An extract from The Public-Private Partnership Law Review, 6th Edition

Overview

In France, public-private partnerships (PPPs) are implemented in many economic sectors (e.g., transport, health, justice, education, urban equipment, environment, energy efficiency, telecommunications and culture) for more than €100 billion of activity each year.

The French PPP legal framework was reshaped a few years ago through the transposition of the European directives pertaining to public procurement and concession agreements under Ordinance No. 2015-899, dated 23 July 2015,2 relating to public procurement and partnership agreements (the Partnership Contract Ordinance) and its implementing Decree No. 2016-360, dated 25 March 2016 (the Partnership Contract Decree), and Ordinance No. 2016-65, dated 29 January 2016,3 relating to concession agreements (the Concession Agreement Ordinance) and its implementing Decree No. 2016-86, dated 1 February 2016 (the Concession Agreement Decree).

Even though the transposition of the European directives and the enforcement of the aforementioned ordinances and decrees were aimed at clarifying and modernising the French legal framework, the legal rules governing public procurement agreements (including partnership contracts) and concession agreements remained scattered in about 30 different texts. Therefore, in 2018, it was decided to carry out the adoption of a Public Procurement and Concession Agreements Code (the PPP Code). The main purpose of this codification project is to gather in one single document all rules related to public procurement and concession agreements so as to offer all companies a better access to it, with a focus on small and medium-sized companies (i.e., there are no major changes on the substance of the legal provisions).

The PPP Code was finally enacted at the end of 2018 through Ordinance No. 2018-1074, dated 26 November 2018, Decree No. 2018-1075, dated 3 December 2018 and Decree No. 2018-1225, dated 24 December 2018. The new PPP Code entered into force on 1 April 2019.

In this chapter we will focus on the two main forms of PPP implemented in France: concession agreements and partnership contracts, as regulated by the PPP Code.

The year in review

The French PPP market remained dynamic and appealing despite several events that slowed it down in 2018.4

In particular, the refinancing processes of major PPP projects in the judicial sector have been launched, such as the new Paris judicial court project, considered to be the largest judicial centre in Europe; the Beauvais penitentiary centre project; and the penitentiary establishments located in Riom and Valencia.5

During 2019, public local authorities also signed several PPP projects, including:

  1. the financing, design, construction, operation and maintenance of the new market of national interest (MIN) of Nice (approximately €150 million);
  2. the partial financing, design, construction, operation and maintenance of two high schools in the municipality of Palaiseau and Pierrefitte-sur-Seine (approximately €150 million);
  3. the financing, design, construction, operation and maintenance of the new building complex known as the Forum located in the centre of Lille (approximately €83 million); and
  4. the financing, design, construction, operation and maintenance of the Arena Futuroscope with a capacity of 6,000 seats, near Poitiers in the department of Vienne (approximately €63 million).

Moreover, 2019 proved to be quite active regarding the involvement of public authorities, thanks to a high level of public investment.

First, 2019 is the year in which the Léman Express, Europe's largest cross-border RER, was commissioned. France and Switzerland have jointly financed the €1.8 billion project with the support of the EU. The Léman Express covers the railway networks of two French departments (Ain and Haute-Savoie) and two Swiss cantons on 230km of railway lines.

The dynamism of public investment in transportation sector is also illustrated by the signing of the Charles-de-Gaulle Express PPP project, worth €2.8 billion.

In addition, in the road sector, French Guyana signed a major PPP project (approximately €135 million) relating to the financing, design and supply of a bus network.

Also SNCF Réseau, the company in charge of the operation and the maintenance of the French railway infrastructures, announced €6.2 billion of investments for 2020 to modernise the French railway network.

From the point of view of foreign investments, the French market took a step toward an increased control from public authorities in limited areas but also greater transparency and accessibility.

Decree No. 2018-1057, dated 29 November 2018, widened the scope of foreign investments subject to the prior authorisation of the minister in charge of the economy.6 Among the narrow list of activities subject to such authorisation, such as those involving the participation to public authority powers or relating to sensitive fields such as public safety or the development of military weapons, are now aerospace, cybersecurity, artificial intelligence or the storage of sensitive data.

To speed up the authorisation process, the same Decree states that not only the investor will be able to submit an application to obtain the said minister's authorisation, but also the company in which the investments are planned to be made. This provision fosters efficiency since French companies are in a better position than foreign investors to understand the applicable regulation and exchange information with French public authorities.

Furthermore, Law No. 2019-486 dated 22 May 2019 improved the sanction mechanisms in case of infringements to this authorisation process. The minister in charge of the economy can now resort to a variety of options to adapt to specific scenarios. In particular, before unwinding the transaction, said minister may first decide to enjoin the investor to file a proper application for such authorisation to remedy its situation. Said minister may implement interim measures, such as a temporary suspension of foreign investors' voting rights as shareholders, to save the necessary time to solve the issues.

This Law also requires the minister in charge of the economy to publish statistics each year relating to the government's control of foreign investment in France in a way that preserves the anonymity of the concerned foreign investors. Those statistics will become a useful tool in understanding the French government's general approach to foreign investment and in anticipating its future trends.

Further regulation is expected to fully comply with Regulation (EU) 2019/452 of the European Parliament and of the Council, dated 19 March 2019, establishing a framework for the screening of foreign direct investments into the European Union.

Several further clarifications to the French PPP legal framework were also brought in the past year.

Thresholds for the formalised procedure applicable to partnership contracts and concession agreements as of 1 January 2020 have been published in the Official Journal of the European Union on 31 October 2019. The thresholds are slightly decreased: from €5,548,000 to €5,350,000 before tax for public works, partnership contracts and concession agreements in particular.

