General PPP framework
How has the concept of public-private partnership (PPP) developed in your jurisdiction? What types of transactions are permitted and commonly used in your jurisdiction?
Argentina is a federal country. Under the Argentine Constitution, provincial public law issues, including public procurement rules, are matters referred to the provinces and, within the province’s organisations, also to the municipalities.
Accordingly, as a general rule, federal legislation only applies to PPPs related to activities that substantially relate to interprovincial infrastructure or activities that are carried out in federal territory or by federal authorities.
This chapter only addresses the federal PPP framework.
In Argentina, two federal regulations were enacted in the past to govern PPPs: Decrees Nos. 1,299/2000 and 967/2005. The first was an excellent framework but was put in place during an unsettled period as regards the international economy and Argentine politics. The second resulted in deficient regulation despite having been issued during an excellent international context with abundance of capital available for emerging markets and very favourable terms of trade for Argentina.
The above-mentioned regime was superseded by Law No. 27,328, enacted in November 2016 and its implementing Decree No. 118/2017, enacted in February 2017 (jointly, the PPP framework). The PPP framework is complemented in each case with the corresponding bidding terms and conditions and the provisions of the relevant contracts executed under this regime.
The PPP framework was conceived as an alternative contractual form, therefore the Public Works Law No. 13,064, the Law on Concession of Public Works No. 17,520 and the General Public Procurement Decree No. 1,023/01 are not applicable to PPP agreements. In cases in which public services constitute the purpose of the agreement, the relevant specific regulations related to such services shall be applied.
The PPP framework provides a broad definition of the concept of PPPs and allows a wide variety of transactions to be developed within its scope.
In this regard, the PPP framework defines PPP agreements as:
those which are entered into between a public entity or authority - within the scope of section 8 of Law 24,156, as amended (as the contractor party), and private or public persons in the terms of this law (as the contracting party) with the purpose of developing projects related to the infrastructure, activities and services, productive investments, applicable investigations or technological innovations fields, or services related to any of those.
The projects to be developed under this regime may have as their purpose one or more activities related to the design, construction, extension, improvement, maintenance, supply of equipment and products, exploitation or operation, and financing.
The design of the contracts shall take the necessary flexibility to adapt their structure to the particular requirements of each project and those of its financing, in accordance with the best international practices existing in the matter.
What categories of public infrastructure are subject to PPP transactions in your jurisdiction?
The PPP framework provides that any category of infrastructure projects, housing, activities and services, productive investments, applicable investigations and technological innovations may be subject to PPP transactions.
In this regard, section 1 of Law No. 27,328 specifically sets forth that the projects to be developed under this regime may have as their purpose one or more activities related to the design, construction, extension, improvement, maintenance, supply of equipment and products, exploitation or operation and financing.
During 2018, the Safe Highways and Roads Network PPP Programme - Stage 1 was tendered and awarded. This was the first PPP initiative to be carried out by the Argentine federal government under the PPP regime. The awarding includes the design, construction, rehabilitation and improvement of more than 3,000 kilometres throughout the country and its operation and maintenance.
There are other upcoming tenders to be developed under the PPP regime, among which include:
- energy efficiency (improvement);
- electric power transmission lines (construction); and
- a regional express-train network (construction of tunnels and underground stations).
Is there a legislative framework for PPPs in your jurisdiction, or are PPPs undertaken pursuant to general government powers as one-off transactions?
The federal regulation for Argentina consists of the PPP framework, which sets out general rules that complement, in each case, the corresponding bidding terms and conditions and the provisions of the relevant contracts executed under this regime.
Is there a centralised PPP authority or may each agency carry out its own programme?
The PPP framework does not provide for a centralised PPP authority. The control and follow up of the PPP’s procurement processes and execution of PPP agreements is performed by different agencies, as follows:
- the relevant contracting agency;
- the relevant convening authority, which, with regards to projects performed by entities from the federal public administration, will be the ministry to whose jurisdiction the contracting agency belongs; and
- the direct superior authority of the contracting agency when such agency is an entity within the federal public sector.
Pursuant to the PPP framework, the following might act as contracting agencies:
- the federal government and its decentralised entities (including social security entities);
- state-owned entities or state-owned companies in which the federal government has a majority stockholding or control of its decision-making process;
- public entities not included in the federal administration in which the federal government has control over its decision-making process; and
- public trusts whose funds or resources are wholly or partially owned by the federal government.
There are also other relevant authorities that participate in the awarding and control of PPP contracts: the PPP Secretariat, that works under the scope of the Ministry of Finance, and the Bicameral Committee to oversee PPP agreements. Although the Bicameral Committee is not technically the implementing authority, it performs activities related to the supervision of the execution of PPP agreements in every stage in compliance with the provisions of the PPP framework.
