General frameworki Types of public-private partnership
In the Spanish market, a PPP is not strictly speaking a legal concept, but a type of public policy or management method that entails collaboration between a public entity and a private partner. This collaboration aims to implement, finance and manage public infrastructures in broad terms, including facilities, services and utilities. This clarification serves to avoid misidentifying PPPs in general, with a specific and single contract form under the Spanish Public Procurement Law.
Under the Spanish Public Procurement Law in force until 9 March 2018, there were three main types of PPP contracts: public works concession contracts; public service management contracts; and partnership agreements between the public and the private sector. The Law on Public Sector Contracts (Law 9/2017) has now repealed the Spanish Public Procurement Law.Public works concession contracts
Traditionally, public works concession contracts are conceived under Spanish law as a contract under which the concessionaire develops a public works project and is remunerated for it through the right to operate the project (by collecting a fee or toll from users), at its own risk, during the term of the concession.
This type of contract keeps its main characteristics under the new Law on Public Sector Contracts and is the most commonly used in practice for new categories of projects such as: projects that require the involvement of the private contractor in defining the project; projects in which the contractor does not manage the public infrastructure or facility directly for private individuals, but for the public entity, which uses the infrastructure as a physical base for the provision of public services to citizens, which are provided by the public authority itself (using its own resources); and projects in which the contractor is not remunerated directly by users, but by the public entity (either based on the number of users using the infrastructure (payment for demand) or on the conditions under which it is made available to the public authority (payment for availability)).
This broad concept of public works concession is firmly accepted under Spanish law. Currently, public works concession contracts can be executed for the following reasons according to Spanish law:
- the concessionaire may also be in charge of preparing the relevant project, on the basis of the preliminary plan or study approved by the contracting government department;
- the purpose of the public works concession contract includes not only the construction of new infrastructure, but also the renovation and repair of existing constructions, as well as the preservation and maintenance of the constructed elements. This broadens the potential use of this contract, which can now cover not only new infrastructures but also the operation of existing ones that require a significant investment with regard to renovation or maintenance; and
- they also include agreements under which the concessionaire uses the public infrastructure to make it available to the public entity (or to an indirect operator), so that it can use it to provide a public service. In this case, use consists of operating the infrastructure. The operation must be undertaken in accordance with its particular nature and purpose. Since the concession involves a public infrastructure, its nature determines that it must be established as an instrumental support to perform different activities and services of public interest, or for general use or enjoyment, in exchange for remuneration fixed through one of the mechanisms provided by law.
The services concession contract is an agreement under which the public entity entrusts a third party to manage a service on its behalf, provided that the concessionaire assumes operating risk.
The Law on Public Sector Contracts envisages important changes to the public service management contract, owing to the implementation of Direction 2014/23/EU on concession contracts. Under this Law, the public service management contract will be mainly to reduce the public service concession, although certain forms of the traditional public service management contract remain for local entities; however, the standard public service management contract has been generally classified as follows (even though the Law on Public Sector Contracts does not mention these categories):
- Public service management concession: a contract under which the public authority – responsible for a public service – awards the management of such service to a private entity to operate it at its own risk. The private entity may be paid by the users, the public entity or both.
- Special agreement: another sub-category of the public service management contract, which is characterised by the fact that the public entity awards the management of the service to an individual or legal entity that already provides similar services to the relevant public service. It is common in the education and health sectors.
- Public service management by a semi-public company: the semi-public company is a type of institutionalised PPP under which a company is incorporated through a contract between private and public capital, to then become a public contractor with the characteristic rights and obligations of a concessionaire. Semi-public companies have a long tradition under Spanish law in managing local public services.
- There is also a fourth sub-category of public service management contract under the Spanish Public Procurement Law: stakeholder management, under which the public entity and the company share the operating profits of the service in the proportion agreed in the contract.
These categories have been widely modified under the Law on Public Sector Contracts, and only the type of contract 'service concession' remains as a PPP scheme for public services. The special agreement, the public service management by a semi-public company and stakeholder management disappear as general schemes (although the semi-public company can still be used by local entities under certain circumstances, and special agreements are still feasible under sectorial regulations). The service concession differentiates from the simple service contract in the risk assumed by the contractor. Whenever there is a transfer of the operation risk to the contractor, the Law on Public Sector Contracts considers it as a concession agreement. On the contract, if there is no a transfer of risk, the contract will be considered a service agreement, not a concession one.Partnership agreements between the public and the private sector
Despite the fact that the Law on Public Sector Contracts eliminates this type of agreement, partnership agreements between the public and private sector are still in use in some cases.
