Details of the Commission interpretative communication on the application of Community law of Public Procurement and Concessions to institutionalised PPP (IPPP) (2008/C 91/02)

Public-Private Partnerships (PPP) have recently developed in a wide range of areas. If public bodies decide to involve third parties in public contracts or concessions, the Community provisions for public procurement and concessions apply. These provisions provide that the contracts and concessions are tendered for on a fair and transparent basis in the spirit of the European market.

Institutionalised PPP (IPPP) involves public and private parties co-operating to establish mixed capital entities which perform public contracts as opposed to capital/asset contributions being made by a private investor into a publicly owned company. Lack of legal certainty and the risk of non-compliance with EC law in this area has led to the Commission in issuing the following guidance:

Founding an IPPP

Principles

The participation of a private entity in an IPPP precludes the possibility of there being an "in-house relationship" between the parties and public procurement law applies. The principles of equal treatment, non-discrimination on grounds of nationality, freedom of establishment and freedom to provide services as well as transparency, mutual recognition and proportionality apply.

Selection  

An IPPP is usually set up either by:

• founding a new company with the capital of that company being held jointly by the public entity and the private partner and awarding the public contract or concession to this newly formed public-private entity; or
• the private partner participating in an existing publicly owned company.

A fair and transparent procedure must be used either when selecting the private partner or when awarding the public contract or concession to the public-private entity.

The Commission does not consider a double-tendering process (i.e. one process for selecting the private partner for an IPPP and another for awarding the contract to the public-private entity) to be practical. It suggests that the private partner is selected by a procedure whose subject is the public contract or concession as well as the private partner’s contribution to the public-private entity so that the selection process involves the founding of the IPPP and the award of the contract. If the public contract is not or is only partially covered by the Public Procurement Directives, the fundamental principles of the EC Treaty apply.

If the founding of an IPPP involves the award of a public contract the defined open and restricted procedures set out in Directive 2004/18 may not offer sufficient flexibility. The Directive has therefore introduced the "competitive dialogue" procedure to accommodate such circumstances and to preserve competition and allow all aspects of the contract to be discussed with each candidate. On the basis that these types of contracts are fully covered by the Directive, the negotiated procedure which involves publication of a contract notice may only be used in exceptional cases.

Contract Information

If the contract falls within the Public Procurement Directives or sector-specific Community rules, special requirements for publication must be complied with. For other public contracts and service concessions, the principles of transparency and equal treatment require potential bidders to have equal access to information. This is best done by publicising an accessible notice before selection which includes the selection and award criteria for the contract (some of which are specified by the Directives) which complies with the principle of equal treatment.

The contract notice or contract documents must contain basic information regarding:

• the contract or concession to be awarded;
•  the memorandum and articles of association for the public-private entity;
•  the shareholder agreement; and
•  any other documentation governing the contractual relationship of the parties (if the competitive dialogue or negotiated procedure is used some the information required may be determined during the process).

Optional renewals or modifications to the contract or concession as well as optional assignments of additional tasks must also be disclosed in the contract notice.

The Commission advises that the contract with the private partner determines from the outset what happens if the public-private entity does not receive further contracts or if the awarded contract is not extended for a further period. It also advises that the articles of association should be drafted in such a way to allow for the nominated private-partner being changed in the future.

After Founding the IPPP

An IPPP is usually set up to provide a service over a fairly long period therefore it must be able to adjust to changes in the economic, legal or technical environment. Provided that the EU Treaty principles are upheld, the invitation to tender may be drafted to allow for some of its provisions to be amended after the private partner has been selected. However, changes to "essential terms" of the contract document will require a fresh procurement process.

The ECJ defines an "essential" term as one which would have made it possible to submit a substantially different tender e.g. a term which specifies the scope of the works, the services to be performed or the charges to be levied on the user of the service.

For public contracts and concessions fully covered by the Public Procurement Directives, secondary legislation specifies exceptional situations where additional works may be commissioned, without a further call for competition.

A public-private entity is free to participate in public tenders, including those relating to a material amendment or to an extension of a contract or concession which they have already been awarded. In such cases, it is essential that the principles of transparency and equal treatment when conducting the procurement process are adhered to.

There must also be a strict separation between those individuals involved in the new tender process and those managing the existing IPPP to ensure that confidentiality is preserved.

Summary  

In light of the recent developments in the field of PPP and IPPP’s, both public and private entities should take note of the Commission’s guidance in this field when seeking to establish an IPPP.

Nina Kallis can be contacted by telephone on 029 2038 5416 or by email