green paper on public private partnerships - European Union of ...

uepc.org
  • No tags were found...

green paper on public private partnerships - European Union of ...

Restoring the Past U.E.P.C. Building the Future

GREEN PAPER ON PUBLIC PRIVATE PARTNERSHIPS

COM(2004)327

UEPC COMMENTS

UEPC represents more than 30,000 developing and house building companies, affiliated

with its 13 member federations. Directly or indirectly the activities of these developers

and house builders represent 10% of gross national product and employment

in Europe. Together, they annually build and develop several millions m² of offices

and shopping centers as well as more than 1.000,000 new homes.

EXECUTIVE SUMMARY

UEPC wishes to emphasize the need to improve delivery in PPP, ensuring at

the same time value for money and flexibility in privately financed projects.

Therefore the Commission should stimulate/facilitate EU Member States :

- to ensure the development of effective legislative and regulatory

provisions before developing PPP relationships;

- to improve efficient organization and transparent frameworks to

streamline the process of delivering PPP projects;

- in improving the general procurement skills of the public sector

to deliver value for money in investment;

- to put in place an information resource, accessible to all public

authorities and private partners, providing accreditation of PPP

advisers to ensure the PPP-partners appoint experienced and

qualified advisers who have performed well on other procurements;

- to enforce the standardization of PPP contracts across the public

sector to reduce the length and cost of PPP procurements;

- to promote the sharing of best practice;

- to promote the communication with stakeholders

By improving the role of the public sector client, the EU will help to:

UNION EUROPEENNE DES PROMOTEURS-CONSTRUCTEURS

EUROPEAN UNION OF DEVELOPERS AND HOUSE BUILDERS

EUROPÄISCHE UNION DER FREIEN WOHNUNGSUNTERNEHMEN

AUSTRIA – BELGIUM – FRANCE – GERMANY – IRELAND – ITALY – THE NETHERLANDS – NORWAY – POLAND – PORTUGAL – SPAIN – TURKEY – UNITED KINGDOM

RUE DE LA VIOLETTE 43, B-1000 BRUXELLES - Tel. (32) 25 11 25 26 - Fax (32) 22 19 71 99 - www.uepc.org - e-mail: info@uepc.org


2

- enable authorities to focus more effectively on securing overall

value for money, taking in whole-of-life costs, allowing scope for

innovative design and using discretion and good judgment in

evaluating procurement options;

- increase the speed with which investment is delivered to the public

by reducing time spent in procurement;

- reduce the cost to the public sector of procuring PPP projects,

improving their value for money; and

- by being a better client, encourage the private sector to bid for

PPP projects, strengthening competition and innovation in PPP

According to UEPC, the Commission should clarify the principles of transparency,

equality of treatment, proportionality and mutual recognition in relationship

with the award arrangements of all kind of PPP-projects, whether institutional

or pure contractual. A clarification of these principles should itself respect

the principles of non-discrimination and equal treatment, meaning that a

different approach is only accepted if there are enough objective reasons for a

separate treatment and in respect of the principle of proportionality.

According to UEPC, PPP projects can only be successful if the partners can

negotiate in a sufficiently flexible manner, regardless the (final) formal juridical

structure of these projects. Therefore, negotiations should be considered as

the standard rule for PPP-projects.

In principle there is no need to petrify such clarification through purely legislative

action. However, an informal clarification document could lead to the necessity

of modifying existing regulations that are considered to be too restrictive

for successful PPP.

Finally, if the EU considers it necessary to establish itself a contractual framework,

such a framework should only cover the basic issues and certainly not

all the aspects of the contractual PPPs. This framework may determine some

measurable standards such as technical capacity, human resource capacity,

financial ability, experience, bidding process (costs), and confidentiality of innovative

know-how.

1. UEPC AND THE GREEN PAPER ON PUBLIC PRIVATE PARTNERSHIPS

UEPC is a European association created in 1958. It represents the national federations

of developers and house builders and is recognized by the European

Authorities. UEPC is a Non-governmental Organisation with consultative status

in the Economic and Social Council of the United Nations. It is also a member of

the European Construction Forum, the Construction Contact Point and one of

the founding members of the European Housing Forum. UEPC is also a member

of the Working Group on Sustainable Construction in the Framework of the

European Commission Study on the Competitiveness of the Construction Sector

as well as of the Expert Group on Accessibility (DG Employment of the European

Commission).


3

The Green Paper of the Commission analyses the phenomenon of PPPs with

regard to Community law on public procurement and concessions. Under Community

law, there is no specific system governing PPPs. The aim of this Green

Paper is to launch a wide ranging debate to find out whether the Community

needs to intervene to ensure that the economic operators in the Member States

have better access to the various forms of public private partnership in a situation

of legal certainty and effective competition.

