Procurement and

Contractual Process for

Private Public Partnership
 Class
Activity
Please list down different types of PPP models that you
know.
 Building/
Management Rehabilitation

Operation/ Owership
Maintenance
 Type of PPP contract

D B F O T L M
Design Build Financing Operate Transfer Lease Maintain

Base on:
Finance capacities of Government
The complexity of building and maintaining
Fee collectable
Other restriction on private ownership
regulations
 Type of PPP contract

B O T
Build Operate Transfer

• Private investors build an • Private sector own the

infrastructure facility. infrastructure
• the investors shall have the • Construction and
right to commercially Operational risks could
operate. be transfer
• At the end of such term, • Suitable for: Land
the investors shall transfer Road, Air port,
the facility to the authorized Railroad, Electricity
state agency Factory
 TYPE OF PPP CONTRACT

B T O
Build Transfer Operate

• Private investors build an

• Public sector owns the
infrastructure facility.
infrastructure
• the investors transfer the
• Could transfer
facility to the authorized
construction risk
state agency
• Suitable for project
• the investors shall have the
that can not be owned
right to commercially
by private sector
operate for a fixed time.
 TYPE OF PPP CONTRACT

B T
Build Transfer

• Public sector own the

• Investors build an
infrastructure
infrastructure facility
• Could transfer
• The investors transfer the
construction risks
facility to the authorized
• Suitable for projects
state agency
that can trade-off
 Type of PPP contract

B T L
Build Transfer Lease

• Public sector own the

• Investors build infrastructure
infrastructure
facility
• Could transfer
• Investors transfer
construction risk
infrastructure to authorized
• Suitable for projects that
state agency and have the
hardly collect fee from
right to operate them for the
customers, such as:
fixed time.
hospital, wasted water
• Agency shall lease the
treatment, wastes
service and make payment
 Type of PPP contract

O T
Operate Transfer

• Public sector own

Investors operate part infrastructure
of a facility or the • Could transfer
operational risks
entire facility for a
• Suitable for
fixed term projects are already
launching.
 WTO’s guideline on Government procurement

Doha Development
Government Agenda Working Group
GATS Agreement on
procurement on Transparency in
Government
agreement(GPA) (most Government
Procurement
active) Procurement (current
inactive)
 MAIN PRINCIPLES OF GPA

Domestic
National Non- Transparency review
Treatment discrimination of Information procedures for
suppliers
GPA: Conduct of Procurement

Consistent with GPA

Avoid Conflict of Interest

Prevent corruptive practices

 GPA: Information Availability

Procurement system
• Should be accessible to the public via designated paper or electronics medium

Notice of intended procurement

• Should be published in designated paper or electronics medium (free of charge through a single
point of access) until the date of expire
• All relevant information and modification on the intended procurement should be published

Summary of intended procurement

• A procuring entity shall publish a summary notice that is readily accessible, at the same time as the
publication of the notice of intended procurement in one of the WTO languages

Award of government procurement contract

• Such as the procurement items, procurement parties, successful suppliers and value, date of award,
etc. It should be published within 72 days of award in designated paper or electronic medium
 GPA: Technical Specifications

Set out the the technical specification in term of performance and functional requirement, rather than design or
descriptive characteristics

Where design or descriptive characteristics are used in the technical specifications, a procuring entity should indicate,
where appropriate, that is will consider tenders of equivalent goods or services that demonstrably fulfill the
requirements of the procurement by including words such as “or equivalent” in the tender documentation

Base the technical specification on international standards, where such exist; otherwise, on national technical
regulations, recognized national standards or building codes

A procuring entity shall not prescribe technical specifications that require or refer to a particular trademark or trade
name, patent, copyright, design, type, specific origin, producer or supplier, unless there is no other sufficiently precise or
intelligible way of describing the procurement requirement and provided that, in such case, the entity includes words
such as “or equivalent” in the tender documentation
GPA: Time period given to supplier to submit tender

The nature and complexity The extent of subcontracting

of the procurement anticipated

The time necessary for

transmitting tenders by non-
electronic means from
foreign as well as domestic
points where electronic
means are not used
 Accession to GPA by developing
and least developed countries

Extension of
Transitional Implementation
implementation
measures period
periods
Vietnam: Government Procurement Portal
Vietnam: Government Procurement Portal
 PPP: Legal and regulatory framework
(1)

Adminitration law
• In many civil law countries, government agencies are governed by administrative
laws that govern their functions and desion-making process

Procurement law
• The transaction process for a PPP must typically comply with public procurement
law and regulations, unless PPP are specifically exempt

Public financial management law

• Institutional responsibilities, processes, and rules establised in public financial
management laws and regulations can contributes to the PPP framework. For
example, this could include project approval requirements, fiscal limits, budgeting
processes, and reporting requirement
 PPP: Legal and regulatory framework
(2)

Sector laws and regulatory frameworks

• PPP are often implemented in sectors that are already governed by sector-
level law and regulatory frameworks. These may constrain the government’s
ability to contract with the private sector, or provide rules for doing so

