Castellán

What characterizes and distinguishes a PPP contract?

Unlike other contracting modalities, in PPP contracts the Public Administration entrusts the private contractor for a specified period, not only with the design, construction, and operation of infrastructure or any of these services, but also with the financing of the contract.

Why does a PPP contract have a residual nature?

Because PPP contracts can only be entered into when other alternative contracting modalities do not allow for the best way to meet public purposes.

What activities can be the subject of PPP contracts?

PPP contracts may be aimed at the development of infrastructure in road works (including rural roads), railways, ports, and airports; energy infrastructure works; waste disposal and treatment works; and social infrastructure works, including prisons, health centers, educational centers, social housing, sports complexes, and works for urban improvement, equipment, and development. On the other hand, PPP contracts cannot include educational services (when it comes to educational centers), health services (when it comes to health centers), security, health, and re-education services for inmates (when it comes to prisons); and the operation of tasks whose provision corresponds exclusively to the State.

What are the main stages of the contracting procedure?

a) initiative
It can be public or private. In the case of private initiative, if it finally leads to a contracting procedure, the proponent will have the following benefits: they will not have to pay for the bidding documents; an advantage of up to 10% in the evaluation of their offer; and if not awarded, they will be entitled to reimbursement of accepted costs related to the feasibility study.

b) prior evaluation
Before starting the contracting procedure, the contracting Administration must evaluate the feasibility and convenience of the project. This evaluation is of fundamental importance, for example, to determine an adequate distribution of risks, a vital aspect given that these contracts average 20 years in duration. Thus, for example, it is understood that risks associated with regulatory changes must be borne by the Administration, while the risk of design, construction, and availability of the work will be borne by the private contractor.

c) prior studies and contracting bases
The contracting Administration must submit the prior evaluation documents as well as the contracting bases to the Planning and Budget Office (OPP) and the Ministry of Economy and Finance (MEF), for consideration and report on the social and economic impact of the project, budgetary aspects, economic and financial viability, and the benefits of adopting this contracting modality.
These evaluations minimize risks when preparing the proposal, as it will be the Administration that provides the economic viability and the private contractor will have the contracting bases, examining the existing margins for formulating their offer.

d) public call for interested parties
After the OPP and the MEF have expressed their opinions, the contracting Administration may make the public call, establishing the competitive contracting procedure to be used, such as bidding, auction, or any other that is not contrary to the general principles applicable to administrative contracting.

e) competitive dialogue
This is an eventual stage within the procedure, in which the contracting Administration, together with the applicants for the public call who meet the technical and economic solvency requirements established therein, may discuss any and all aspects of the contract, in order to contribute to the definition of the Terms of Reference.

f) submission and opening of offers
The offers will be submitted on the previously determined date and time. Among the mandatory contents of the offers, the establishment of a bid maintenance guarantee and a commitment letter stand out, through which the bidder undertakes, in the event of being awarded, to establish a commercial company whose exclusive purpose will be the execution of the contract.
Generally, the submission and opening do not coincide in the same act since, given the volume and complexity of the required documentation, the Bidding Documents of the procedures initiated so far usually require the structuring of the offers in up to 3 envelopes that, although they are all submitted at the same time, are opened in successive acts.

g) examination of the offers by the Technical Commission
The contracting Administration must designate a Technical Commission for each project, which will be responsible for analyzing the admissibility and convenience of the offers submitted, and will prepare a reasoned report, in which it will classify the offers in decreasing order.

h) report from the Public-Private Partnership Projects Unit
The Law creates within the MEF the PPP Projects Unit, which must pronounce on the report of the Technical Commission. In particular, it must report on the concordance of the offers submitted with the prior studies.

i) access to the proceedings by the bidders
If the PPP Projects Unit does not make observations on the report of the Technical Commission, the bidders will be granted access for a period of 15 business days, during which they may submit in writing their considerations on the process carried out so far and the report of the Technical Commission. In case the PPP Projects Unit raises objections to the report of the Technical Commission, access will be granted once the contracting Administration has pronounced on them.

j) intervention of the Court of Auditors (TCR)
In accordance with the general regime established in current constitutional and legal provisions, the TCR must certify the legality of the expenditure prior to provisional award.

k) provisional award or rejection
After the access period and upon receipt of the TCR's Opinion, the contracting Administration will issue a reasoned award resolution, addressing, among other things, the considerations eventually raised by the bidders, awarding the contract to one of them, and establishing the essential aspects of the contracting.
It is also within the Administration's power to reject all offers submitted if none of them are deemed admissible or convenient.

l) submission of pending documentation and establishment of contract compliance guarantee
Once the Provisional Award has been made, the provisional awardee will be granted a period of no less than 120 days to submit the documentation that was deferred for this stage, demonstrate the terms of the financial structuring (Definitive Economic Financial Plan, interest note issued by at least one public or private pension fund, insurance company, multilateral agency, investment fund, etc.), and establish the contract compliance guarantee.

m) intervention of the Court of Auditors
Before definitively approving the expenditure, the TCR must once again be involved to certify its legality. In this case, the TCR will require a favorable report from the Financial Information and Analysis Unit of the Central Bank.

n) definitive award
Once all the necessary documentation has been submitted by the provisional awardee, a definitive award resolution will be issued. In the event that the provisional awardee does not meet the conditions for the definitive award, the possibility of a new provisional award to the next-ranked bidder, with their consent and prior report from the PPP Projects Unit, is provided for.

o) contract signing
The contract must be formalized in writing. In the event that administrative appeals have been filed against said resolution, as they have a suspensive effect on the contracting, the contract will be signed once the contracting Administration has lifted the suspensive effect or the appeal(s) have been resolved.