The Green Paper does not propose any particular option or set of options for

Community intervention. The instruments available for improving the opening of

PPP operations to competition are in fact very diverse: Community legislative instruments,

interpretative communications, measures aimed at better coordination

of national practice, or the exchange of best practice between Member

States. In fact, The Commission has no wish to prejudge the outcome and will

take the fullest possible account of the results of the debate.

The Green Paper contains a list of 22 questions. UEPC decided to elaborate

some general considerations and to answer, thereafter, some specific and general

questions regarding the experience of UEPC, the need for clarification of

the principles of equal treatment, transparency and non-discrimination in relationship

with PPP projects, mainly concerning the award arrangements and the

contractual framework.

2. GENERAL CONSIDERATIONS

2.1. PRIVATE SECTOR PARTICIPANTS SEEK TO FIND REASONABLE PROFITS

UEPC wishes to emphasize that, for private sector participants, the first requirement

for any type of involvement is the potential to derive a reasonable

profit. In addition, in return for greater risk exposure, the private sector will also

require the potential for commensurate increases in profit potential. Similarly,

before committing its own capital in the development of projects, it will require

clear legal and regulatory structures, and will want to see the potential for future

economic growth, together with reasonable levels of political support and stability.

Some procuring authorities are pursuing an approach to risk transfer that is unsustainable,

seeking to transfer too much risk to the private sector. The Government’s

approach to risk sharing in PPP should be to seek to transfer only

those risks that the private sector can more effectively manage. It should not

seek to maximise risk transfer, as this would offer poor value for money.

2.2. POLICY INITIATIVES AND MEASURES

According to UEPC, the EU needs to put in place policy initiatives and measures

designed to make the public sector a better client in all PPP procurement. UEPC

supports the initiatives already taken on the EU-level (guidelines for successful

PPP, adoption of the statute for a European Company, Eurostat’s recent recommendation

that the assets involved in a PPP should be classified as nongovernment

assets, and therefore recorded off balance sheet for government if


4

both of the following conditions are met : 1. The private partner bears the construction

risk, and 2. The private partner bears at least one of either availability

ord demand risk.).

EU should further stimulate/facilitate all Member States:

1. to ensure the development of effective legislative and regulatory provisions

before developing PPP relationships

In this respect UEPC supports the Commission’s point of view set forth in its

“Guidelines for successful Public-Private Partnerships” of March 2003.

UEPC thinks it would be wise for Member States to institute an assessment of

the potential value for money of procurement options when overall investment

decisions are being made in the context of the Spending Review, to ensure

PPP is only used when it is the best option and has a good prospect of offering

value for money. By making a value for money assessment of all procurement

options at an early stage, as investment programmes are being considered,

this new initial stage will allow maximum flexibility in the choice of procurement

options in these areas.

It is wise to use PPP only where it represents the best procurement option.

This is unlikely to be the case for projects with a small capital value. It is important

then that local authorities have the flexibility to develop such projects

through a wide range of procurement routes, choosing the most appropriate

option that delivers the best value for the project. This flexibility is part of a

wider commitment to devolve responsibility to local councils to meet local priorities,

increase local choice and improve performance by removing unnecessary

controls that stifle local innovation.

Delivery of the Member States’ objectives for housing are dependent on significant

programmes of capital investment. In some States PPP is already contributing

to delivery of that objective, but its role could also be expanded. Affordable

housing provision could benefit from PPP investment because:

- it involves the provision of capital assets where effective project management

incentivised by appropriate risk-sharing would bring significant

benefits; and

- because of their long life, these assets could benefit from design, construction

and costing made on a whole of life basis by private sector

parties incentivised to ensure best value.

2. to improve efficient organization and transparency to streamline the

process of delivering PPP projects

The private sector should be provided with the confidence to invest in the additional

capacity necessary to facilitate several public plans to increase investment

in new public sector infrastructure. Local authorities in several Member

States have encouraged to bring PPP projects forward, as a limited amount of

central government revenue support has been available, but there has been

no (clear) basis for allocating such support between different local authority


5

schemes. Projects have therefore been taken forward at considerable risk to

the local authority, incurring development costs on the procurement process,

with no assurance about the availability of revenue support. Bidders, similarly,

have had to bid on schemes whilst uncertain whether they would receive necessary

Government support or not. A framework to streamline the allocation of

the of central government revenue support should therefore be established.

To ensure value for money and flexibility in privately financed projects, the different

governments should explore the provision of framework funding, to

make available a faster, cheaper funding solution for bundled small schemes.

UEPC also promotes the establishment of public sector procurement centres

specialized in structuring and delivery of PPP projects, which will work with local

public sector managers in certain suitable areas to procure such projects,

to increase the quality of specifications and reduce delays in the process.