Other law affecting the operation of private firms

• Encironmental law and regulations
• Law and regulations governing land acquisition and owership
• Licensing requirement, particular for international firms
• Tax rules
• Employment law
 Foreign Dispute
Government
Contract law investment settlement
Organization
restriction system

Labor law and Land use and

Health and
Insurance employment environmenta
safety law
issues l impact
Environmental
Potential legal Procurement standards and
Lender issue
challenge restriction engineering
standards
Tariff
Insolvency law setting/fundin Taxation
g constraint
 Law with impact on PPP

Contract law
• Allowed level of damages that can be awarded to
injured party
• Duration of agreement
• Constraints on exclusion/limitation of liability

Foreign investment restriction

• Restriction on ownership by foreign companies
• Foreign exchange controls
 Laws with impact on PPP

Dispute settlement System

• The court system of the country may be inefficient and slow, with the potential for delaying
the project extensively
• The court system may be expensive and corrupt, often disadvantaging the poor or other
individuals seeking redress. Should a court be established to consider low value disputes
• The judiciary may also not be deemed to be sufficiently independent from the government
to make the private operator comfortable that just redness will be available
• There may be a separate administrative law and administrative court for dealing with
disputes with government entities? If this is the case, how accessible is this administrative
court to individual contractors, in particular where foreign contractors are involved? Is
there a heavy burden of proof on the person bringing the claim? Are there any limitations
on the form of redress that can be sought (such as limitation on level of damages that can
be awarded against the public entity).
• How easy is it to enforce judgments in the jurisdiction?
• Are there alternative dispute settlement mechanism?
 Law with impact on PPP

Government Organisations
• Which Government entities/departments need to be
involved in the approval process for the project?
• Does the awarding authority have the right to award
the project/ is there an ultra Vires doctrine?
• What is the legal standing of the Awarding
authority?
• What regulatory or other monitoring mechanisms
are in place/ to be put in place?
 Laws with impact on PPP

Health and safety law

• A host country, when considering introducing infrastructure
projects, should considers the appropriateness of current laws
and determine whether greater stringency is required-
recognizing that there will be a cost attached to the
implementation of health and safety standards (as the
contractor is likely to include the increased costs associated
with following such standards into the costing of the
infrastructure project)
• Where a foreign investor is involved, it may it self require
certain minimum standard of health and safety to be followed
 Law with impact on PPP

Insurance
• Infrastructure project carry a number of risks and potential
liabilities that are typically covered by insurance. The availability
of insurance coverage and the terms of such coverage will differ
from country to country and specific local advice should be
sought on what is appropriate. In some countries, only local
insurance is available, or there are restrictions on reinsurance

Labor law/ employment issues

• Existing employment of awarding authority
• General labor law and unemployment issues
 Laws with impact on PPP

Land, environment and social issues

• Restrictions on transfer of rights in public assets to private
sector operator
• Clear title in interest in land and land registration
• Vesting of rights of access to and use of third party land
• Acquisition of land for project from third parties
• Expropriation
• Planning permission
• Environmental and social issues and environmental
assessment
 Law with impact on PPP

Lender issues
• Taking security
• Step-in rights for lenders/ direct agreement
• Government economics assistance/ Guarantees

Legal challenges
• Possibility of challenges to the PPP arrangements on public
interest grounds
• Challenges regarding to the procurement of PPP project
• Challenges regarding to planning and environmental issues
 Laws with impact on PPP

Procurement restriction (1)

• Are there relevant procurement laws that apply to the PPP project
concerned?
• Are there competing procurement law at federal, state and city level? If
so, is it clear which set will apply to the project?
• Is there flexibility in the procurement rules as to the precise process to be
followed? Is there room for two stage as well as single stage bidding?
• Is there a prescribed level of bid security required by law?
• Are the evaluation criteria set down clearly in the law
• Are there legal restrictions on the project company as to procurement of
services and suppliers from subcontractors? Does the awarding authority
wish to add additional restrictions such as requiring use of local suppliers?
 Laws with impact on PPP

Procurement restriction (2)

• Are there restrictions on extensions of the contract period without
further competitive tender
• Where private finance is to be involve in the project, will the
procurement rules extend to the selection of lenders for the project
( and so require that the bidders have their lenders established at
time of bidding), limit ability of lenders to syndicate lending, limit
ability to refinance project ate a later stage?
• What is the consequence of breaching procurement rules? Does a
court have powers to require that the tender process be cancelled
and a new process initiated? Can fines or damages be imposed? Can
the courts cancel an award of a projects?
 Law with impact on PPP

Engineering standards
• To act according to those practices, methods, techniques and standards
• That are from time to time generally accepted for use in the international
or regional toll road industry and commonly used in prudent engineering
and operations
• To operate and maintain equipment similar to the toll road project’s
facilities
• Lawfully, safely, efficiently and economically in similar circumstances

Environment standards
• Infrastructure projects are likely to have an impact on the surrounding
environment, whether noise, air pollution, aquifer pollution,
deforestation, ect
 Laws with impact on PPP

