Update of the nature and legal scope of the Public Private Partnerships Law issued by the President of the Republic in January 2012.
Allow us to share with you the most relevant topics of the Public Private Partnerships Law published in the Official Federal Gazette on January 15th, 2012 (hereinafter “the PPP Law”).
I. PURPOSE OF THE PPP LAW
The PPP Law creates a new legal framework for formalizing the partnerships of the Federal Public Administration (hereinafter FPA) with private parties for providing services together, including those in which it is necessary to construct infrastructure through financing mechanisms different from those contemplated in the Public Works and Services Law and in the Public Sector Acquisitions and Leases Law.
In this way, private investment becomes a provider of services to the FPA, with the obligation to construct the infrastructure necessary to provide the services, assuming on an equal basis the risks presented by the execution of the projects.
The general idea is to encourage the development of new infrastructure; incentivize investment; address social needs and promote employment and economic growth in a more efficient way.
It is important to mention that to fulfill its purpose, the PPP Law resulted in the reform of laws related to it, such as the following:
Law of Public Works and Related Services
Law of Public Sector Acquisitions, Leases and Services
Expropriation Law
General Law of National Assets
Federal Civil Procedures Code
II. RELEVANT ASPECTS OF THE PUBLIC PRIVATE PARTNERSHIPS LAW
Public Private Partnership Projects
The Public Private Partnership Projects regulated by this Law are those carried out to establish a long-term contractual relationship between public sector and private sector entities, to provide services to the public sector or the final user, using infrastructure provided totally or partially by the private sector, in order to increase social welfare and levels of investment in the country.
Public Private Partnership projects may also be those done to develop productive investment projects, applied research and/or technological innovation. This Partnerships Law and in some cases the Sciences and Technology Law will be applicable to these projects.
It is important to mention that this Law provides that the public private partnerships will be optional and may be used in relation to activities whose specific legislation allows the open participation of the private sector, or by the granting of permits, authorizations or concessions, in order to provide the services in question.
However, the Partnership Projects may never refer to the following matters:
Anything related to Oil and Gas.
In the specific cases in which the applicable laws indicate that the private sector cannot be involved.
The public entities that can participate in Public Private Partnership Projects are
The agencies and entities of the Federal Public Administration.
Federal public trusts not considered state entities.
The autonomous constitutional bodies.
The state and municipal entities and the public entities under them, with federal resources in accordance with the agreements they enter into with agencies or entities of the Federal Public Administration.
Requirements for carrying out Public Private Partnership Projects
1) Execution of a long-term contract establishing the rights and obligations of the contracting public entity and of the developers providing the services.
2) When necessary, one or more permits, concessions or authorizations will be granted for the use and exploitation of the public goods, the providing of the respective services, or both.
3) In the case of projects related to technological innovation and development, the prior approval of the Scientific and Technological Consulting Forum established in the Science and Technology Law will also be required.
Viability of the Public Private Partnership Projects
To determine the viability of a public private partnership project, the interested agency or entity must have several analysis and/or studies that provide sufficient elements to justify it.
Furthermore, the PPP Law allows the interested agency or entity may contract the study and/or analysis services through an invitation to bid to at least three bidders or through a direct award, in addition to the premises set forth in article 41 of the Public Sector Acquisitions and Services Law; and the possibility is established of the contracting agency or entity awarding these contracts without the authorization of the Acquisitions, Leases and Services Committee, provided the amount of the professional fees does not exceed the equivalent to four percent of the estimated total cost of the project, or the equivalent to nine million five hundred thousand Investment Units, whichever is less.
Initiation of the Public Private Partnership Projects
To initiate the development of a public private partnership project, the agencies and entities must have the analysis and/or studies mentioned in the above section; based on these it will be decided whether or not the project is viable and, if so, proceed to its implementation and development, following the analysis and authorization of the Inter-Ministerial Commission of Public Expenditure, Financing and Divestment.
