First: The concept of PPP contracts and reasons for its presence:
The importance of law expresses the reality in which we live and the economic and social challenges that any society passes through, it is evident that partnership between the government and the private sectors have occupied the first concerns of both law and economics in recent times, as an innovative contractual tool in financing major infrastructure projects and achieving economic development in many sectors.Experience in past infrastructure projects has demonstrated significant pitfalls, one of the most important of which are high cost, low financial value, poor performance, exceeding of timeline of projects, and the low level of services delivered in many projects.
Qatar has already taken several steps to address shortcomings of past infrastructure projects. The most important of these is issuing Law No. (12) of 2020 Regulating Public Private Partnerships. This law comes in light of the preparations to host the 2022 World Cup, and in response to the National Vision, and the state need to implement many major infrastructure projects, especially in sectors of education, health, and transportation.
One of the most important motives that led to issuing an independent public-private partnerships code is to exploit the most possible use of the private sector’s financing capabilities, the expertise it enjoys in modernizing the state’s infrastructure, and managing projects in many vital sectors, without incurring the state’s budget with huge sums. On other hand, the practical experience demonstrated incapability of the traditional solutions in Procurement contracts to find a contractual and financing formula. that keeps pace with the development in economic relations at the international level.
The International Bank is one of the international institutions that has been most interested in applying the partnership method in financing infrastructure projects in many developing countries. The International Bank's Infrastructure Studies Center for Public and Private Partnership (PPPRIC) has defined partnership contracts as:
“Public-private partnerships (PPPs) are a mechanism for the government to procure and implement public infrastructure and/or services using the resources and expertise of the private sector. A partnership with the private sector can help foster new solutions and bring finance PPPs combine the skills and resources of both the public and private sectors through the sharing of risks and responsibilities. This enables governments to benefit from the expertise of the private sector and allows them to focus instead on policy, planning and regulation by delegating day-to-day operations".
The philosophy of partnership is based on a balance between the interests of the public sector in developing infrastructure projects and the interest of the private sector in achieving profit. The rapprochement was also achieved between the Latin and Anglo-Saxon legal systems, regarding their subject matter by establishing management and financing infrastructure projects, and the legal personality of their parties.
Second: The Legal Framework for Partnership Contracts
Partnership contracts have key characteristics, which distinguish them from other Traditional contracts concluded by the government sector, especially Tender Contracts, and includes:1.Complex Character of Partnership Contracts
Qatari law has depended on an expanded concept of partnership between the public and private sectors, which includes many stages that the private partner is, and includes: the method of building, operating and transfer of ownership (B.O.T), the method of building, owning, operating and transfer of ownership (B.O.O.T), the method of building and transfer of ownership And operation (B.T.O), and operation and maintenance (O.M) method, in addition to the system of allocating lands through rent or usufruct, for their development by the private sector. The public and private sectors during the project period, and the essential characteristic of these models are that they focus on the limits of private sector ownership over project facilities and assets.
It is worth mentioning that (B.O.T) and the system of allocating lands through usufruct, as partnership models with the private sector, have been applied before in many projects in the country, without relying on a specific legislative framework.
2-Multiple Sources of Financing Partnership Projects There are multiple sources of financing PPP projects , and among these sources, members shares of the project company, which is called" Shareholder Agreement" and the financing granted by financial institutions, whether public or private, in addition to government funding in some cases.
3-Monetary Return to the Private Sector In these contracts, the contractor with the Government “The Project Company” receives the monetary compensation in the form of divided installments over the contract phases, in light of progress in project performance and the quality of these services. In some projects, such as transportion projects “roads, ports, airports” , which the project revenues linked to the fees imposed on the public of beneficiaries.
Risk allocation in Partnership Contracts
one of the most key features that distinguishes a partnership contract from other government contracts is the sharing of the risks associated with execution of the contract between the public and private sectors, as the private sector participates in bearing the greater part of the risks associated with the project. Studies prepared by the International Bank have shown that transferring the risks associated with operating, developing, and maintaining the project to the private sector. And both parties share the profits resulting from the exploitation of the project achieves a higher quality of construction and services provided and enables the government agency to monitor the development levels during contract phases.
Special Conditions for Partnership Contracts
In addition to the special conditions of PPP contract be set out in the Qatari law, The Project Company shall not be dissolved or its legal structure changed, or its capital reduced unless there is an approval from the Competent Authority of the contracting Authority “Ministry of Commerce and Industry”. In all cases, pledge of the Project Company shares shall not take place except for the purposes of financing or refinancing the PPP project. these conditions that will tighten the state's monitor over the execution phases of the project.
Consortium Agreements in Partnership Contracts
Among the most prominent rules referred to by Qatari law is the possibility of submitting the bid from alliances between several companies, which are temporary associations formed for the purpose of entering into the tender and winning the project. These alliances are known in international work as a “consortium”. These alliances do not have an independent legal personality, and this alliance often represents in negotiating with the government agency what is known as “The Leader”.
Many of comparative legislations have adopted the idea of alliances in partnership contracts, for example, the regulations issued by the European Union No. 24/2014 for the year 2014, and among the Arab legislations that referred to the same idea is the Omani Law Regulating Partnership Contracts .
Joint Associations into Partnership Contracts
Partnership contracts will execute by unique model in international work known as "Joint Associations”, which is an alliance between several or investment entities formed for the purpose of project execution. as it takes a separate legal entity as a vehicle of their cooperation called “Project Company” or what is called in the European Union regulations that group economic operators.
The members of this alliance enter into an agreement called the "Shareholder Agreement", which includes the basic clauses that govern the internal relationship between them during the execution phase of the project. From the case studies it emerges that importance of these associations to implement complex government projects, which exceeds the financial and technical capacity of one contractor, and the most important characteristic of these associations is the cooperative nature between the parties to perform the joint work, and their direct link to the existence partnership contract.
