygues Construction s perspective on public private partnership s legal resources intervention 1. Increase of in-house lawyers legal fields of expertise a. Broad range of legal areas concerned by public private partnership projects Bouygues Construction group is specialized in building, civil works and electrical contracting/maintenance. Bouygues Construction group s building and maintenance subsidiaries (hereinafter designated as Bouygues Construction ), as many building and maintenance companies from other groups, play an important role in the public private partnership scheme, which points up a situation in which Bouygues Construction finds itself in several levels of the public private partnership scheme, as follows: investors/shareholders of the special purpose vehicle set up for the project; design-build contractors; facilities management and operating contractors; and sometimes, lenders. The conflict of interest resulting from the different positions Bouygues Construction holds exists and this is one of the hardest tasks the in-house lawyers of Bouygues Construction have to handle: the defense of Bouygues Construction s interests in each of the positions it holds in the public private partnership scheme, without giving the priority to one position over the others. Besides, within the consortia set up with financial private investors during tender phases, Bouygues Construction is often the leader, which put the in-house lawyers of Bouygues Construction in a position to be those who have to look at every aspects of the project. Even if during the tender phase, the majority of the time, the consortium appoints a law firm to advise it and represent it towards the public authority, the said law firm usually acts implicitly on behalf of the financial investors of the consortium (which hold the majority of the consortium s shares). This implicit rule is the consequence of Bouygues Construction having decided to lean on its in-house lawyers to represent and defend the interest of Bouygues Construction. Beyond the obvious costs savings Bouygues Construction is making with this strategy, it has developed an important group of highly skilled in-house lawyers, as these in-house lawyers had to master various legal fields of expertise, such as: Public procurement law (of every country in which Bouygues Construction exercises an activity), Real estate and construction law, Maintenance and operation issues during a long period of time, Finance and securities law, Corporate law, and International law (being a French company exercising activities abroad).

4 4 Ouahida Bendjedou As only one or two in-house lawyers are assigned to one project (except for exceptionally complex projects) and as many questions related to all of the abovementioned legal areas arise in connection with one project, it requires the single or the two in-house lawyer(s) to be attuned enough to each of these legal areas. b. Communication with characters with different educational backgrounds By developing these various legal fields of expertise, the challenge of Bouygues Construction s in-house lawyers is to understand and to be understood by each member of the project team who come from different educational backgrounds. As public private partnership projects are quite recent in the public procurement scene, many of the members of the project team have not sufficiently understood, at first, the issues and the mechanisms at stake. Classical public procurements are built with no more than one to two agreements directly and separately concluded with the design-build contractor, the facilities manager and the operator, and a simple financing mechanism which provides a direct payment by the public authority to these contractors. Moreover they offer flexibility in the negotiation between private and public sectors after the execution of the contracts. On the contrary, the public private partnership projects are a way for public authorities to benefit, in a single operation, from: the construction of a public infrastructure facility, the maintenance and operation of this infrastructure facility by a private partner (with more efficient means than the public sector), the delegation of finding a financing for the project at a better rate, a fixed rent to pay at a regular period, during 15 to 30 years, and at the end of the public private partnership contract, a public infrastructure facility back in the public authority s capital in an almost new building condition.

5 Public Private Partnership Projects 5 In this scheme, more than an average of five agreements has to be concluded, each of them interacting with the others. Besides, the payment mechanism (which will apply for 15 to 30 years after the end of the construction period) and the sharing of risks between the different partners have to be fixed in advance, on the date of execution of the entire contractual documentation, with a more complicated opportunity to amend any provision of this documentation, at a later stage. In front of the rigidity brought by public private partnership legal and economic framework (originally in the benefit of public authorities) and the necessity to anticipate the evolution of long term contractual relationships between public authorities and private partners (as one of the characteristics of public private partnership projects is that they are concluded for an average period of 15 to 30 years), in-house lawyers are in the best position to foresee the potential problems, and to try to solve them with the cooperation of the other members of the project team. 2. Increasing role towards Bouygues Construction internal team and external partners a. Part of an integrated team and influence on the top management For a long time, in-house lawyers have been considered either as the persons always answering no to every new proposal, constantly standing over every innovative initiative taken by decision-makers or business managers, or as those who had to solve tricky situations or litigations once they were born. Today, besides this role of litigation manager (which still applies), and regarding the growing complexity of the deals and the development of a more and more substantial legal environment, a natural tendency to anticipation of conflicted situations and need of creativity navigating through these new legal concepts has been implemented, so that inhouse lawyers became real characters in the decision-making process. Their expertise and their ability to adapt to complicated situations or to people who do not speak the same language, made them business partners, as part of the company s growth, and they have established themselves as ones of the leading players in the company s life, and specifically in complex contractual scheme projects as public private partnership projects. As a consequence, in-house lawyers are fully part of an integrated team constituted by business managers, building engineers, financial engineers, facilities management engineers, tax and insurance specialists, and lenders, and they are involved from the very beginning of the public procurement procedure, for a more efficient work and a valuable support. And when it comes for the top management to validate the strategy and the risk profile introduced by the project team, in-house lawyers are part of these committees, which are the occasion for them to confirm that the deals are legally secured for each private partner with a fair sharing of risks or to draw the attention of the top management on the tricky legal issues if they occur, for them to take a decision in full knowledge of the facts. b. Overall view of a public private partnership deal As abovementioned, public private partnership projects involve various different aspects of an infrastructure building deal, all interlinked one to another. As each member of a project team is specialized in one field of expertise, each of them will look at the aspects of the project which is linked to its specific scope of expertise: the building engineers and business managers will control all design and build aspects of the project, specifically dealt with in the design and build agreement, to ensure that the project they build fulfills public authorities needs while