The agencies and entities of the FPA are obligated to prioritize projects to be developed through public private partnerships, in the valorization and procedures with respect to complying with the requirements of the environmental protection provisions, human settlements, urban development, construction, use of the land and any others that may be applicable in the federal sphere.
In addition, the concept of constructive approval applies exclusively for the authorizations required to initiate the projects in the event that the authorities responsible for granting an authorization or permit necessary for the project do not do so in the sixty business day period.
Presentation of “unsolicited” Project Proposals
It is established that private parties interested in developing a public private partnership Project may present their proposals, without having been requested to do so or the FPA having called a public bid. The PPP Law provides that upon receiving a project the FPA will have up to three months to issue an opinion on the viability of the project presented; however, this period may be extended for three additional months depending on the complexity of the Project.
Once the above mentioned period has expired, the agency or entity will issue the corresponding viability opinion on the project and the competition or on the acquisition or not of the studies presented.
If the project is valid and the agency or entity decides to hold the competition, the petitioner may receive the reimbursement of the expenses incurred in the studies done if it does not win or does not participate in the corresponding competition. This reimbursement will be paid by the winner of the contract.
If the project is not valid, for not being in the public interest, for budgetary reasons or for any other reason, the agency or entity will inform the petitioner of this.
Awarding of the Public Private Partnership Projects
In relation to the awarding of the projects, it is established that they will be awarded by public bid in which any interested party may participate if it complies with the bid invitation and terms and conditions. The Law does not establish the need to distinguish between national and International bids. The limitations on foreigners are found in the specific laws regulating the Project substantively. Furthermore, it is established that two or more persons may present as a consortium a joint project, in which case they shall also be obligated to incorporate, if the winners, one or more legal entities.
Exceptions to competition: the PPP Law, in the same way as the Law of Acquisitions, Leases and Services and the Law of Public Works, establishes several exceptions to the Public Bid for awarding Projects so that Projects can be awarded through invitation of at least three persons or by direct award. It should be indicated that the direct award will not be valid in the case of “unsolicited” projects. The Head of the agency or entity that will develop the public private partnership project will be responsible for the decision that the award falls under any of these causes.
It is also important to mention that the interested participant may file against the decision awarding the bid:
The administrative review appeal, in accordance with the Federal Administrative Procedures Law, or
The nullity proceeding before the Federal Court of Tax and Administrative Justice.
Acquisition of goods for carrying out the Partnership Project
The PP Law dedicates a section to the regulation of the acquisition of goods for developing the public private partnership projects.
It is established that the responsibility of acquiring the real estate, goods and rights necessary for the execution of public private partnership project may fall on the organizing entity, on the developer or on both, as indicated in the terms and conditions of the bid and agreed in the respective contract.
It is proposed that such real estate, goods and rights may be acquired conventionally or by expropriation. In these cases, in order for the negotiation or the expropriation to be fair for both parties, the PPP Law provides that an appraisal be done by a third party, including the Institute of Administration and Appraisal of National Assets or the credit institutions authorized by the Country; the commercial notaries public or a professional with graduate studies in valuation.
Public Private Partnerships
The Public Private Partnership Contract may only be entered into with private parties, legal entities or a trust incorporated in trust institutions of the country, whose corporate purpose or end is, exclusively, to carry out those activities necessary to develop the respective project.
In particular, the Law refers to the minimum contents of the corresponding contracts as well as to the rights and obligations of the developers and the terms of the permits, concessions and other authorizations that are required for the execution of a project which will be granted according to the provisions that regulate them.
The developer will be responsible for contributing the resources for the execution of the work and provision of the services, although the terms and conditions established for the bid may provide that the contracting agency or entity may contribute, in goods, rights, money or any other form, resources for executing the work and providing the services. In this case in particular, the contracting agency or entity must comply with the budget requirements and the applicable provisions.