The PPP Secretariat is in charge of the following:
- assisting the executive branch in the design of PPP programmes and plans and in drafting the implementing regulations;
- assisting the relevant contracting agencies in the design and structuring of PPP projects, their procurement processes and in designing the control and auditing methods; and
- setting up a website publishing relevant information related to PPP contracts’ procurement processes, performance and auditing.
Pursuant to section 21 of Law No. 27,328, the contracting agency shall also have broad supervision and inspection powers over the execution and development of the project.
Are PPPs procured only at the national level or may state, municipal or other subdivision government bodies enter into PPPs?
Since Argentina is a federal country, each province may enact its own PPP legal framework; in this regard, the PPP framework invites provinces to adhere to the regime it sets out. The city of Buenos Aires and 14 provinces, including Buenos Aires, Córdoba, Mendoza, Río Negro and Neuquén, have already adhered to the PPP framework.
How is the private party in a PPP remunerated in your jurisdiction?
There is no mandatory scheme for the remuneration of the private party in a PPP in Argentina. The private party’s remuneration depends on the kind of agreement, the form, the modality and the opportunities for payment established in the relevant PPP contract.
Pursuant to section 9 of Law No. 27,328, parties may agree on the PPP contract on the procedures for the price review with the purpose of preserving the agreement’s financial-economic equation.
The remuneration might be paid by the users, the contracting party or third parties.
Sharing revenue and usage risk
May revenue risk or usage risk be shared between the private party and the government? How is risk shared?
The PPP framework provides for an equal and efficient allocation of risks between parties, with the risks being allocated to the party in the best position to prevent, afford and mitigate them. Furthermore, the convening authority shall also evaluate the risk allocation in a special report prior to launching the corresponding bid.
In the Safe Highways and Roads Network PPP Programme - Stage 1 project, allocation of risks is made pursuant to a predefined risk matrix annexed to the contract that describes the risks assumed by the contracting entity and those risks assumed by the PPP contractor. The PPP contractor takes collection of tolls under its own risk and has no right to claim any adjustment to its compensation in case the income from tolls were less than the levels expected when it submitted its bid.
Government payment obligations
In situations where the private party is compensated in whole or in part through availability or other periodic payments from the government, are the payment obligations of the government subject to the relevant legislative body approving budgetary funding in the future?
Yes. Any debt incurred by the federal government is subject to approval by the legislative branch and must have a budget allocation.
In this regard, section 6 of Law No. 27,328 provides that if a PPP contract requires resources from the federal government’s budget, before the procurement process begins, authorisation to involve future budgets must be granted by the federal congress.
Moreover, pursuant to Decree No. 118/2017, the Ministry of Finance shall approve further regulations for public agencies and entities within the public sector to define and inform the compromises and disbursements to be made within this regime.
Budget Law No. 27,431 of 2018 contains a chapter referring to PPP contracts, where it authorises, among others, the contracting of works or acquisition of goods and services for certain PPP projects, whose execution period exceeds the 2018 financial year.
Rate of return caps
Is there any cap on the rate of return that may be earned by the private party in the PPP transaction?
The PPP framework states that the contracting agency must consider the economic profitability of the project and that its earnings must be reasonable. It also allows (but does not require) the contracting agency to establish minimum proceeds for the private party.
Restriction of ownership transfer
Is the transfer of direct or indirect ownership interests in the project company or other participants restricted?
Pursuant to section 9(r) of Law No. 27,328, PPP agreements shall contain a clause that regulates the conditions and requisites for the contracting agency to authorise the transfer of the controlling shareholding of the special purpose vehicle, or certificates of participation corresponding to trusts, as the case may be, in favour of third parties or companies financing the projects, or companies controlled by such.
Moreover, pursuant to section 9(t) of Law No. 27,328, PPP agreements shall also contain a provision regarding the possibility of assigning the agreement. In this regard, such a rule provides that the private party may assign the PPP agreement to third parties when:
- such third parties fulfil the same conditions that were met by the assignor;
- 20 per cent of the original term of the PPP agreement has already elapsed or an investment for at least 20 per cent of the agreement’s value has been disbursed (whichever occurs first); and
- prior written authorisation from the relevant governmental entity and from the entities that provided the financing of the relevant PPP projects has been received.
What procedures normally apply to a PPP procurement? What evaluation criteria are used to award a PPP transaction?
The most commonly used procurement process is public bidding.