6 6 Ouahida Bendjedou controlling what kind of risks they bear in terms of design and build commercial and technical risks, the maintenance and operating engineers and business managers will control in the facilities management agreement whether the projections on life cycle and hard and soft facilities management are correctly assessed, regarding the design and build scheme proposed by the design-build contractor, and the financial engineers will focus their efforts on finding a financing and structuring it to offer the public authority the best project price and to enable, on the one hand, the private subcontractors (acting as design-build contractors and facilities managers) to secure a certain level of margin, and on the other hand, the shareholders to maintain a reasonable level of internal rate of return. The role of in-house lawyers, and specifically Bouygues Construction s in-house lawyers, is to ensure: that all these aspects respect a legal framework, and answer to a fair sharing of risks between the public authorities and the private partners, that the different interests of Bouygues Construction s subsidiaries, acting as design-build contractor, facilities manager, shareholders in special purpose vehicles set up, and sometimes lenders, are fully represented in accordance with the commercial decisions taken, and that the overall contractual mechanic works. In this respect, Bouygues Construction s in-house lawyers are the privileged members of the project team and they are approached by all the other members who look for: an analysis of a strategic orientation regarding the applicable law or the public authority s constraints, precise information lost in the mass of documents forming part of the entire public private partnership project agreement, or impacts of contractual provisions on others, etc To do so, Bouygues Construction s in-house lawyers have to understand and master all these aspects of the project, and the consequences of one on the others, especially, when modifications occur. Besides, if in-house lawyers are an undeniable support to Bouygues Construction s internal teams, they also represent a precious advantage to external partners, such as: the financial investors in the special purpose vehicles which often lean on Bouygues Construction s in-house lawyers to explain certain issues raised, or, as leader of the consortium, to defend the common interests of all the consortium members, including theirs. However, this has only been possible because of the trustful relationships the in-house lawyers of Bouygues Construction have been able to build with their external investment partners; the lawyers (acting either on behalf of the consortium or the lenders) for them to have a better understanding of design-build and facilities management issues while advising their respective clients. This cooperation facilitates the relationships with the financial investors and the lenders; and Public authorities, which, under some circumstances, enjoy the experiences and skills of the private sector, including in-house lawyers.

7 III. Conclusion Public Private Partnership Projects 7 The evolution of the economic and legal environment of building/maintenance companies, such as Bouygues Construction, has made the in-house lawyers, not only litigation specialists, but more of powerful advisors in the commercial, financial and technical decision-making process of the company. They are by essence the best characters to coordinate such kind of deals, regarding the skills that every good in-house lawyer should have, among which: a strong ability with language, as formulating clear and simple concepts and ideas allows all actors to understand each other and express their need, and is the key to an unambiguous and non litigious legal documentation, the ability to think logically, as the practice of law is really all about interpreting how the laws will apply to a particular case and this is done through a process of logical thinking, the ability to deal with people, as much of what a lawyer or an in-house lawyer does is talking to people, negotiating and building relationships, being rigorous and well organized. Knowing how to prioritize tasks is the key to a successful public private partnership deal. The advent of public private partnership projects in the environment of organizations such as Bouygues Construction enhanced the image of in-house lawyers and the inevitable advantage they represent within such organizations. Thus, the scope of in-house lawyers tends to increase, giving the opportunity they have through public private partnership projects to reveal the tremendous fields of expertise they could be able to provide to the business. Ouahida Bendjedou, Graduated from Aix-en-Provence Law School. Master degree in International Business Law, Master degree in Business Law, taxation and accountancy and an international in-house counsel diploma, in Joined the Legal Affairs and Compliance Department of BOUYGUES CONSTRUCTION in Bouygues Construction is a subsidiary of the Bouygues group, is one of the world's leaders in the building, civil works and electrical contracting and maintenance sectors. Organized as seven complementary entities, it has proven expertise in financing, designing, constructing, maintaining and operating buildings and structures, offering its customers a vast range of innovative solutions. The Group is addressing the environmental challenges confronting its businesses through a pragmatic and far-reaching approach, which covers the design, construction and operation of buildings and structures for which it is responsible. It has the firm ambition of being a leader in terms of sustainable development. With 52,600 employees throughout the world, the Group generated sales of 9.5 billion Euros in 2009.