These procurement centres can then support local procuring authorities in particular

markets. By increasing the public sector’s ability to procure quickly robust

and effective PPP projects, these supporting centra will also allow the introduction

of PPP into new areas as well as offer a way to increase the number

of PPP projects in existing areas. However, there is no need for these centra

to become themselves PPP partners. Their task should be limited to support

(local) procuring authorities.

These specialized centres could design a range of new procurement models

to bring all the necessary expertise and experience to locally procured PPP

projects, providing procuring authorities with the support they need to obtain

value for money, while maintaining local control and local accountability in the

delivery of public services and public service investment. These models are

therefore likely to be most applicable where small projects can be grouped together,

and there is no obvious centralized procuring authority.

3. in improving the general procurement skills of the public sector to deliver

value for money in investment

It should be an overall EU priority to improve general procurement skills across

the public sector. A lasting step-change in the quality of public services in the

EU can only be achieved if the public sector has the skill sets necessary to

ensure that public investment projects deliver value for money improvements

in frontline public service facilities. Improvements in this area need to focus on

both the quality of public sector procurement skills and on the way in which

they are used. Public sector managers need to:

- be skilled enough to assess procurement options over the long

term;

- effectively identify the value for money option, not simply opt for

the least-cost option, including taking full account of the quality of

design in bids;

- negotiate effectively with the private sector;


6

- apply skills with sufficient confidence to ensure that appraisal is a

real test of procurement, and not an exercise in fulfilling set criteria

without regard to a wider view of which option is in the public

interest; and

- carry out the evaluation and management of investment delivery

in a way that ensures that the public sector is accountable for

both the public money which it spends and the public services

which it provides.

4. to put in place an information resource, accessible to all public authorities

and private partners, providing PPP advisers to ensure the PPPpartners

appoint experienced and qualified advisers who have performed

well on other procurements

UEPC believes that it is important that public sector managers are well advised,

especially when undertaking complex procurement projects such as

PPP. Poor advice contributes to slowing the procurement process, can inflate

procurement costs, and will impair the ability of the public sector to identify

value for money in options appraisal and negotiation.

To assist in meeting these objectives, the EU could seek to put in place a single

information resource, covering advisers who have demonstrated their expertise

and performance in PPP projects in fields such as law, commercial

structuring or finance. This resource will be developed over time, reflecting the

experiences of PPP-partners, thus also departments and public sector managers.

It is crucial to its successful implementation that this single point of information

and experience in hiring and managing professional advisers reflect

the qualitative judgment of PPP clients on the standard of the advice they

have received, rather than representing simply a list of potential advisers in different

areas of expertise.

5. to enforce the standardization of PPP contracts across the public sector

to reduce the length and cost of PPP procurements

The European Commission should stimulate Member States to implement

general and specific guidance for public authorities on a standardized contractual

approach to the most common issues likely to feature in PPP schemes.

Standardized Contractual Guidance (as in the UK) should intend to enable

public authorities to strike a balanced contractual position that is commercially

deliverable for the private sector and can provide value for money for the public

sector. In providing a common understanding and approach to common issues,

it is also hoped that it will help further reduce the time and cost of negotiations

of PPP contracts. This will enable the focus of negotiations to be on

the deal specific issues rather than on issues that are generic to PPP projects

generally.

UEPC believes that he process of standardizing PPP contracts helps spread

best practice, improving PPP procurements across the public sector, and significantly

reduces the length and cost of PPP procurement. However, these

standard terms should maintain the individual flexibility of a particular pro-


7

curement to set its needs and requirements, but provide a standard form for

those aspects of PPP common to all its procurements. Member States should

also be stimulated to produce a ‘procurement pack’ for different contractual

PPP projects, such as a “Procurement Pack housing PPP”. The Pack should

be intended to provide a guide for public authorities procuring contractual PPP

projects and should include template or model documentation.

There should also be a regular dialogue with the private and public sectors

over how successfully the standardized PPP contract is being applied.

6. to promote the sharing of best practice

European Centre for Public-Private Partnerships

UEPC believes there is a need for a European Centre for Public-Private Partnerships.

The mission of this Centre is to advocate and facilitate the formation

of public-private partnerships and to raise the awareness of governments and

businesses of the means by which their cooperation can cost effectively provide

the public with quality goods, services and facilities.

The objective of the European Centre for Public-Private Partnerships is to foster

innovative forms of cooperation between the public sector and the private

sector, for the benefit of all Europeans.