Can a PPP contract be renegotiated?

Yes. Precisely one of the most significant aspects in which the PPP regime innovates is that, without prejudice to the possibility of modifying the contract by mutual agreement, the parties are empowered to request renegotiation of the contract when:
- the contracting Administration modifies, for reasons of public interest, the cost and benefit parameters foreseen when contracting.
- force majeure events occur that were not foreseen in the contract and directly determine a substantial disruption of the economic-financial balance of the contract.
- one of the stipulated hypotheses enabling the bilateral modification of the contract occurs and the parties have not reached an agreement on the modifications.

How are potential disputes during the contract execution resolved?
Conflicts that arise between the parties to the PPP contract, related to its application, interpretation, execution, compliance, and termination must be resolved through arbitration.

What is the current status of launched PPP Projects?

a) Penitentiary Facility Project
Processed through Public Tender No. 35/2012, called by the Ministry of the Interior for the “Construction, conservation, and operation of the public work called -Prison Unit No. 1 (Persons Deprived of Liberty)”. The contract was signed on 06/09/15, and the project is currently in the construction phase since 08/17/15.

b) Highway Corridor 21 and 24 Project
Processed through Public Tender No. 30/2014, called by the Ministry of Transport and Public Works (MTOP) for the "Design, Construction, Operation, and Financing of the Road Infrastructure on Route No. 21, Section: Nueva Palmira - Route No. 2 and Route No. 24, Section: Route No. 2 - Route No. 3". The Provisional Award resolution was issued on 11/03/15, and the Definitive Award is pending.

c) Algorta - Fray Bentos Railway Project
Processed through Public Tender No. 2/2016, called by the State Railways Administration (AFE) for the “Rehabilitation and Maintenance of the Infrastructure, Track, and Switches on the Algorta-Fray Bentos Railway Section”. Offers were submitted on 08/26/16 and were recently analyzed by the Technical Commission and the PPP Projects Unit.

d) First Educational Infrastructure Project
Processed through Public Tender No. 47/2016, called by the National Public Education Administration (ANEP) for the “Design, Financing, Construction, and Operation of 44 Kindergartens and 15 CAIFs”. Opening of offers scheduled for 06/05/17.

e) Highway Circuit 1 Project
Processed through Public Tender No. 1/2016, called by the MTOP for the “Design, Construction, Operation, and Financing of the Road Infrastructure of Circuit 1: Routes No. 12, 54, 55, and 57 and Bypass to the City of Carmelo”. The Provisional Award resolution was issued on 12/19/16, and the Definitive Award is pending.

f) Highway Circuit 2 Project
Processed through Public Tender No. 2/2016, called by the MTOP for the “Design, Construction, Operation, and Financing of the Road Infrastructure of Circuit 2: Routes No. 9 and No. 15”. Our firm assisted the bidder composed of the Spanish construction companies Rover Alcisa S.A. and Construcciones Rubau S.A. in this process. On 04/24/17, the MTOP issued the Provisional Award resolution.

g) Highway Circuit 3 Project
Processed through Public Tender No. 6/2016, called by the MTOP for the “Design, Construction, Operation, and Financing of the Road Infrastructure on Route No. 14 Center - West, Sarandí del Yí Bypass and Connection Route No. 14 - Route No. 3 (Circuit 3)”, the Executive Branch issued the Provisional Award resolution for this Project at the beginning of June 2017.

h) Highway Circuit 4 Project
This project, to be carried out on Route No. 26 from Route 3 to Tacuarembó, is currently in the prior evaluation stage, with the MTOP pending the submission of the evaluation documents and bases to the OPP and the MEF.

i) Hospital Infrastructure Project
This project, which will involve the refurbishment of the Hospital de Clínicas, is pending the preparation of the prior evaluation document by UdelaR, to be submitted to the OPP and the MEF.

j) Housing Infrastructure Project
Regarding this project, which will involve the construction of 1,200 homes for housing programs, the Ministry of Housing, Spatial Planning, and Environment (MVOTMA) submitted the corresponding initiative to the MEF on 10/31/16.

k) Highway Circuit 5 Project
In this project, which will involve the construction, rehabilitation, maintenance, and financing of Route No. 14, from Route No. 6 to Empalme Velázquez and of Route No. 15, from Empalme Velázquez to Lascano, the MTOP is currently pending the expansion of the prior evaluation documentation, at the request of the MEF.

l) Highway Circuit 6 Project
In this project, which will involve the construction, rehabilitation, maintenance, and financing of Route No. 6, from Avda. José Belloni to Route No. 12 and the San Ramón Bypass, the initiative was formally presented to the MEF on 02/21/17 along with a feasibility report.

m) Second Educational Infrastructure Project
Processed through Public Tender No. 8/2017, called by the ANEP for the “Design, Financing, Construction, and Operation of 23 Schools, 10 Sports Centers, and 9 Technology Hubs”, with the opening of offers scheduled for 08/21/17. Castellán Abogados had the pleasure of participating in the launch of this project and its subsequent Business Round, both events held at the CND Headquarters on 04/20/17.

Final Considerations

While this regulatory framework constitutes an additional coordination alternative between the public and private sectors for the fulfillment of state tasks, it also has particular characteristics that must be very carefully considered both by the contracting Administration when opting for this modality and by individuals planning to participate in the procedure.
Finally, we must point out that despite multiple initiatives being presented since the approval of the Law, only one of them is, 6 years later, in the execution phase, thus failing to efficiently meet the urgent infrastructure needs that motivated the establishment of the PPP regime.

Dr. Juan Pablo Díaz

 

Montevideo, June 9, 2017.