The evaluation criterion used to award a PPP is the offer that is the most convenient for the public interest based on the conditions established in the bidding or tender report to be issued by the PPP Secretariat.
The guidelines for selecting an awardee must promote criteria that determine comparative advantages of local companies over foreign ones, as well as those considered micro, small and medium-sized, as established in Law No. 25,300. The PPP Secretariat, by means of a substantiated report, may justify the desirability or necessity to exclude this privilege for local, micro, small and medium-sized companies, depending on the particular conditions and needs of the relevant project.
Before the public bidding is launched, the contracting entity must render a report regarding:
- the feasibility of engaging in a PPP;
- the fiscal impact of the expenses to be incurred;
- the financial and budgetary effect of the project;
- its effects on public resources and externalities caused;
- the impact of the project on the generation of employment and the promotion of small and medium-sized companies and the local industry;
- the environmental and social impact;
- an assessment of the equitable sharing of risks between the parties; and
- other relevant information.
Consideration of deviating proposals
May the government consider proposals to deviate from the scope or technical characteristics of the work included in the procurement documentation during the procurement process, without altering such terms with respect to other proponents? How are such deviations assessed?
The government may consider proposals that deviate from the scope or technical characteristics of the work included in the procurement documentation during the procurement process only if this alternative has been previously contemplated in the relevant bidding terms and conditions.
Furthermore, section 14 of Law No. 27,328 contains a novel ‘competitive dialogue’ procedure, which may be useful when the administration aims to achieve a certain goal or benefit but is unsure about the specific technical means of carrying it out. In this case, pre-qualified companies can be invited to file their own proposals and a process of competitive dialogue is engaged with all of these. It is through this procedure that the particular bidding terms and conditions are finally set out.
Section 14 of Decree No. 118/2017 further requires the PPP Secretariat to present a proposal for the regulation of this competitive dialogue procedure.
This procedure was successfully carried out during the Safe Highways and Roads Network PPP Programme - Stage 1 procurement process.
May government parties consider unsolicited proposals for PPP transactions? How are these evaluated?
The ‘private initiative’ legal framework set out in the National Regime of Private Initiative Decree No. 966/05, which applies to public works, concession of public works, concession of public services and licences and in General Public Procurement Decree No. 1,023/01 and the Procurement Manual with the Federal Administration, Disposition No. 62-E/2016, for the rest of the contracts under its regulation, allows private parties to make proposals to the federal government to carry out procurement processes (note that these Decrees provide a general regime and therefore they do not specifically regulate the unsolicited proposals for PPPs).
Does the government party provide a stipend for unsuccessful short-listed proponents or otherwise bear a portion of their costs?
Under the ‘private initiative’ regime, in the event of not being selected, the author of the private initiative will be entitled to receive from the awarded offeror a stipend of 1 per cent of the amount of the relevant project.
In any case, the government party will be obliged to reimburse expenses or fees to the author of the private initiative.
In general terms, the PPP framework does not provide any stipend for unsuccessful short-listed proponents nor bear a portion of their cost. It only provides the return of the bid bond.
Does the government party require that proposals include financing commitments for the PPP transaction? If it does not, are there any mechanisms during the procurement process to ensure that the applicable PPP transaction, once awarded, is financeable?
Under the ‘private initiative’ regime proposals must contain the estimated amount of investment, the source of funds, financing and the elements that demonstrate the legal, technical and economic viability of the proposal.
The PPP framework includes several provisions in order to foster the financing of this kind of project. Therefore, it allows for the assignment of receivables and contractual rights, as well as step-in rights, and also, of contracting insurance or any other guarantee from local or foreign entities. Moreover, it allows for the creation of trusts as a security measure or for payment of consideration by the contracting entity, or both, which must provide for the existence of a minimum liquidity during the performance of the contract. The trust’s assets, which shall be under the charge of a trustee (a financial entity), shall consist of the resources provided by law, including taxes, and will allow for the issuance of securities and, therefore, the securitisation of cash flows arising from the regular fee payments.
May the government ask its counsel to provide a legal opinion on the enforceability of the PPP agreement? May it provide representations as to the enforceability of the PPP agreement?
The government may request the issuance of a legal opinion regarding the enforceability of the PPP agreement from the federal attorney general. The federal government may also make representations in this regard.
The issuance of a prior legal opinion by the federal attorney general is mandated by law as regards public debt agreements. However, the PPP framework does not provide as mandatory the issuance of a legal opinion on the enforceability of the PPP agreement.
In any case, legal opinions rendered by the federal attorney general are not binding upon the contracting authority. Therefore, they are not enforceable per se, but they might provide the private party with some certainty as regards the enforceability of the PPP agreement.