The Centre's vision is to influence the way in which public services are financed

and delivered in Europe by:

- Encouraging public-private partnerships

- Providing information on public-private partnerships

- Sponsoring conferences and seminars on partnerships

- Stimulating dialogue between public and private sector decisionmakers

on the financing and delivery of public services

- Educating the public

- Conducting objective research on key issues that influence the

effective use of partnerships

The Centre should concentrate on the following activities :

- Promotion and facilitation of public-private partnerships across

Europe

- Compilation of a resource library on PPP issues and projects

- An annual conference and regional events on a wide variety of

PPP topics

- Informative newsletters (Public-Private Bulletin) on Centre activities,

news and issues discussed at the national conference

- Workshops and seminars that allow participants to share innovative

ideas and solutions through a national network

- Centre-sponsored publications, including research ong>paperong>s, case

studies, guidelines, opinion surveys and national inventories on

key public-private partnership subjects


8

Supporting Authorities Through Project Networks

In the UK, “4ps” supports local authorities developing and delivering housing

PFI projects in part through project networks. Networks are seen as an important

way of facilitating an exchange of information between project staff. The

project networks also have access to 4ps’ hosted ‘extranets’ through which local

authority project staff can share, electronically, project documentation. This

practice should be stimulated in all EU countries.

Consulting the Market European Housing Practitioners Group

UEPC and the Commission could convene a small working group or ‘practitioners

group’ from the housing bidding side as a consultative forum to discuss

‘technical’ and commercial issues related to large housing PPP projects.

7. to promote the communication with stakeholders

More people will be affected by a partnership than just the public officials and

the private-sector partner. Affected employees, the portions of the public receiving

the service, the press, appropriate labour unions and relevant interest

groups will all have opinions, and frequently significant misconceptions about

a partnership and its value to all the public. It is important to communicate

openly and candidly with these stakeholders to minimize potential resistance

to establishing a partnership.

2.3. THE DISTINCTION BETWEEN PURELY CONTRACTUAL PPS AND PPS OF AN INSTITU-

TIONAL NATURE

The distinction made in the Green Paper between PPP of a purely contractual

nature and PPP of an institutional nature makes sense only to a certain point.

In fact, institutional PPS is commonly set up on the basis of contracts. A distinction

that is made in function of the procurement requirements, and thus based

on a purely formal criterion, does not take into account the practical side of different

projects. Intrinsically, and apart from the procurement methods, an institutional

PPP is more complex as a formula than an contractual PPP (such as a

combination of Design-Build-Finance-Maintain-Operate-Transfer), for the public

partner can always discuss on the role and the risk sharing as a participant in a

juridical vehicle. Moreover, as the public partner is subject to other regulatory

measures than private partners, this could create problems in the management

of the vehicle.

3. QUESTIONS

3.1. QUESTIONS REGARDING THE EXPERIENCE OF UEPC

1. What types of purely contractual PPP set-ups do you know of

In its “guidelines for successful public-private partnerships” the European

Commission distinguishes four main groupings of PPP relationships: (1) DB

and variant forms; (2) BOT and variant forms; (3) DBFO and variant forms (4)


9

Concession (page 28). In its actual Green Paper on PPP, the Commission

also refers to PFI-contracts and concessive models (DBFOMT). UEPCmembers

have experience with these PPP relationships.

Assessing the mean features of this four groupings set out by the Commission

in the above mentioned EU guidelines, UEPC concludes that, according to the

Commission, those four groupings have all in common that the public facility

remains in public ownership or is handed back to the public sector after a period.

However UEPC has also experience with relationships where public facilities

do not necessarily have to be transferred to the public authority, but remain in

private ownership. According to UEPC these relationships can also be defined

as “contractual” :

Turnkey

A public agency contracts with a private investor/vendor to design and build a

complete facility in accordance with specified performance standards and criteria

agreed to between the agency and the vendor. The private developer

commits to build the facility for a fixed price and absorbs the construction risk

of meeting that price commitment. Generally, in a turnkey transaction, the private

partners use fast-track construction techniques (such as design-build)

and are not bound by traditional public sector procurement regulations. This

combination often enables the private partner to complete the facility in significantly

less time and for less cost than could be accomplished under traditional

construction techniques.

In a turnkey transaction, financing and ownership of the facility can rest with

either the public or private partner.

Buy/lease, develop / renovate, operate

The private sector buys or leases an existing asset from the public authority,

renovates, modernizes and/or expands it, and then operates the asset

with/without obligation to transfer the ownership back to the government.

Build-Own-Operate (BOO)

The private sector finances, builds, owns and operates a facility or service in

perpetuity. The public constraints are stated in the original agreement and

through on-going regulatory authority.

The contractor constructs and operates a facility without transferring ownership

to the public sector. Legal title to the facility remains in the private sector,

and there is no obligation for the public sector to purchase the facility or take

title.


10

Buy-Build-Operate (BBO)

A BBO is a form of asset sale that includes a rehabilitation or expansion of an

existing facility. The government sells the asset to the private sector entity,

which then makes the improvements necessary to operate the facility in a profitable

manner.

Transfer of a public asset to a private or quasi-public entity usually under contract

that the assets are to be upgraded and operated for a specified period of

time. Public control is exercised through the contract at the time of transfer.