Insolvency issue
• What happens if the project company, or another party to the
project, become insolvent?
• Is there a clear definition of insolvency in the host country law?
• Are there clear procedures for appointment of liquidators?
• Whether it is possible to intervene prior to liquidation and
appoint administrators to try and get the business to being viable
• Is there a clear prioritization between different creditors
• What will happen to project assets
• Can the state step in and take over the project prior to actual
insolvency
 Laws with impact on PPP

Tariff setting
• Is the tariff that the operator is allowed to charge set by a regulator or other third
party? If so, the regulator may not be permitted to or wish to fetter its discretion in
setting tariffs. If the regulator sets a tariff that does not allow the expected return of
the operator, how is the operator to be compensated? Is there a right at law for the
operator to be compensated for the lost expected revenues? Is it possible for the
awarding authority to agree by contract to compensate the operator for the
difference? Can the operator bring a legal challenge against the regulator for its
decision
• Even where the awarding authority guarantees a tariff level in the contract, and there
is no regulatory tariff setting at the inception of the contract, a regulator may be
introduced at a later stage. Is there flexibility in the legal environment to allow for
this? Will this need to be captured in the contract? In such event, the issues raised in
the previous bullet will be relevant
• Does the law prohibit the operator as a private entity from collecting tariffs from
consumers? If so, can the operator collect tariff as agent of the awarding authority?
 Laws with impact on PPP

Tariff setting
• Does the law prohibit the operator from enforcing collection of
tariffs? If so, can the operator do so as agent of the awarding
authority?
• Can the operator impose sanctions on defaulting customers such as
the right to charge default interest, levy fines or even cut the
customers off from access to the service?
• Do penalties charged for breach of contract of lack of performance
need to have some specific relationship with the level of actual
damages to be incurred? Do the courts have a right to revise the
level of penalties or sanctions agreed in a contract? Can penalties
and sanctions be passed through to the consumer tariffs
 Laws with impact on PPP

Tariff setting
• What limitations apply to the government’s ability to
pay bonuses to the project company for good
performance? Do the courts have a right to revise the
level of bonuses agreed in a contract? Can bonuses
be pass through to the consumer tariffs
• Is the project company entitled to disconnect or
convert illegal connection? Can they impose fines for
failure to pay, or must they resrt to actions for breach
of contract?
 Laws with impact on PPP

Tax issues
• Is the tax system stable?
• What categories of taxation will the project company and the sponsors be liable
to? (Service tax, income tax, dividends tax, ect)
• Are there specific tax liabilities imposed on foreign investors?
• Is withholding tax likely to be imposed?
• Is there a relevant tax for environmental pollution/emissions?
• Are there any helpful tax deductions or exemptions available to the project
company?
• Will the project company or the awarding authority be able to avail itself of the
benefit of depreciation on/write downs of assets?
• Can the project company be entitled under the contract to compensation for
changes in the tax regime
• Can we provide exemption or assistance to foreign investors?
 Legal environment issues in PPP

Restriction on
Limitations on the
Limitations on tariff disconnection of
power to delegate
increases consumers who fail
public services
to pay their bills

Limitations on
Vesting right in
grating security
public land/assets
over assets
 Civil Law System and PPP

Right of contracting
authority that may
override contractual
provisions

Other Civil Law

Protections of
rules that can
operator implied
impact PPP
by law
arrangements
 Right of Contracting Authority

Right of unilateral modification

• The contracting authority may have the right to modify aspects of the contract
unilaterally when it deems the change to be in the public interest. The contracting
authority does not have the right to change the contract’s financial provisions or
its fundamental nature, but it can change such aspects as the specification of the
service to be provided.

Right of unilateral cancellation

• The contracting authority has the right to cancel the contract early (although it
must compensate the operator)

Right to continuity of service

• The operator in an administrative contract may not suspend the execution of its
obligations under the contract, even if the contracting authority breaches the
contract.
 Protections of operator implied by law

Le Fait du Prince: Relief is granted when the contracting

authority has caused the operator’s profits to decrease
without breaching the contract. Relief under fait du price
require the following conditions:
• The contracting authority’s action has adversely affected the operattor
and was unforeseeable when the contract was concluded.
• The contract authority’s action is beyond the scope of the contract
(otherwise the action would merely constitute a breach of the contract)
• The action taken by the contracting authority must be specific to the
operator (general decisions concerning all enterprises are not considered
as fait du prince)
 Protections of Operator Implied by Law

• The operator is entitled to compensation for financial

Imprévision difficulties arising from large and unforeseen changes

in economic conditions that render execution of the
agreement financial hazardous

Force • Unpredictable and uncontrollable events that render

the performance of the contract materially impossible
Majerue exonerate the operator from its obligations.

Sujétions • The operator is entitled to compensation for

unexpected material conditions that make
Imprévues contstruction and/or operations more costly
 World Bank’s recommendation for provision

Material adverse
Force Majeure government Change in law
action

Termination Lender’s step-in

Refinancing
payments right

Confidentiality
Dispute
and
resolution
transparency