Qatari law does not require the project company to take a specific legal form, nor does it require the Qatari capital equity be represented in the shares of the project company, which is the main philosophy of adopting this law which consistent in bringing foreign capital to the state and transferring Know-how and practical experience to the government sector.
Third: stand point of Comparative Laws:
Partnership Contracts have attracted the concerns of the decision-makers in all countries of the world regardless of their legal culture as a mechanism for achieving economic development in these countries. This interest has been devoted to enacting unified legislations and rules that regulate partnership contracts in its modern concept, as follows:United Kingdom:
The United Kingdom has been a leader to adopt a new model to work in partnerships with the private sector over the last three decades.
The favor returns to the United Kingdom, in the emergence of the modern concept of public-private partnership agreements in infrastructure projects, by approving the contracts of the private finance initiative known as (PFI) in the early nineties of the last century, from which it moved to other countries in the world regardless of applicable. different legal systems. The government assessment of PFI has indicated that elements of PFI have offered some benefits. These include the private sector’s project management skills, innovation and risk management expertise, such as ensuring projects are delivered to a high quality, on time and on budget and that assets are maintained to high standard during life time of the project. One of the key motivations for creating PF2 contracts as a new model in the United Kingdom is to achieve the best application of the principle of value for money () by emphasizing the provision of infrastructure project services on time, and within the budget set for the project, in addition, to transfer many of the risks associated with implementing complex projects to the private sector.
This method has been activated in implementing major projects in sectors such as health, education, and transportation. In line with this, the UK Treasury has issued a policy handbook for partnership contracts in the United Kingdom, known as “PPP Policy and Guidance”, which expresses policies and procedures to be followed in entering into and implementing such contracts.
France:
France is one of the first countries to implement the modern concept of partnership between the public and private (PPPs) in many sectors, which was influenced by the English model of partnership, and developed it to harmonize with French legal system. France has known successive legislative developments that organize partnership contracts, which came in line with recent developments in the concept of partnership at the international level, starting with issuance individual legislations in specific areas, namely national defense and security, which crystallized after that in the issuance of independent legislation for partnership contracts between the public and private sectors, according to Decree-Law No. (554-2004) issued on June 17, 2004, which was canceled according to the Decree-Law Issued on July 23, 2015, regarding public contracts, which was the last cycle in this legislative development to partnership contracts.
This new legal regulation is a translation of the regulations issued by the European Parliament No. 24/2014 for the year 2014 regarding unifying the legal rules for all forms of public procurement contracts in one law, with the allocation of particular legal rules governing partnership contracts in a separate section. One of the most key rules included in the French Law it doesn’t require a specific legal form for the project company, which forming to execute the partnership contract , and contracting authorities may hold a completive with qualified bidders whom invited to submit their bids.
The importance of this principle in discussing all details about execution phases of the project and assess private sector’s capability to achieve it, especially in projects that require particular expertise, such as telecommunications and information technology projects.
PPPs as contractual model has been applied in many infrastructure projects in France such as: construction, transportation, energy, communications, and information technology contracts.
Sultanate of Oman:
Decree-Law No. 52/2019 issued in July 2019, which regulates partnership contracts in the Sultanate of Oman, is one of the most recent Arab legislations for this group of contracts. Hopes were pinned on the new law to accelerate the pace of economic development in the implementation of several major projects in partnership with the private sector, which the government had announced in recent years.
Among the most important provisions included in the Omani law are: the project company may be authorized to form by foreign capital, as the project company owns by foreign investors up to 100%, while the legislature restricted the participation of the government sector in project company at a maximum of 40% . Among the provisions stipulated in the new law, the duration of partnership contracts, which may extend to 50 years, and that considered a long term contractual relationship for PPP contract in other comparative laws , which it may enhance investment opportunities in the country, as it may allow the foreign investor to compensate the expenses and increase project profits.
Omani law has imposed, as many Arabic legislations, many restrictions on the project company, the most important of which are the right of the contracting authority to step in and assume the role of Project Company in executing the provisions of PPP contract, in case the project company defaults in performing its obligations in the contract .
Turkey:
Turkey is one of the most attractive countries for investments in partnership projects at recent years, along with China, India, Brazil, and Mexico, according to International Bank statistics. Transport and highway projects, which were executed in a participatory manner in Turkey, are among the largest economic value projects in the world, for example the Third Airport Project in Istanbul, the Third Bridge Project for Bosphorus, and the Eurasia Highway Tunnel Project. Turkey has adopted many models for partnership with the private sector, such as :Building, Operational and Transfer of Ownership (B.O.T) method and the Building, Leasing, and Transfer of Ownership (B.L.T) method, which have been applied in many Greenfield Projects.
It is worth mentioning that Turkey did not adopt a unified legal rules that regulates all forms of partnership between the public and private sectors, except for contracting methods at the government level, which are known as (IGA-HGA), which are contractual methods applied in energy projects and oil pipelines. Among the laws that are methods of partnership with the private sector such as :
• Law No. 4734 of 2012 regarding Public Procurement.
• The new executive regulations No. 3996 of 2012 regarding the Contract Law (B.O.T)
• implementation of Privatization law.4046 of 1994.
Summary:
Main factors should be covered in order to achieve a successful PPPs project in any country, whatever legal system adopted, as follows:
- The legal and institutional framework of PPP contract is the essential to this new model.
- A carful of the long-term objectives for economic development.
-provide effective governance and monitoring mechanisms for PPPs
-determination a basis of risk allocation and define responsibilities between the parties as main conditions of PPP contract.
-A well-drafted PPP agreement is required and should carful the differences of legal cultures between the contracting authority and foreign investors.