Sale/Leaseback

This is a financial arrangement in which the owner of a facility sells it to another

entity, and subsequently leases it back from the new owner. Both public

and private entities may enter into a sale/leaseback arrangements for a variety

of reasons. An innovative application of the sale/leaseback technique is the

sale of a public facility to a public or private holding company for the purposes

of limiting governmental liability under certain statues. Under this arrangement,

the government that sold the facility leases it back and continues to operate it.

Finally, UEPC wishes to point out that Member States often select a DBFOMT

or concession contract for highway infrastructure, meaning the private partner

bears the risk associated with traffic demand, whilst after a certain regulatory

measures are taken to stimulate public railway traffic and discourage the use

of the motor highway on the basis of environmental considerations.

21. Do you know of other forms of PPPs which have been developed in

countries outside the Union

United Nations Development Program - www.undp.org/ppp/

UNDPs Public-Private Partnerships for the Urban Environment (PPPUE) facility

supports the development of innovative partnerships between public and

private actors at the local level. Focusing on assisting small and medium-sized

cities, PPPUE works with all potential stakeholders to meet the challenge of

providing basic urban environmental services.

USA National Council for Public-Private Partnerships - www.ncppp.org

The national organization on PPP in the U.S., the NCPPP website contains

up-to-date news, publications, case studies, issue ong>paperong>s and upcoming

events south of the border.

Privatisation Centre - www.privatization.org

Provided through the Reason Public Policy Institute, this is an excellent resource

on the issue, including: definitions; statistics and trends; practices and

strategies; over 20 specific service areas at three levels of government; details

of comprehensive government programs; and the pros and cons of privatisation.

It also includes a long list of studies, publications and a directory of private

providers in the U.S.


11

Partnerships Victoria - www.partnerships.vic.gov.au

This site, provided by the State of Victoria Government in Australia, includes

guidance materials, information on projects and details of contacts in departments.

Republic of South Africa National Treasury – www.treasury.gov.za

Tenders, manuals, reports and project summaries related to PPP in South Africa

(Hint: click onpublic-private partnerships” from the homepage).

Japan - www8.cao.go.jp/pfi

Private Finance Initiative Cabinet Office for the Government of Japan

Korea Research Institute for Human Settlements – www.krihs.re.kr

Activities, news and publications from South Korea’s main centre of economic

promotion and PPP activity (Hint: English version available by clicking link on

top navigation bar).

The Canadian Council for Public-Private Partnerships :

http://www.pppcouncil.ca

Do you have examples of “good practice” in this framework which could

serve as a model for the Union If so, please elaborate.

The main law for the PPP projects in Turkey is known as “Concerning the Provision

of Certain Investment in the Build-Operate-Transfer Model” (Published

June 8, 1994, Law No: 3996). More detailed information can be found in enclosure

n°1 of this UEPC- report.

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

The actual regulations provide few opportunities for the private candidate

launching the innovative idea to really execute his proper idea.

Our Turkish member wishes to stress that, Turkey, especially after the 1980’s,

has liberated almost all sorts of in and out capital movements radically. Therefore,

one can easily say that Turkey has a fully liberal regime for the nonnational

candidates for the PPP’s in hospitals, schools, bridges, rail networks,

tunnels, airports, water and sanitation plants etc. and access to the private initiative

PPP for a foreign entity is easy. In their application a request for qualification

is distributed mostly in a national newsong>paperong>. After receiving applications,

the contractual body selects a few companies or consortia to get their

proposals and amongst these a company or consortium is chosen. After this

step, the High Planning Council approves the bid.


12

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

UEPC has no bad experience regarding this issue.

With certain PPP/PFI, the contract entered into at the outset recognizes that

there will be a need for changes over the 15-30 year life of the contract. The

key flexibility rights given to the public sector are:

- the public sector has a right to change any aspect of the building

or service provision, subject to agreement with the PPP/PFI contractor

on cost;

- to ensure that value for money is maintained, for changes over a

certain amount in value the public sector can require a competitive

tender for any works; and

- where there is a requirement to change service configuration,

there is a similar right for the public sector to change any aspect

of service provision, subject to agreement on costs, with the ability

to require a competition as set out above.

It is important for the public sector to retain flexibility in delivering services. For

example, if there is new technology which could improve service delivery, a

desire to change the service configuration of the facility such as a shift from inpatient

to out-patient care or an expectation that the volume of support services

required may change, the public sector needs to retain the flexibility to

manage such changes efficiently.

There will always be constraints on the public sector in facilitating such

changes whichever procurement method is employed in delivering new infrastructure.

Once complete, a new building inevitably presents a degree of inherent

inflexibility by its very design.

UEPC therefore recognizes that the public sector client should have the ability

to incorporate flexibility mechanisms into (standard) PPP contracts. However

this flexibility should never result in juridical uncertainty and loss of reasonable

profit for the private partner. In fact, any change is also likely to require new

funds to finance any new construction work needed, so affordability could also

constrain.