Restrictions on foreign entities
Are there restrictions on participation in PPP projects by foreign entities? May foreign entities exercise control over the project company?
Argentina has a legal framework (Laws Nos. 27,437 and 18,875), called the ‘Buy Argentine’ regime, under which most federal public entities must give certain advantages to Argentine goods or companies in their procurement procedures.
However, even when the Buy Argentine regime is applicable it does not prevent foreign entities from exercising control over the project company. If 80 per cent of the management of the project company is Argentine, such a legal entity will be deemed local.
The PPP framework provides that national and international tenders may be launched. In this regard, national tenders are those aimed at bidders domiciled in the country, those that have their main place of business in the country or those that have a duly registered branch in the country.
Pursuant to section 12 of Law No. 27,328, bids that include the provision of goods and services shall fulfil the provisions of the Buy Argentine regime (ie, that such goods and services shall be made up of at least 33 per cent of local components), and therefore the preferences set forth in such a regime in favour of Argentinian goods and services will be applicable.
Design and construction in greenfield PPP projects
Form of contract
Does local law mandate that any particular form of contract govern design and construction activities? Does it mandate the choice of governing law?
There is no specific requirement as to the form of contract for design and construction activities; therefore, the relevant contracting party is free to choose the form best suited to its needs. PPP agreements executed under the PPP framework shall be governed by such framework.
Design defect liability
Does local law impose liability for design defects and, if so, on what terms?
The Argentine Civil and Commercial Code (CCC) imposes liability on the contractor for hidden defects or other defects that may be considered to render the work unsuitable for its original objective because of structural or functional reasons, or might diminish its utility, on the grounds that having known about these defects, the acquirer would not have executed the contract or its consideration would have been considerably smaller. This liability may be enforced over a 10-year term.
According to the circumstances, the contractor may be jointly liable with its subcontractors, its designer and technical director and any third party hired for the construction.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that the PPP contractor must foresee in each engineering, procurement and construction (EPC) contract the joint and several liability with the building company and that the PPP contractor will be responsible before the contracting agency for all the obligations undertaken by such a building company.
Does local law require the inclusion of specific warranties? Are there implied warranties in cases where the relevant contract is silent? Does local law mandate or regulate the duration of warranties?
The PPP framework establishes the inclusion of a performance bond that can serve as a construction guarantee or as an exploitation guarantee. The nature, amount and currency of the guarantee will be determined in the bidding documents and may be constituted by means of a deposit in cash or in public securities, bonds, bank guarantees or surety bonds granted by companies or entities of first line and recognised solvency. The Safe Highways and Roads Network PPP Programme - Stage 1 agreement requires the submission of the following bonds:
- bid bond;
- financial close bond;
- performance bond related to works; and
- performance bond related to services.
Damages for delay
Are liquidated damages for delay in construction enforceable? Are certain penalty clauses unenforceable?
Pursuant to section 9(d) of Law No. 27,328, parties shall establish contractual sanctions for breaches of contract in general. The damage liability of the parties shall be subject to the provisions of the PPP framework, the bidding documents and the PPP contract. The relevant provisions of the CCC will be applied in substitution.
In this regard, although the PPP framework per se does not include a specific provision on delays in construction, liquidated damages for delay are enforceable under Argentine law. Penalty clauses are enforceable under the CCC, although judges may reduce the sums involved when they are disproportionate in relation to the seriousness of the breach they penalise, considering the value of the undertakings and surrounding circumstances and, therefore, constitute abusive advantage-taking of the debtor’s position.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that the PPP contractor must execute the main works within the deadlines established in the main works schedule. Under certain circumstances, the delay of the PPP contractor resulting in breaches of the set deadlines will render it liable to penalties. The regulations on fines and penalties provide fines for breaches on the works schedule. Ultimately, not executing the main works in accordance with the works schedule, involving a delay in the total progress equal to or greater than 20 per cent with respect to that foreseen in the said plan, may lead to the termination of the contract for reasons attributable to the PPP contractor.
Indirect or consequential damages
What restrictions are imposed by local law on the contractor’s ability to limit or disclaim liability for indirect or consequential damages?
Section 1743 of the CCC provides that liability shall not be exempted or limited when it affects:
- mandatory laws;
- inalienable rights;
- good faith; or
- damages suffered by the debtor’s wilful misconduct or by a person for whom he or she is responsible.
The court may not uphold the limitation of liability provisions if they are considered abusive.
May a contractor suspend performance for non-payment?
Pursuant to section 9(s) of Law No. 27,328, the relevant contract shall set out the specific cases where parties are allowed to temporarily suspend the performance of the works when the other party is in breach of its obligations.
