General frameworki Types of public-private partnership
Decree Law 111/2012 of 23 May 2012 revoked the initial PPP legislation and establishes the general rules applicable to any PPP launched by the Portuguese state.
It introduced several amendments to the previous PPP regime, in particular regarding the preparation, launching, execution and modification of PPP.
Both institutional and contractual PPP structures are available in Portugal. However, institutional PPP structures are not commonly used. In fact, the majority of PPP projects closed to date in Portugal are based on project finance contractual structures and typically follow a build–operate–transfer or design–build–finance–operate model.
The underlying contractual framework of a PPP transaction in Portugal traditionally includes a concession contract giving the project company the right to carry out the project or the relevant activity, equity subscription and shareholders' agreements to regulate the relationship between the sponsors or project company's shareholders and the equity contributions to the project, a typical set of finance documents, as well as project implementation and sector-related commercial contracts. Among these, there is typically a construction contract and an operation and maintenance contract in infrastructure PPP projects. Supply agreements, sales agreements or both may also be entered into in connection with the project.
In the vast majority of the Portuguese PPP transactions closed to date, the concession-based construction contracts used do not follow any standard form, such as those issued by the International Federation of Consulting Engineers, the Joint Contracts Tribunal, or the Institution of Civil Engineers. Hence, the form of construction contract used in each case has varied depending on the sector of industry at stake or the sponsors involved.
In relation to the infrastructure projects closed in Portugal in the 1990s and early 2000s, it was generally accepted that, given the need to adapt the legal structure of the facility agreements to international syndication, the whole financing package other than the security documents had to be governed by English law, while the project documents, notably the concession contract, were subject to Portuguese law. That ceased to be the case from the mid 2000s onwards, at which point the project financiers active in Portugal had become sufficiently comfortable with the Portuguese law and, therefore, most finance documents executed thereafter are governed by Portuguese law, notwithstanding closely following the structure of a typical English law project finance documentation package.
PPP major projects in the health sector, the second most relevant sector concerning PPP projects, also have some particularities in Portugal. The specific framework for PPPs in health sector, set out in Decree Law 185/2002 of 20 August 2002, as amended by Decree-Law 111/2012, of 23 May 2012, is still in place. The Decree Law, as amended, governs the development of PPPs for the construction, financing, operation and maintenance of healthcare units forming part of the NHS. An important feature of these PPPs is that they may envisage the private partner not only managing the hospital facilities but also providing clinical services as part of the NHS. When both managing facilities and clinical services provision are foreseen, two separate project companies must be incorporated. In such case, both project companies are bound to comply with their own obligations under a sole concession agreement, and one concessionaire is liable before the other provided that the non-compliance of its own obligations may give cause to the other concessionaire's infringement under the concession agreement. The health sector concession agreements set out different contractual periods for each concessionaire (10 years for the clinical services providers – which may be extended for additional 10-year periods up to a maximum of 30 years – and 30 years for the concessionaires responsible for the design, construction and operation of the hospital buildings).
In 2016, PPP projects in the health sector were subject to an evaluation by the Health Regulatory Authority (ERS), in order to assess the quality of healthcare provided under the mentioned projects. According to this study, the quality of clinic services provided by the private partner is similar to that of the services provided by the state-run public utilities. Notwithstanding the positive performance, the Portuguese government has set a target to reduce the public burden of PPP projects in the health sector. Therefore, renegotiations with the private partners are ongoing to reduce public payments. In this context, as mentioned above, the PPP regarding the Hospital of Cascais was extended for an additional three-year period and the Portuguese government has approved the launch of a new public tender for the management of clinic services of the Hospital of Braga.
In the road sector, different solutions were put in place regarding the concessionaires' payment mechanism and risk matrices. Shadow toll systems were introduced in some road projects during the 1990s and onwards, but in all those projects such payment systems were replaced by road availability payments and real toll payment systems. An exception was made in Madeira and Azores, where the regional political authorities chose to maintain the shadow toll systems previously adopted in their respective road projects. More recently, real toll payment mechanisms were also substituted by road availability solutions under the recent renegotiation process on the PPP projects of the road sector. This renegotiation process also brought about specific solutions, including a set-off mechanism against toll revenues for the benefit of the concessionaires and an upside-sharing mechanism to encourage concessionaires to promote traffic in their concessions. At a municipal level, PPP activity took place through the launch of several projects for municipal water supply, wastewater treatment and waste management; Decree Law 90/2009 of 9 April 2009, and Decree Law 194/2009 of 20 August 2009, as amended, established the rules applicable to PPPs in the aforementioned sectors.ii The authorities
In general terms, the sector ministries (energy, infrastructure, transports, health, etc., and (when applicable) environment) are responsible for the launching, licensing and major regulation of the projects, either directly or through their governmental departments.
The approval of the Ministry of Finance is also required when the project involves public investment or, more generally, where the PPP legal framework applies.
Decree Law 111/2012 introduced several amendments to the previous legal regime, in particular regarding the preparation, launching, execution and modification of PPPs.
The main purpose of this new legal framework is to reinforce supervision, scrutiny and consistency of the decisions of the public partner and contemplates the creation of the Technical Unit for Monitoring Projects, which centralises and executes all main tasks related to the preparation and execution of PPP contracts.
