GREEN PAPER ON PUBLIC PRIVATE PARTNERSHIPS · 3 3 1. UEPC AND THE GREEN PAPER ON PUBLIC PRIVATE PARTNERSHIPS UEPC is a European association created in 1958. It represents the national

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

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: [email protected]

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:

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- 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.

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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).

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.

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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 non-government assets, and therefore recorded off balance sheet for government if 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.

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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 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 centra

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 centra 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

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number of PPP projects in existing areas. However, there is no need for these centra to become themselves PPPpartners. Their task should be limited to support (local) procuring authorities.

These specialized centra 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; - 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 PPP-partners 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.

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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.

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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 procurement 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

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- Sponsoring conferences and seminars on partnerships - Stimulating dialogue between public and private sector decision-

makers 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 papers, case

studies, guidelines, opinion surveys and national inventories on key public-private partnership subjects

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 labor 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 INSTITUTIONAL NATURE

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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 criterium, 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.

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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) Concession (page 28). In its actual Green Paper on PPP, the Commission also refers to PFI-contracts and concessive models (DBFOMT). UEPC-members 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)

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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.

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

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The national organization on PPP in the U.S., the NCPPP website contains up-to-date news, publications, case studies, issue papers and upcoming events south of the border.

Privatization Center - 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.

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 on “public-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?

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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 non-national 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 newspaper. 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.

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 in-patient 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.

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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.

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

RELATIONSHIP 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 non-national 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

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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 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.

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Actually the discussion will start whether to applicate 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 « green paper on public private partnerships » the Commission seems to consider that the use of private finance is no longer a valid argument for the negotitated 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.

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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.

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)

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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 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

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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 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),

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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 Sub-contractor 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 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.

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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 in stead 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 countries 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.

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- 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