Finally, Decree No. 2019-1083 of 24 October 2019 on the terms and conditions for the conclusion and execution of public service contracts for rail passenger transportation was enacted. This Decree has been issued in application of Articles L. 2121-17-1 and L. 2121-17-2 of the French Transportation Code created by Ordinance No. 2018-1135 of 12 December 2018. The said Order and Decrees subjected public service contracts for rail passenger transportation to the concession agreement regime stated in the PPP Code, with some adaptations.

Recent decisions

In 2019, few major rulings were issued by administrative judges regarding the French PPP legal framework.

In a decision dated 1 July 2019,54 the French Supreme Administrative Court decided that an action challenging the validity of a partnership contract or a concession agreement brought by a party during their execution is not subject to any statute of limitations. The principle of loyalty in contractual relations, in particular, requires that such legal actions tending to the annulment of the said contracts are open to parties throughout the whole duration of the contracts.

In a decision dated 9 October 2019,55 the French Supreme Administrative Court ruled that the procedure for selecting the consortium formed by the Chinese companies Shandong Hi-Speed Group Co and Friedmann Pacific AM as the acquirer of a 49.99 per cent stake in the Aéroport Toulouse-Blagnac owned by the French state complied with all the relevant legal requirements. The French Supreme Administrative Court also stated that the decision of the minister in charge of the economy to select the said consortium was not manifestly mistaken. It therefore dismissed the legal actions requesting the annulment of the minister's decision.

In a decision dated 21 October 2019,56 the French Supreme Administrative Court clarified the theory of hardship. This theory entitles the private contracting party to a partnership contract or a concession agreement to compensation from the grantor when the economic balance of the contract is disturbed by the occurrence of an unforeseeable event that is external to the parties. Such event may be economic or natural. The French Supreme Administrative Court added the following precision: the private contracting party can only be compensated for operating losses that are the direct consequence of the aforementioned event. Other indirect costs are thus not covered by the theory of hardship.

Finally, in a decision dated 27 December 2019,57 the Administrative Court of Appeal of Marseille affirmed the ruling of the first instance judge who cancelled the decision approving the use of partnership contracts relating to the demolition of 31 schools and the construction and maintenance of more than 30 of them. According to this ruling, the mandatory preliminary assessment carried out by the City of Marseille lacked accuracy and did not show that the use of a partnership contract for its project was more advantageous, especially regarding financial terms, than other methods for implementing the project.

Outlook

The year 2019 brought changes to the French PPP law through the entry into force of the first comprehensive PPP Code. Even though this new PPP Code does not substantially change the legal rules governing partnership contracts and concession agreements, it definitely clarifies the French PPP legal regime by gathering all the essential legal provisions in a single instrument. In addition, legal principles resulting from existing French and European case law were also codified, provided that such case law was deemed stable.

The entry into force of the PPP Code, comprising around 1,747 articles, undoubtedly simplifies the legal framework governing PPP contracts, to the benefit of public authorities, companies and practitioners. Such changes, along with the renewed support of certain local entities, would normally foster better dynamics concerning PPP projects in several key sectors (e.g., transport, health, education, urban equipment, environment, energy efficiency and telecommunications).

However, the recent spread of COVID-19 throughout the world will most certainly have a negative impact on the global and French markets. As the number of people contaminated in France increased during the first trimester of 2020, the French government first enacted several measures to contain the propogation of the disease. Such measures, which include a strict limitation on the use of public transportation and the general confinement of the population, will also have a natural detrimental effect on the French economy.

Nevertheless, the French parliament quickly adopted a set of legal instruments to fight and mitigate the consequences of COVID-19, including Law No. 2020-289 and Law No. 2020 dated 23 March 2020, which are implemented in particular by Decree No. 2020-293 dated 23 March 2020 and Order No. ECOT2008090A dated 23 March 2020. As a result of this new legal framework, the French state intends to (1) provide companies and employees with a total of €45 billion of immediate subsidies and relief measures; and (2) implement a €300 billion state guarantee mechanism for loans issued by credit institutions. Furthermore, the government is thereby authorised by parliament to adopt measures relating to the adaption of rules governing the conclusion, time schedules, execution, early termination and contractual penalties applicable to all public contracts, such as concession agreements and partnership contracts.

Several of the latter measures have been embodied in an Order, which remains to be published in the French Official Journal, voted by the French Council of Ministers on 25 March 2020. Among them can be found:

  1. the possibility for the private contracting party to request an extension of the contract duration if the performance of its obligations would involve a manifestly excessive burden;
  2. the interdiction of sanctioning, applying contractual penalties to, or seeking the liability of the private contracting party when the circumstances make it impossible to perform part or all of its obligations; and
  3. the right for the private contracting party to a concession agreement to be compensated when the conceding authority has to request significant changes regarding the performance of the agreement requiring new investments deemed as a manifestly excessive burden in light of the financial situation of the private contracting party.

It seems, therefore, too soon to infer from the expected decrease of worldwide and national economic activities that the French PPP market will slow down in every sector to a freezing point in the long term. On the contrary, COVID-19 will likely trigger a renewed focus on the development of national PPP projects in certain sectors, especially those contributing to public health. It is also expected that French and European political authorities will engage in strong economic revival policies that could translate into substantial public subsidies to the benefit of several PPP projects.

A number of interrogations remain regarding the structural changes that COVID-19 could bring to the French economy. For instance, the privitisation process of Aéroports de Paris might be delayed while the possibility of nationalising companies facing severe economic difficulties is contemplated by the government. In any case, 2020 will definitely involve critical developments regarding the legal and economic environment of PPP projects.