Towards more efficient cooperation

The governmental draft of a new Act on PPP signals new hope for joint investments between public and private partners. However, until further incentives are introduced, instead of the much-needed sports stadiums for the Euro 2012 championships, the most we can hope for is a few crèches

The 2005 Act on PPP intended to provide a legal framework for the cooperation of public and private partners on joint investment projects. In brief, the public partner was supposed to make savings when investing in public buildings and facilities, and the private partner was to enjoy the benefits of using such buildings or facilities after (and subject to) the completion of the investment project. Despite tangible potential benefits to private companies, not a single public-private partnership agreement has been concluded since the enactment of the PPP Act two years ago. This was due to the complexity of the procedures required under the Act. Even before a decision on an investment between a public and private partner is taken, detailed economic, financial and risk analyses of the project and feasibility studies are required. These procedures proved impossible to overcome and the Act became virtually defunct.

The simpler the better

In order to ease the bureaucratic burden, the government adopted a draft new Act on PPP at the end of July 2007, with a view to enabling the construction of stadiums and motorways for the Euro 2012 football championships. The Ministry of the Economy announced optimistically that the new Act on PPP would, within only a few years’ time, facilitate the conclusion of PLN 4 to 5 bln worth of public-private partnership agreements every year . If everything goes to plan, the state budget will save up to PLN 400 mln per year, as well as obtain substantial assistance in building the infrastructure for Euro 2012. According to the Ministry, the new Act on PPP will pave the way for approximately 900 km of new highways and three new stadiums, not to mention the modernization of several airports and main rail routes.

Simpler preliminary procedure

The draft new Act on PPP does in fact introduce a number of improvements and eliminates many interpretational doubts. It provides a more detailed description of the preliminary procedure preceding a partnership transaction. The public entity is no longer required to announce its intention to commence cooperation with a private partner in the Public Procurement Bulletin, and may choose a national or local newspaper instead. The public partner may submit requests to selected private undertakings to determine their interest in cooperating on a given project. It appears that the absence of such “sounding-out” phase in the existing PPP Act made it impossible to prepare the required documentation and decide to proceed with the investment under a partnership agreement. Even more importantly, the draft new Act on PPP will allow the public partner to prepare only simplified analyses for projects whose value does not exceed EUR 211,000, and in the case of construction works, up to EUR 5,278,000. Moreover, the definition of the type of ‘project’ that may be pursued via public-private partnership has been broadened. According to the Amendment, ‘projects’ now include new construction investments, renovations and refurbishments, modernizations and maintenance works, and even scientific research.

It all boils down to the money

The draft new Act on PPP specifies the benefits that should be derived by the public entity (public benefit) and the private partner (remuneration or other gains). The draft serves to better secure the interests of the private undertaking in that its ‘remuneration’ in return for participating in the project may also include the profits earned by the project. What is more, if, as a result of circumstances beyond the partners’ control, the actual gains of the private partner are substantially decreased (to the extent that they do not even ensure coverage of the maintenance costs and investment outlays), the private partner will be entitled to demand that the terms of the agreement be amended and its remuneration increased.

Teething period ahead

The proposed solutions are expected to make public-private partnerships more accessible, especially in relation to smaller projects. Unfortunately, simplifications available for larger projects are not as far-reaching: projections and estimates may be used in the business analyses prepared during the preliminary phase but the public entity is nevertheless required to prepare a profit and loss account and evaluate the particular types of risks involved in the project. In other words, thanks to the proposed legislative improvements, the new PPP Act is expected to revive the market for local public-private investments, but its impact on the Euro 2012 preparations may still prove negligible. This will be due not so much to the shortcomings or defects of the new PPP Act, if any, but to insufficient experience and practice in running joint projects of this kind. For a partnership-based stadium or airport to be built, the cooperation must first be tested on libraries or office buildings. Besides, it is not just regulations and experience that will determine implementation of the projects; the success of public-private partnerships also hinges on the attitudes of officials, the need to overcome their fear of joint projects with private entities, and the presence of clear signals that the state cares about developing the public-private partnership model.

Spoilt for choice

Despite the potential setbacks, the application of the new provisions to projects operated on a national scale seems viable in the long term (unfortunately, the “long term ” appears to extend far beyond 2012). If the public entity and the private partner successfully complete the first stage of the procedure (which may still prove challenging), the selection of the private undertaking and the conclusion of the partnership agreement should proceed reasonably smoothly under the new provisions.

Similarly to the 2005 Act on PPP, the draft new Act on PPP also provides that the procedure of selecting a partner by the public entity will be governed by the Polish Public Procurement Act. However, unlike the existing regulations, which merely contained a general reference to the Public Procurement Act, the draft specifically names the provisions governing the selection procedure. The public entity will have a choice of two special procedures for selecting a partner: negotiations with an announcement or a competitive dialogue. These procedures give the awarding entity (a public entity) more flexibility in selecting the contractor than is the case in the regular (ordinary) procedures, as well as a better chance of negotiating the terms of the partnership agreement, which should in turn facilitate the negotiation and conclusion of contracts in the case of large and complex projects. On the other hand, the new provisions could be seen as giving the public entity too much leeway, which is why the Public Procurement Act provides that the special selection procedures may only be applied in specified cases. These restrictions concern, in particular, the ‘competitive dialogue’ procedure, in which the awarding entity may select the private undertakings with which it shall negotiate and invite submission of final bids. The draft Amendment does not clearly state whether the public entity will be able to freely choose the procedure for selecting its private partners.

No appeals

In this context, special attention should be paid to the fact that private contractors rejected during the selection phase will not be entitled to appeal against such decision, for example to the President of the Public Procurement Office or a team of arbiters. They will only be entitled to file an objection, which is the weakest form of appeal that can be used to defend their interests. This means the absence of external official or court control, irrespective of the value of the proposed project. We know from practice that appeals and complaints filed with the court were often the reason why a public contract was not quickly granted. On the other hand, abandoning this form of supervision completely may also lead to misconduct, especially where large projects are involved.

Hope but not euphoria

To sum up: instant progress from no investments whatsoever to public-private projects worth several billion Euro seems very unlikely. Still, the new PPP Act will certainly be applied more broadly to local projects and, in the future, larger national investments. However, if the Amendment is to serve as an instrument for building the infrastructure for the 2012 championships, a number of well-coordinated moves and concentrated teamwork will be necessary to reach the Euro goal and score. But at least the ball has been set rolling.  

Artur Michalski,

advocate, head of the real estate department of Weil, Gotshal & Manges