Regarding the breach of the obligations of the Public Private Partnership Contract, the liquidated damages agreed to in the Contract will be applied, which may include reductions in the consideration owed to the developer.
In relation to the duration of the contracts, they may not exceed altogether forty years, including extensions.
The subcontracting for the execution of the work or provisions of the services is possible but may only be done according to the terms and conditions established for the bid and expressly agreed to by the parties and with the prior authorization of the contracting agency or entity. However, the developer will be solely liable before the contracting agency or entity.
The developer may assign the rights derived from the Public Private Partnership Contract or may pledge them to third parties, or convey them in any way, according to the terms and conditions indicated in the Contract and with the prior authorization of the contracting agency or entity.
Modification and extension of the Public Private Partnership Projects
Only modifications for the following purposes may be made to the Contract:
To improve the characteristics of the infrastructure, and therefore they may include additional works.
To increase the services or the level of performance.
To address aspects related to environmental protection, as well as the preservation and conservation of natural resources.
To adjust the scope of the projects for supervening causes not expected during the preparation and awarding of the project.
To reestablish the economic equilibrium of the project.
Notwithstanding that the Partnership Contract may be modified, the Law establishes different requirements that must be met with respect to each of the above mentioned points in order to make those modifications.
Any modification to a public private partnership project must be recorded in the respective agreement and any relevant authorizations for the development of the project.
The project developer must request any extension of the Partnership Agreement no later than one year before the expiration of its term. In that period the extensions of the authorizations for providing the services related to the public private partnership project may also be requested, independently of what the provisions regulating them indicate.
Causes of Rescission
Chapter nine of this Law establishes in detail the causes of rescission of the public private partnership agreement, among which include the cancellation, abandonment, suspension or delay in the execution of the work, failure to provide the services contracted, the revocation of the authorizations necessary to provide them and the others set forth in the contract itself.
The contract will also contain the terms under which the developer will be reimbursed for the investments it shows it has made up to that moment, in case of early termination for any reason.
Supervision of the Projects
The PPP Law establishes that the Ministry of Government Affairs, in exercise of its functions, will supervise that the preparation, initiation and awarding of the public private partnership projects, as well as the other acts regulated and set forth in that law, are carried out in accordance with the Law.
However, the contracting agency or entity and the other competent authorities will be exclusively responsible for the supervision of the services or of the execution of the work and, in general, of completion and development of the public private partnership project.
The authorities that have granted the authorizations for the execution of the works and for providing the services will supervise those authorizations.
Dispute Resolution
In the case of technical or economic disagreements, the parties to the Public Private Partnership Contract must try to resolve them by mutual agreement and in good faith.
The negotiation stage and, if applicable, the particular resolution will have the term agreed to by the parties. In the event that the parties do not reach an agreement on the term and any extension, they will submit the disagreement to a committee of three experts in the matter in question, each party designating one and the third designated by the first two. Such committee will hear the technical or economic disagreements, but not legal questions.
If the decision of the Committee is approved unanimously, it will be binding on the parties. Otherwise, the rights of each of them will survive.
Furthermore, this Law establishes that the parties to a Public Private Partnership Contract may agree to therein the possibility of going before the Ministry of Government Affairs, to present a conciliation request for disagreements arising from the performance of that contract, which will be processed according to the procedure established in the Law of Public Sector Acquisitions, Leases and Services, or the Law of Public Works and Related Services, as applicable, and their respective regulations.
The parties may also agree to an arbitral procedure, of strict law, to resolve the disputes arising from the performance of the contract according to the terms established in the Commercial Code.
Reference to other laws
The Law of Public Sector Acquisitions, Leases and Services, as well as the Law of Public Works and Related Services, their regulations and the provisions resulting from them, will not be applicable to the Public Private Partnership Projects with respect to the works and services, except as expressly indicated in this Partnerships Law.
We hope this information is useful.
Sincerely, Sámano Abogados, S.C.