Other PPP projects at a municipal or regional level are prepared and executed by the respective public structures and such projects are not subject to the Technical Unit for Monitoring Projects's control.iii General requirements for PPP contracts
The legal framework applicable to the PPP projects expressly foresees the need to accommodate the type of expenditure within budgetary regulations and requires the preparation of economic and financial surveys to confirm the figures for the public sector comparator, as well as establishes general procedure rules applied to any type of PPP contracts.
Projects that require a global public cost above €10 million and an investment not higher than €25 million for the entire contractual period are not subject to the legal regime of the Decree Law 111/2012 of 23 May 2012.
Since the previous PPP Decree Law, dated 2003 (Decree Law 86/2003 of 26 April 2003), procurement procedures may only be launched and awarded after approval of the relevant environmental impact declaration and once the relevant environmental and urban planning licences and permits have been obtained, in order to ensure an effective transfer of execution risks to the private partner.
The regime concerning environmental impact assessment for each project was approved by Decree Law 151-B/2013 of 31 October 2013, as amended, pursuant to which any application for an environmental approval must enclose a detailed environmental impact study, the procedure for granting the relevant environmental impact decision implying a coordinated effort between a different array of entities for better assessment of the environmental risks associated with each project.
Depending on the sector of industry in question, a project may also be subject to environmental licensing under the new integrated pollution prevention and control legal framework, approved by Decree Law 127/2013 of 30 August 2013. The environmental licence (which is required, in particular, for industrial projects) must be obtained before operation commences and must be successively renewed during the entire period of operation of the plant, although simplified licensing procedures may be in place in accordance with the scope of the activities carried out.
Furthermore, in the context of the EU emissions trading system, for projects in certain industrial sectors and meeting certain conditions or thresholds, the operators must hold a permit to emit greenhouse gases, and be the holder of emission allowances.
Other industrial and construction licences and permits may be required depending on the type and specific conditions of each project to be implemented.
Finally, it should be noted that compliance with all legal conditions and procedures is subject to validation by the Court of Auditors. After the execution of a PPP agreement by any public entity, the Court of Auditors will verify and confirm whether all legal requirements are fulfilled and payments under those contracts can only be made further to such validation.
Bidding and award procedure
Decree Law 111-B/2017 of 31 August has amended the Portuguese Public Procurement Code (PPC) approved by Decree-Law 18/2008 of 29 January.
The PCC applies to every public tender procedure launched by a public authority. The Code sets out different procedures for the procurement process applicable to administrative contracts, including those to be entered into in connection with PPP projects: the direct agreement, the public tender, the limited tender by pre-qualification, the negotiation procedure and the competitive dialogue. Unsolicited bid mechanisms are not foreseen in Portuguese law. Unlike the former legal framework for public procurement, the PCC does not automatically require a public tender for public works concessions or public services concessions, the awarding entity being entitled to choose between the launch of a public tender, limited tender by pre-qualification or a negotiated procedure.
In each procedure allowed by the PCC, administrative principles of equal treatment, legality, transparency and competition are duly reflected in the respective regulation. Moreover, such principles are directly applicable to each procedure and may be invoked by any interested party. If an interested party considers that an act under the procurement procedure does not comply with applicable regulation and principles, it may claim directly to the awarding entity but also to a court. In such case, the interested party may ask the court to declare the suspension of all subsequent acts in the procurement procedure by means of a temporary injunction, in order to ensure that its rights are not irreversibly threatened.
Substantive provisions dealing with public works and the public services concessions are included in the PCC, some of which are mandatory in nature. These mandatory provisions refer to relevant features of a PPP, such as termination by the contracting authority, and sequestration or step in. Other substantive provisions of the PCC will only apply in the absence of express provision in the relevant contract.
The granting of the approval by the Court of Auditors is a condition for the contracting authority to make any payments under the contract; the contract may, however, enter into force prior to the validation and all rights and obligations contained therein may be performed, except for public payments.
In February 2014, the European Parliament and the Council adopted Directive 2014/25/EU (procurement in the water, energy, transport and postal services sectors), Directive 2014/24/EU (public works, supply and service contracts) and Directive 2014/23/EU (concession contracts). The new Public Procurement Directives were published in the Official Journal of the European Union on 28 March 2014 and entered into force on 17 April 2014.
The recent economic crisis in Europe has made it necessary to reform public procurement rules: first, to make them simpler and more efficient for public purchasers and companies, and second, to provide the best value for money for public purchases, while respecting the principles of transparency and competition. The Directives comprise major changes to the European public procurement regime with the aim of:
- promoting environmental policies, as well as those governing social integration and innovation;
- improving the access of small and medium-sized businesses to public procurement markets;
- implementing stronger measures preventing conflicts of interest and corruption; and
- new simplified arrangements for social, cultural and health services listed in the Directives.
Decree Law 111-B/2017 introduced in the Portuguese legislation the European Union Directives, and puts forward several modifications to the existing legal framework. Among other things, the new Public Procurement Code introduced the following amendments:
- the most economically advantageous tender becomes the rule criterion for awarding;
- the value of the performance bond is reduced to a maximum of 5 per cent of the contract price;
- a simplified procedure for the provision of health and social services is foreseen; and
- the report obligations of the awarding authority on practices susceptible of distorting competition rules are enhanced.