The main characteristics of this partnership agreement are the combination of two elements:
- the execution by the contractor of a complex operation, which includes one or more of the following activities:
- the execution of complex works, equipment, systems and utilities, as well as the maintenance, updating or integrated operation;
- the integrated management of complex facilities; and
- the provision of other complex services associated with the public authority's performance of its specific responsibilities; and
- the initial financing by the contractor of the tangible or intangible investments required for the services that constitute the first of the elements.
Very few examples of this type of contract can be found in practice at the national, regional or local level. Some examples can be found in areas such as energy efficiency. In general, public entities have seldom used partnership agreements between the public and private sector.ii The authorities
Spain is a regional state, which means it is a decentralised state formed of 17 regions with their own regional authorities. In addition to the national and regional governments, the Spanish Constitution gives local authorities some administrative authority.
Therefore, Spanish authorities are mainly arranged at three institutional levels: national government and its corresponding public entities, regional governments and their corresponding public entities, and local governments and their corresponding public entities.
The three levels have different but concurrent and coordinated powers. Each authority level can exercise these powers through PPP projects. For instance, the national government has authority over transport and can exercise its powers through PPP on transport infrastructures. Regional governments have authority over health and social care and may develop hospital infrastructures through PPP. Local governments have authority over local services such as water and waste collection, and may implement these services through PPP projects.
Any department of public authority on one of these three levels may enter into PPP contracts in their specific field. For instance, the environmental department of regional or local government may call a procedure for the construction of water infrastructures under a PPP project. However, at the national level, there are two main ministries involved in PPP projects: the Ministry of Infrastructure, as it has authority over all transport involving public works; and the Ministry of Finance, which administers the state budget and expenses – an important role because of public debt restrictions – and analyses the impact of PPP projects on public accounting.
There is currently no specific authority in charge of PPP projects in Spain. In October 2015, the national government created the National Evaluation Office to improve the quality of the investments made by public authorities. The National Evaluation Office assesses the feasibility of public projects under public contracts, taking into account the rules governing budgetary balance. The National Evaluation Office may also assist regional and local governments. However, the ruling officially implementing this National Evaluation Office has not yet been issued, thus it is not yet operative, and, for now, is not regulated by law as a real PPP unit to foster PPP benefits or collect and improve PPP practices. Additionally, the Law on Public Sector Contracts has created the Public Contracts Cooperation Committee and the Public Contracts Supervision Office; both intend to supervise the public entities' practice regarding contracts and coordinate interpretation criteria.
Apart from the national, regional and local authorities, there are other public entities mainly governed by private law, such as the Railway Infrastructure Administrator or the Port Authorities. These entities often enter into contracts to construct and operate public infrastructures and facilities that include some of the characteristics set out for the types of PPP contracts described in Section III.i. However, although their names and legal frameworks may coincide, totally or in part, with the provisions for PPP contracts governed by the Law on Public Sector Contracts, the effects and termination of these contracts are governed by private law. The general regime for PPP described in this chapter only applies to contracts entered into by other public entities when such entities so decide in the contract in question.iii General requirements for PPP contracts
Public authorities must meet a series of internal requirements and approvals to enter into a specific PPP contract. Mainly, public authorities must evidence the need for which the PPP is to be executed and prove the advantages of using a PPP contract to cover that need over other types of contracts, or over the public authority implementing it directly. In addition, the public entity must make sure that there are sufficient funds to pay for the PPP contract before calling a public tender under a specific procedure. Likewise, the new National Evaluation Office must analyse the financial sustainability of the public works and public service, for example, whenever the price will be assumed totally or partially by the contracting authorities, not by the users.
In addition, prior to calling the public tender, the contracting authority must undertake to carry out a feasibility study that analyses the economic and financial basis for the contract. This study must provide an estimate of use demands and profitability of the contract, operational and technological risks in the construction and operation phases, as well as an estimate of investment costs and the potential financing system to perform the work. This feasibility study constitutes the value-for-money assessment by the public authority.
Once the feasibility study has been prepared, and at all times prior to calling the public tender, the contracting authority must prepare the administrative and technical bidding terms that will govern the relationship with the awardee. These terms must be approved by the legal and technical advisers of the contracting body.
Once the internal requirements have been met and the bidding terms have been approved, the public entity can start the tender procedure.
Public works and public services concessions are subject to temporal limits established by law. Therefore, the term of the contract must be justified in the contract itself, taking into account the need to be satisfied and the recovery of the investment, but at all times in accordance with statutory limits, which, under the Law on Public Sector Contracts are: 40 years for public work concessions and for service concessions that include works; 25 years for service concessions not including health services; or 10 years if the service concession refers to healthcare services with no construction works.