For instance, the Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that failure to comply with the obligations of any of the parties enables the other party to suspend the performance of the works under its charge, in accordance with section 1031 of the CCC.
Does local law restrict ‘pay if paid’ or ‘paid when paid’ clauses?
Local law does not restrict these clauses. Parties are free to include them in the contract with the limits imposed by the CCC. These clauses will be enforceable as long the public agency does not stop its payment obligations because of gross negligence or wilful misconduct of the main contractor.
Are ‘equivalent project relief’ clauses enforceable under local law?
Argentine law does not regulate equivalent project relief. Parties are free to include them in the contract with the limits imposed by the CCC. This clause will be enforceable as long as the public agency does not stop its payment obligations because of gross negligence or wilful misconduct of the main contractor.
Expansion of scope of work
May the government party decide unilaterally to expand the scope of work under the PPP agreement?
Under general Argentine public law principles, the contractor shall comply with any modification introduced by the government party, as long as it does not alter the basis of the contract. The compensation regime is applicable to both increases and decreases on the quantities or specifications of the agreed work. In the event the government decides a decrease, the contractor party shall not claim for unrealised benefits unless it had already invested in materials or equipment, in which case refunds shall be made after calculating and certifying the amounts.
Under the PPP framework, the contracting agency is entitled to unilaterally amend the PPP contract, only with regards to the project’s implementation, and for up to a limit of 20 per cent of the agreement’s total value. In such cases, the contracting agency shall properly compensate the alteration and preserve the financial-economic equation of the agreement.
Does local law entitle either party to have a PPP agreement ‘rebalanced’ or set aside if it becomes unduly burdensome owing to unforeseen events? Can this be agreed to by the parties?
Under general Argentine public law principles, either party has the right to request the maintenance of the original economic equation of the agreement.
The PPP framework also provides the contracting parties with rights to maintain the original economic and financial balance of the contract, within a maximum period set for that purpose in the tender documents, when there is significant alteration to the project for reasons that were unforeseeable at the time of the awarding of the contract and that were not caused by or were not attributable to the party invoking such imbalance. To this end, PPP agreements may include price-revision mechanisms in order to preserve the base price of the contract, as well as renegotiation procedures in case this balance is disrupted.
Are statutory lien laws applicable to construction work performed in connection with a PPP agreement?
No. Statutory lien laws are not applicable.
Other relevant provisions
Are there any other material provisions related to design and construction work that PPP agreements must address?
Bidding documents shall assess the specific rules related to design and construction that will have to be followed by the private party after the PPP agreement is granted.
Operation and maintenance
Are private parties’ obligations during the operating period required to be defined in detail or may the PPP agreement set forth performance criteria?
Local law does not provide for this level of detail. However, this may be stated in the PPP agreements or in the relevant bidding terms and conditions.
For instance, the Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that obligations during the operating period shall be complied in accordance with the terms and conditions set forth in:
- the operating quality parameters;
- the maintenance quality parameters;
- the applicable provisions of the general technical specification sheet;
- the technical specifications for the design, construction, operation and maintenance of each road corridor; and
- the applicable legislation.
In this regard, the general technical specification sheet provides a detailed list of obligations to be complied with by the PPP contractor during the maintenance period, but sets forth that the PPP contractor cannot invoke omissions in that list, in order to avoid carrying out tasks that are essential for the correct maintenance of the road corridor.
Failure to maintain
Are liquidated damages payable, or are deductions from availability payments possible, for the private party’s failure to operate and maintain the facility as agreed?
This is decided on a case-by-case basis. The bidding terms and conditions may set out detailed obligations and objective criteria. The PPP framework provides that the contract must set out objective standards of quality and efficiency in the performance of the obligations undertaken as well as the obligations of the contractor.
As explained above, pursuant to section 9(d) of Law No. 27,328, parties shall establish contractual sanctions for breaches of contract in general. The damage liability of the parties shall be subject to the provisions of the PPP framework, the bidding documents and the PPP contract. The relevant provisions of the CCC will be applied in substitution.
Refurbishment of vacated facilities
Are there any legal or customary requirements that facilities be refurbished before they are handed back to the government party at the end of the term?
There are no such requirements, on a general basis, under Argentine law. This is determined on a case-by-case basis in accordance with the specific provisions of the PPP contract. However, in general terms, the private party must maintain the facilities throughout the entire PPP term.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement settles that unless otherwise provided by the contracting agency through a written and reliable communication, the PPP contractor should continue with the provision of the main services until the termination date. The PPP contractor must also provide the necessary cooperation until the contracting agency, or any other designated person, take over the provision of the main services, in order not to affect the passability of the road.