13

3.2. QUESTIONS REGARDING THE NEED TO CLARIFY THE TREATY PRINCIPLES IN RELA-

TIONSHIP WITH THE AWARD ARRANGEMENTS OF ALL KINDS OF PPP

5. Do you consider that the current Community legal framework is sufficiently

detailed to allow the concrete and effective participation of nonnational

companies or groups in the procedures for the award of concessions

In your opinion is genuine competition normally guaranteed in

this framework

6. In your view, is a Community legislative initiative, designed to regulate

the procedure for the award of concessions, desirable

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

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

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

UEPC first wishes to point out that any act, whether it be contractual or unilateral,

whereby a public entity entrusts the provision of an economic activity to a

third party must be examined in the light of the rules and principles resulting

from the Treaty, particularly as regards the principles of freedom of establishment

and freedom to provide services, which encompass in particular the principles

of transparency, equality of treatment, proportionality and mutual recognition.

UEPC further wishes to emphasize that the EU legislative framework governing

the choice of private partner is based on the distinction between different

types of contracts, defined at the EU-level. The contracts denoted as public

works or public services contracts, defined as having priority, are subject to

detailed provisions of Community Directives. The concessions of so-called

“non-priority” works and public services contracts are governed only by some

sparse divisions of secondary legislation. Lastly, some projects, and in particular

services concessions, fall completely outside the scope of secondary legislation.

The same is true of any assignment awarded in the form of a unilateral

act.

According to UEPC, the Commission should clarify the principles of transparency,

equality of treatment, proportionality and mutual recognition in relation-


14

ship with the award arrangements of all kind of PPP-projects, whether institutional

or pure contractual.

A clarification of these principles should itself respect the principles of nondiscrimination

and equal treatment, meaning that a different approach is only

accepted if there are enough objective reasons for a separate treatment and in

respect of the principle of proportionality.

According to UEPC there are no objective reasons to provide in Directive

2004/18 particular rules on “subsidised” housing schemes, thus excluding the

non-subsidised housing schemes. In fact in the case of public contracts relating

to the design and construction of a housing scheme, - whether subsidised

or not - the size and complexity of which, and the estimated duration of the

work involved require that planning be based from the outset on close collaboration

within a team comprising representatives of the contracting authorities,

experts and the contractor to be responsible for carrying out the works, a special

award procedure may be adopted for selecting the contractor most suitable

for integration into the team.

According to UEPC, PPP projects can only be successful if the partners

can negotiate in a sufficiently flexible manner, regardless the (final) formal

juridical structure of these projects. Applying negotiations into the bidding

process is a good idea since the dialogue process will lead to a clear understanding

between the parties, avoids misunderstandings, gives a great

chance to see the real abilities and approaches of the construction companies,

in turn, both contracting authority and contractors and the consumers enjoy

the benefits of well established PPP projects based on this clear understanding.

This process will also give a great chance to the authority not the finalize

the tender by evaluating only tender documents which may lead to wrong decisions.

Having negotiations would be an important step to choose the best

company.

In principle there is no need to petrify such clarification through purely

legislative action. However, an informal clarification document could

lead to the necessity of modifying existing regulations that are considered

to be too restrictive for successful PPP.

Since the adoption of Directive 2004/18/EC, criteria for the award of the contract

should also be indicated in the contract notice. It is clear that to comply

with the new regulations, public authorities will have to develop award and selection

criteria much further in advance of the contract notice than is the current

practice, which is to define criteria during the award procedure.

The negotiated procedure allows contracting entities to discuss contract terms

and conditions with tenderers on receipt of their offers, and is intended to allow

for flexibility and cost savings in the preparation of tenders. However, the use

of this procedure is restricted to strictly defined circumstances, and is an exception

to the rule that contracting authorities should award their contract under

either an open or restricted procedure. It is still uncertain as to whether

PPP contracts qualify for the negotiated procedure.


15

Actually the discussion will start whether to apply the competitive dialogue or

the negotiated procedure. UEPC wishes to stress that there is a major problem

in defining the scope of application between the negotiated procedure and

the competitive dialogue.

In its « guidelines for successful Public-Private Partnerships » the Commission

stated that the case for the use of the negotiated procedure is difficult to make

in a Design and Build or BOT contract. According the Commission there will

usually be adequate project definition and the nature of the works or the risks

attaching to them will usually permit overall pricing. According to the Commission

the factors which influence a decision in favour of the use of the negotiated

procedure tend to exist in those projects where it is intended to utilise private

finance or to achieve a greater degree of risk transfer than is normally anticipated.

The Commission also stated that, where private finance is involved,

the use of the negotiated procedure is likely to be appropriate for major projects

so that optimal value for money proposals are received.