In principle, there are no other general restrictions on the use of PPP to cover a public need. In any case, the services that involve exercising public powers cannot be managed by third parties and therefore cannot be entrusted to a contractor through a PPP project. They must be exercised by the public authority directly.
Bidding and award procedure
The Public Procurement Law mainly regulated four types of procedures to select and award the contracts included under the PPP category (see Section III.i): open procedure, restricted procedure, negotiated procedure (with and without publicity) and competitive dialogue. Under the Law on Public Sector Contracts, a fourth type of procedure has been added: association for innovation.
The open and the restricted procedures are called ordinary procedures because they can generally be used by the contracting authorities. Negotiated and competitive dialogue as well as association for innovation procedures can only be used under certain circumstances, such as if the matter is especially complex, in the case of competitive dialogue, or if the preliminary open or restricted procedure has been declared null, in the case of negotiated procedure.
In practice, the two main PPP contracts (public works and public service concessions) are awarded through open procedures, and rarely through restricted procedures. The preference for open procedures is because of the restrictions existing for using other procedures, the higher complexity of the other procedures and the aim of allowing as many participants as possible.
The open procedure results in mainly standardised PPP contracts, as the rights and obligations under the contract are mainly governed by standardised administrative and bidding terms. The bidding terms are not negotiable so they cannot be modified by the tenderers.
Our observations in the following subsections refer to the two most commonly used procedures (open and restricted) in PPP contracting in Spain.i Expressions of interest
The Public Procurement Law used to not provide specific procedure for the awarding body to request information from interested parties. However, this request and assessment of interest could be channelled through the public hearings in preparing the PPP contract: in particular, the public hearing of the feasibility study, which must last a minimum of one month, and the public hearing that may take place in certain complex public projects regarding the construction project. Under Article 115 of the Law on Public Sector Contracts, the contracting authorities may undertake market studies and consultancies to the operators to correctly define the necessities to be covered in the future contract and inform the operators of the future contracting plans and the requirements to be complied with. The law does not prevent public entities from organising other hearings or consultations to obtain feedback from the market before calling a public tender.
Additionally, according to Spanish law, private third parties may submit feasibility studies on themselves in order to invite the public entity to cover a specific need through a public concession. Once the feasibility study has been submitted, the authority decides whether to proceed. If a public tender is called following a feasibility study, and the contract is awarded to another private party, the promoter of the feasibility study must be compensated for the expenses it incurred to promote such study plus 5 per cent. Despite this legal provision, private initiative in submitting feasibility studies has been practically non-existent in Spain. The Law on Public Sector Contracts adds that the promoter will obtain five extra points during the awarding procedure. If the promoter is not finally the awardee, the general compensation applies.ii Requests for proposals and unsolicited proposals
Once the public entities approve the file to enter into a specific PPP, they can launch the public tender procedure. The procedure starts with an advertisement in the Official State Gazette and the Official Journal of the European Union, or in the Official Gazette of the autonomous community or municipality in question. This advertisement is particularly important because it is the start of the term to submit offers.
Under the open procedure, any third party may submit an offer. Submitting an offer implies the unconditional acceptance of the bidding terms, and the terms of the contract cannot be negotiated.
Between the call and the submission of offers, any interested party may request clarifications from the awarding authority. The queries made and answers provided during this phase must be generally available to all interested parties.
Unlike the open procedure, the restricted procedure is structured in two phases, during which a shortlist of offers is made. The existence of a preliminary selection phase means that, when preparing the contract (before its tendering), the contracting body defines the objective criteria of solvency in accordance with which it will choose the candidates (generally no fewer than five) that it will invite to submit proposals. These criteria are available from the moment the tender is announced. Only the pre-selected candidates may submit proposals.iii Assessment of the offer and granting of the award
Beyond the preliminary contract preparation phase during which the content of the contract is defined, its content cannot be altered or specified by negotiation under either the open procedure or the restricted procedure. Submitting a proposal entails that the tenderer accepts the bidding terms in full.
Once the proposals have been filed, both the Public Procurement Law and the Law on Public Sector Contracts establish the procedure to open and analyse the proposals under transparency and parity criteria. The awarding criteria in PPP projects usually include both economic and technical assessment and must be previously defined in the bidding terms in accordance with the purpose of the contract. The criteria that cannot be assessed using an automatic formula will be scored before those subject to automatic criteria to ensure parity.
The contract will be awarded to the bidder with the highest score, and will come into force once both parties enter into the formal agreement. This formal agreement is usually short and merely restates the main obligations that are defined in the bidding terms and the bidder's proposal.