How is the risk of delays in commercial or financial closing customarily allocated between the parties?
The risk allocation shall be defined by the parties on a case-by-case basis. If there is a risk that has not been previously allocated, it will probably be borne by the party that caused the delay.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that the PPP contractor assumes the risk of financing availability in national and international debt markets to achieve financial close within the required term. On the date of execution of the PPP contract, the PPP contractor must provide a bond to guarantee its obligation to reach financial close in the form of either a first demand bond or a surety bond.
How is the risk of delay in obtaining the necessary permits customarily allocated between the parties?
The risk allocation shall be defined by the parties on a case-by-case basis. However, the risk of delay in obtaining the necessary permits is usually allocated to the private party.
Under the Safe Highways and Roads Network PPP Programme - Stage 1 agreement obtaining the necessary permits is a risk placed upon the PPP contractor. It is set that the PPP contractor must obtain the environmental and social licences, as well as any other permit that may be required under the applicable laws, in order to start works in time pursuant to the works schedule.
How are force majeure and geotechnical, environmental and weather risks customarily allocated between the parties? Is force majeure treated as a general concept relating to acts outside the parties’ control or is it defined with reference to specific enumerated events?
Force majeure is defined in section 1730 of the CCC in the following terms:
An act of God or force majeure is one that cannot be foreseen, or that having been foreseen, cannot be prevented. The act of God or force majeure exempt from liability, except as otherwise provided. This code uses the terms ‘act of God’ and ‘force majeure’ as synonyms.
The risk allocation may be defined in the contract or in the bidding documents. Parties shall include some specific cases (such as weather or political risks) that should be considered as an event of force majeure.
Specifically, section 9(b) of Law No. 27,328 provides that PPP agreements shall include a clause that, with the purpose of maintaining the fairness of the economic-financial equation, regulates the consequences derived from events of force majeure, sovereign acts, acts of God or external foreign economic circumstances.
Under the Safe Highways and Roads Network PPP Programme - Stage 1 agreement, force majeure is a shared risk. The contract takes the terms of section 1730 of the CCC to define force majeure, excluding sovereign acts and adding acts of a third party for which the affected party should not respond.
The event of force majeure may result in the extension of the contractual term for a period equal to the duration of the event; in the suspension of the affected obligations and in the request for termination of the PPP contract.
Third party risk
How is risk for acts of third parties customarily allocated between parties to a PPP agreement?
The allocation of this risk shall be defined by the parties on a case-by-case basis in the relevant agreement. However, risks related to the performance of subcontractors of the private party are usually allocated to the contractor.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that the PPP contractor shall not be exempt from any liability to the contracting agency for acts arising from the execution of contracts which may have an impact on the PPP contract subscribed between the PPP contractor and one or more third parties.
Political, legal and macroeconomic risks
How are political, legal and macroeconomic risks customarily allocated between the parties? What protection is afforded to the private party against discriminatory change of law or regulation?
As previously explained, pursuant to section 9(b) of Law No. 27,328, PPP agreements shall include a clause regulating the consequences derived from events of force majeure, sovereign acts, acts of God or external foreign economic circumstances.
Furthermore, it is worth noting that the Expropriation Law and the federal government’s Liability Law provide for the liability of the federal government in certain cases. However, these regulations do not provide for the compensation for loss of profits.
In the event of general changes to legislation, taxation and sector regulations, if they are not specifically addressed to the private party, they shall not grant the private contractor with the right to be compensated for the damage arising thereof.
Bilateral investment treaties executed by Argentina may provide relief to foreign private contractors in some cases.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that the only case in which the PPP contractor has the right to be compensated because of change of law is when it takes place after the execution date and if it has as a direct effect a significant impact on the scheduled income of the PPP contractor or in the projection of its costs, related to the execution of the main works or the provision of the main services.
What events entitle the private party to extensions of time to perform its obligations?
The PPP framework provides that parties shall establish the term, as well as the possibility of extending it, in the PPP agreement. The term to perform the private party’s obligations (with no penalties applied) may be grounded in different situations that fall beyond the private party’s control. Extensions should be related to the rights and interests of the users of the public utilities involved. In any case, the PPP agreement can exceed a 35-year term (considering the extensions).
Under the conditions set forth in the Safe Highways and Roads Network PPP Programme - Stage 1 agreement, the term of the contract may be extended in case of force majeure or if a contractual breach of any of the parties occur.
What events entitle the private party to additional compensation?