However in the « ong>greenong> ong>paperong> on public private partnerships » the Commission

seems to consider that the use of private finance is no longer a valid argument

for the negotiated procedure, as the latter is, according to the Commission,

« to cover solely the exceptional situations in which there is uncertainty a priori

regarding the nature or scope of the work to be carried out, but is not to cover

situations in which the uncertainties result from other causes, such as the difficulty

of prior pricing owing to the complexity of the legal and financial package

put in place.” In a footnote the Commission states that the negotiated procedure

may apply when the works are to be carried out in a geologically unstable

or archaeological terrain and for this reason the extent of the necessary

work is not known when launching the tender procedure.

The Commission seems to be determined that the scope for the negotiated

procedure is not to be extended. UEPC wants to point out to the Commission

that there is a great difference between an unregulated negotiated procedure

without a call for competition and a regulated competitive negotiated procedure

with a call for competition in which there are rules on equal treatment,

transparency, debriefing, etc.

According to UEPC, PPP projects can only be successful if both parties

can negotiate through the PPP-process on the basis of flexible general

principles. Therefore, negotiations should be considered as the standard

rule for PPP-projects.

3.3. QUESTIONS REGARDING THE NEED TO CLARIFY THE CONTRACTUAL FRAMEWORK

PPP PROJECT AND SOME SPECIFIC ASPECTS OF IT (APART FROM THOSE CONCERING

THE SELECTION OF THE TENDERING PROCEDURE)

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.


16

Bidding Costs

The cost of bidding for PPP projects can be a consideration as important as

the funding of an investor’s equity and subordinated debt investments. In funding

such costs, a key consideration for the private sector is its success rate in

winning bids. Irrespective of success, however, the aggregate level of bid

costs expensed in a year does limit the number of bids a company can undertake

in that year, usually determined by the overall financial capability of the

contractor.

UEPC wishes to warn for increased bidding costs by using the “competitive

dialogue”-procedure. Since the contracting entity will have to keep up to 3 bidders

in the “race” until the final award, unless there is only one compliant bid

after the Competitive Dialogue, the new process may result in increased bidding

costs. It was initially proposed that contracting entities would pay a contribution

of up to 15% towards the cost of tendering, so as to keep bidders in

reserve and allow more competition, but this was rejected. The text is now extremely

vague, stating that contracting entities may provide for a “price or

payment” for participation to the competition. Potential tenderers should therefore

assess whether the contribution to bid costs offered by the contracting entity

is sufficient and does not create a risk of unrecovered expenses and costs.

More equitable cost sharing deals should become increasingly common in the

EU PPP-market.

Some Member States are providing budget facilities for bid costs, others do

not reimburse these costs. UEPC believes the Commission should provide

Member States with common basic rules regarding the reimbursement of bid

costs.

UEPC is quite aware that reimbursing the bid costs of losing bidders will in

effect subsidise less successful PPP companies or artificially discourage them

from redeploying resources to other PPP opportunities where this could be

more successful. Therefore, Member States should priorly aim to reduce

these costs by improving public sector capacity : (improve the enforcement of

standardisation, develop new procurement models and reinforce procurement

expertise to the public sector, to ensure all departments operate as best practice

clients, improve the transparency of future PPP programmes to encourage

private sector investment, and continue to encourage new entrants into

the PPP market, including non-national operators)

Confidentiality

A further risk is that the contracting authority will cherry-pick the best ideas of

tenderers from their Outline Submission for incorporation into an optimum set

of output specifications in the invitation to negotiate. Why would potential bidders

take the risk that someone else may implement the innovative technical/artistic

solution they put forward during the Competitive Dialogue Under

Article 29 of Directive 2004/18, the Competitive Dialogue must be carried out

without disclosing the solutions proposed or any confidential information to any


17

candidates without the participant's consent (Article29(3)). However, it is debatable

as to whether this includes any information in the outline proposal.

UEPC finds a clarification necessary. Innovative technical/artistic solutions

should not be transferred to concurrent parties without the consent of the party

that established the innovation.

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

The Commission has already published a standard lexicon of common terms

for drafting and advertising the award of a contract.

The European Commission should further stimulate Member States to implement

general and specific guidance for public authorities on a standardised contractual

approach to common issues likely to feature in PPP schemes. Guidance

should intend to enable public authorities to strike a balanced contractual position

that is commercially deliverable for the private sector and can provide value for

money for the public sector. In providing a common understanding and approach

to common issues, it is also hoped that it will help further reduce the time and cost

of negotiations of PPP contracts. This will enable the focus of negotiations to be

on the deal specific issues rather than on issues that are generic to PPP projects

generally.

If the EU considers to establish itself a contractual framework, such a framework

shoud only cover the basic issues and certainly not all the aspects of the

contractual PPPs. This framework may determine some measurable standards

such as technical capacity, human resource capacity, financial ability, experience,

bidding process (costs) and confidentiality of innovative solutions.