Under the PPP framework, these events are provided for in the relevant bidding terms and conditions and in the relevant PPP agreement.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides, for example, that if the PPP contractor is required to perform additional works relating to the project for an amount of up to 20 per cent of the required amount or to diminish the scope of its works up to 20 per cent of the required amount he will be entitled to appropriate compensation.
How is compensation calculated and paid?
There are no specific provisions on how the compensation is calculated, although the contracting agency shall ponder the economic and social return of the project (see section 4(e) of Law No. 27,328).
The remuneration might be paid by the users, the contracting party or third parties.
Pursuant to section 9(6), Annex I of Decree No. 118/2017, the consideration may be agreed to be paid in money or other assets. Moreover, the PPP agreement may provide for automatic or non-automatic mechanisms for reviewing the consideration for cost variations, including financial ones. In the case of non-financial cost variations and non-automatic review procedures, these will be enabled in accordance with the provisions of the bidding document or the PPP agreement.
Are there any legal or customary requirements for project agreements to specify a programme of insurance? Which party mandatorily or customarily bears the risk of insurance becoming unavailable on commercially reasonable terms?
Although neither the current legal framework nor the PPP framework provides for which party bears the risk of insurance becoming unavailable on commercial reasonable terms, in the past the federal government alleged that this was a risk that should be borne by the private party.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides that contracting of insurance by the PPP contractor in accordance with the provisions of the PPP contract does not diminish or limit the liability of the PPP contractor with respect to any insured obligation. The contracting agency only retains responsibility for the uninsured damages.
Default and termination
What remedies are available to the government party for breach by the private party?
Section 12(37b) of Decree No. 118/2017 provides that the private party shall set up a performance bond at the start of the project in accordance to the bidding terms and conditions. Moreover, such documents usually set out the parties’ liability and available remedies, including the application of sanctions that may consist in fines or in a debarment to enter into new agreements with the federal government. In the event of breach, the public party can usually sue for specific performance or damages.
Under the Safe Highways and Roads Network PPP Programme - Stage 1 agreement, depending on the breach’s extension, the consequences may be, among others, the suspension of the execution of the PPP contract and its termination.
On what grounds may the PPP agreement be terminated?
Under the PPP framework, the PPP agreement and the bidding terms and conditions shall include the causes for termination of the contract and mentions it shall regulate the following:
- fulfilment of the purpose;
- expiration of the term;
- fault of the parties;
- public interest reasons or other causes, indicating in all cases the measures and proceedings to be followed; and
- the applicable compensations in cases of premature termination, its scope and also its calculation and payment procedures.
For instance, under the Safe Highways and Roads Network PPP Programme - Stage 1 agreement, the grounds for termination of the PPP contract are as follows:
- lack of reaching the financial close;
- expiration of the PPP contract term;
- mutual agreement between the government party and the PPP contractor;
- early termination for reasons attributable to the government party;
- early termination for reasons attributable to the PPP contractor;
- early termination for force majeure; and
- early termination for reasons of public interest.
Is there a possibility of termination for convenience?
It has been traditionally accepted that administrative contracts may be terminated because of public interest reasons (for convenience). In such case, it has been maintained that the relevant contracting party shall not be liable for loss of profits.
Under the PPP framework, termination because of public interest reasons is also allowed if such possibility was included in the relevant contract or in the bidding documents and it has to be approved by a decree of the executive branch. However, the relevant contractual document shall set the scope of compensation in cases of termination for reasons of public interest, as well as its determination and payment method. All of the compensation will have to be paid prior to the takeover of assets. Rules limiting the liability of the federal government shall not be applicable.
The Safe Highways and Roads Network PPP Programme - Stage 1 agreement does consider termination for convenience.
If the PPP agreement is terminated, is compensation available?
Under the PPP framework, the extension of the compensation will depend on the termination cause and agreement and bid provisions.
If the termination is owing to the private party’s fault, the contracting party will usually try to offset its credits with any possible debt towards the private party. The exact extension of the compensation will depend on the relevant bidding terms and conditions and the relevant PPP agreement resulting thereof.
If termination is grounded on public interest reasons, the contract will set the scope of compensation as well as its determination and payment method. In addition, 100 per cent of the compensation will have to be paid prior to the takeover of assets. Rules limiting the liability of the federal government (ie, excluding loss of profits) shall not be applicable (pursuant to section 9(p) and section 10 of Law No. 27,328).
According to the general contractual regime set forth in the CCC, a force majeure event that results in an objective, absolute and definitive impossibility to perform the assumed obligations constitutes a cause of termination of the contract without liability for the debtor.
In this regard, the Safe Highways and Roads Network PPP Programme - Stage 1 agreement regulates the different compensations available depending on the effective grounds for termination.
Does the government provide debt financing or guarantees for PPP projects? On what terms? Which agencies are responsible?
Under the PPP framework there is no specific provision in this regard although the ‘financing entity’ figure is defined as, among other things, any government entity (federal, provincial or municipal) that finances the PPP contractor. Therefore, the PPP framework allows for this possibility. In this regard, if the government was to provide financing, the terms and conditions to do so will depend on each particular case’s relevant bidding terms and conditions and the agreements entered into thereof.
Privity of contract
Are lenders afforded privity of contract with the government party through direct agreements or similar mechanisms? What rights will lenders typically have under these agreements?
The PPP framework does not provide for privity of the contract with the contracting agency. Although this matter shall be provided for in the relevant procurement documents, lenders will typically be entitled to a claim against the main contractor and, if so provided, they will be entitled to execute the relevant warranties, which may include a government guarantee.
Is there a mechanism under which lenders may exercise step-in rights or take over the PPP project? Are lenders able to obtain a security interest in the PPP agreement itself?
Pursuant to section 9(r) of Law No. 27,328, PPP agreements shall contain a clause defining the terms and conditions pursuant to which lenders may exercise their step-in rights in cases of default by the PPP contractor. However, the PPP framework does not expressly provide that lenders shall be able to obtain a security interest in the PPP agreement. This shall be defined according to the particular bidding terms and conditions and the PPP agreement resulting thereof.
Are lenders expressly afforded cure rights beyond those available to the project company or are they permitted to cure only during the same period and under the same conditions as the project company?
This is not specifically provided under the PPP framework. Therefore, the procurement documents could provide for cure rights to lenders beyond those available to the project company.
If the private party refinances the PPP project at a lower cost of funds, is there any requirement that the gains from such refinancing be shared with the government? Are there any restrictions on refinancing?
There is no specific provision regarding refinancing under the PPP framework.
Governing law and dispute resolution
Local law governance
What key project agreements must be governed by local law?
The PPP framework does not specify which shall be the applicable law to govern the PPP agreement; in this regard, this shall be determined in the particular bidding terms and conditions and the PPP agreement resulting thereof. Our understanding is that, at the least, the PPP agreement and the relevant construction contracts shall be governed by local law. This is what the Safe Highways and Roads Network PPP Programme - Stage 1 agreement sets out for the applicable law.
Under local law, what immunities does the government party enjoy in PPP transactions? Which of these immunities can be waived by the government?
The PPP framework does not provide for particular immunities for the governmental party. However, general regulations provide that certain goods subject to the performance of public utilities, the performance of essential activities of the federal government or with an express budget allocation cannot be foreclosed.
Availability of arbitration
Is arbitration available to settle disputes under the project agreement between the government and the private party? If not, what regime applies?
The PPP framework provides that the bidding terms and conditions may provide for elect arbitration as its dispute resolution mechanism for controversies arising in relation to the execution, application and interpretation of PPP contracts.
The PPP framework provides that any technical or any other kind of dispute arising from PPP contracts may be submitted to technical panels or arbitral tribunals. It expressly excludes the review of the merits of the arbitral award by the local courts. Also, the PPP framework does not exclude the possibility of carrying out the arbitration abroad.
In either case, arbitration is only a possibility where parties have agreed to it. Otherwise they may turn to the competent Argentine federal courts (section 9(x) and (w), and section 25 of Law No. 27,328).
Regarding a dispute resolution mechanism, the Safe Highways and Roads Network PPP Programme - Stage 1 agreement provides for an initial stage for technical, interpretative or patrimonial matters. This procedure is conducted by a technical panel with its own regulations according to the guidelines of the PPP regime. A second stage of arbitration is established, to be settled in Argentina or in any other jurisdiction in certain circumstances.
Alternative dispute resolution
Is there a requirement to enter into mediation or other preliminary dispute resolution procedures as a condition to seeking arbitration or other binding resolution?
There is no such requirement.
Is there a special mechanism to deal with technical disputes?
Section 9(w) of Law No. 27,328 provides, for an agreement’s execution period, the possibility of incorporating a technical panel consisting of professionals and experts of national or foreign universities who prove to be independent, impartial and suitable, in order to elucidate controversies that may arise during its execution.
The technical panel may be established by the parties at the start of the contract and it may resolve such disputes arising during the lifetime of the PPP agreement.
In addition, the parties to the contract may appoint technical auditors who will control and monitor the execution of projects. Pursuant to section 27 of Law No. 27,328, the PPP contract may specify that if the administration does not agree with the auditor’s determination, this will not preclude the payment of the consideration, which will remain in trust until the dispute is solved.