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

UEPC refers to the Commission’s “Guidelines for successful Public-Private

Partnerships” in which the Commission states that main contractual documents

also should include collateral warranties, allowing the contracting Authority

for step-in rights.

UEPC also believes that “lenders” step-in clauses will enhance financial aspects

of certain PPP projects. The concern of the lenders is that they have financed

the project on the basis of projected cash flows and if the Contract

(under which these cash flows are agreed to be paid) is terminated, they will

not, typically, have any rights to sell the Assets, as would be the case in many

types of secured financings. Where direct agreements are required such

documents are increasingly seen as advantageous to the public sector, in that

they give lenders an opportunity to “revive ” the Project and, therefore, to avoid

the disruption that invariably follows termination. If the Project can be restored


18

with minimal disruption to the Service and there is no need for the Authority to

get involved to ensure that this occurs, then both the Authority and the lenders

benefit.

In some Member States, step-in clauses are part of a standardised contractual

approach to common issues likely to feature in PPP schemes. In this context

transparency and equal treatment can be secured.

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 a supplementary initiative

at Community level to clarify or adjust the rules on subcontracting

The Authority often has the perception that it must retain a large degree of

control of a subjective nature over Sub-contractors. An Authority may feel it

needs to use the contract to allow it to intervene at Sub-contractor level to protect

its interest if a Sub-contractor is underperforming (e.g. the Authority may

want the right to direct or require the replacement of the Sub-contractor).This

approach is not recommended as it should be for the Contractor to manage its

Sub-contractors and intervention by the Authority will affect the degree of risk

transfer achieved. The Authority should instead rely on the payment mechanism

and its termination rights to address sub-standard performance.

UEPC ’s wishes to stress that the private partner who originally selected these

Sub-contractors and has taken risk on their performance, should be entitled to

change them at will (for example, if they are not performing).

In general, any attempt by the Authority to control Sub-contractors is to be discouraged

as it is in most cases unnecessary and may dilute the level of risk

transfer achievable by the Authority.

Only in certain limited cases, there may be overriding reasons why the Authority

should have a degree of control over Sub-contractors. For example, there

may be national security issues (particularly in some defence projects), other

public interest issues (e.g. regarding who should be allowed to be involved in

schools), or the Authority may have a statutory duty that it needs to carry out.

In such cases, the criteria that a replacement Sub-contractor must satisfy

should be reasonable (for example, they should require that the potential Subcontractor

is not a threat to national security or other relevant aspect of the

public interest).Any judgment that the potential Sub-contractor does not satisfy

the criteria should be based on objective evidence.

In cases in which there is no specific reason to control Sub-contractors, the

Authority may still want some control on the basis that it placed reliance on the

original Sub-contractor ’s identity and ability to perform in awarding the Contract

to the Contractor. In such cases, satisfaction of a limited set of objective


19

criteria should prove an acceptable level of control to the Authority and the

Contractor. Any such criteria should include:

- technical ability and competence; and

- financial strength (including any willingness to give guarantees to

the Contractor)

Rarely will further criteria be needed.

3.3. GENERAL QUESTIONS

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

20. In your view which measures or practices act as barriers to the introduction

of PPPs within the European Union

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

We do not think there is a magic or best formula to develop the private initiative

PPPs, however, a harmonization of the following items will help to have far

better results :

- PPP should be promoted as an instrument to enhance quality

and should not be presented as an approach to risk transfer that

is unsustainable, seeking to transfer too much risk to the private

sector;

- Under a PPP approach, a cooperation between government and

private parties is achieved where the government works “together”

with the private sector, not “over” or “against” the private

sector. Therefore political commitment is essential.

- The classical procurement regulations are not established on the

basis of a private initiative but on the basis of a public’s initiative

and strict procedures, giving few opportunities for innovative action.

However, the main issue of PPP is to seek for innovative actions

in project(execution).

- As a result of these classical procurement rules, governements

and procuring bodies think too much in terms of

“product”-specifications instead of “service”-specifications.

- Good governance, and economic stability seem as preconditions

for the success of PPP programs. Any uncertainty leads to more

risky environment which makes difficult the long-term business

decisions.

- Together with this, an appropriate legislative framework is essential

if PPP’s are to succeed. Probably most of the authorities accept

as a general rule that, challenges in the developing coun-


20

tries would be greater than the developed EU countries to prepare

such appropriate legislation.

- Both foreign and national investor must know that the government

will be fair in the deal and meet the commitments.

- The responsibilities of both private sector and the government

must be pre-determined clearly and objectively.

- Transparency and accountability must be accepted by all the parties

as a must.

- A proper communication way must be set-up.

In general, the EU needs to put in place policy initiatives and measures designed

to make the public sector a better client in all PPP procurement. UEPC

refers to its general considerations.

Enclosure N° 1 :

Turkish Practice

More magazines by this user
Similar magazines