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Establishing a PPP Framework

21.5.2 Legal and Administrative Approaches to Establishing PPP Frameworks

The diversity of legal traditions and PPP types shows there is no single best way to document and give force to a PPP framework. Rather, the right way to establish a PPP depends on the administrative and legal traditions in the country, and the government’s objectives. This section looks at the various approaches that common law and civil law jurisdictions take to establish PPP frameworks in law and policy generally. It then considers how specific matters such as enforcement, limits on contracts, and adjudication are dealt with in different systems.

Common law countries often use policy documents, not laws, to establish PPP frameworks

Common law countries do not generally need laws to establish PPP frameworks. In many common law countries, policy statements and administrative documents are the best approach. Australia and Britain – two of the world’s most experienced PPP jurisdictions – do not have PPP laws. Doing PPPs under a policy framework, rather than a law, also works in emerging market and developing economy (EMDE) countries such as Jamaica.

In Britain, the HM Treasury has the responsibility for setting PPP policy for England; this responsibility is devolved in Scotland, Wales and Northern Ireland. The treasury publishes key policy, guidance, and statistics on PPPs/PFIs and provides advice to departments wishing to undertake PPP/PFI projects. Each government department is responsible for the implementation of PPP policy, and they must take into consideration any legislation regarding procurement. The HM Treasury’s focus is on ensuring that public sector asset and service investment programs maintain momentum, provide Value for Money, sustain market confidence, and deliver improved operational performance of projects.[42]

In Australia, the National PPP Policy sets the direction for the PPP program. This policy, and detailed guidelines that complement the policy, have been agreed to and endorsed by the Council of Australian Governments (consisting of the Federal government and each state and territory government). Departures from the policy and guidelines are possible, but must be approved by the relevant PPP authority (usually treasury or finance).[43]

In addition, various laws that are not specific to PPPs complement the framework. For example, in New South Wales, procurement must comply with relevant provisions of the Public Works and Procurement Act 1912 and the Public Finance and Audit Act 1983.

Like Australia, Jamaica’s legal system is inherited from England. Jamaica developed a PPP framework as it revised its divestment (privatization) policy. In Jamaica, the policy was adopted by the cabinet, and then published.[44] The Development Bank of Jamaica (DBJ) – a government-owned financial institution – was mandated with managing the implementation of the policy, serving as a PPP unit in conjunction with its established role as a privatization agency. The processes to be followed are set out in a manual which guide the staff developing PPPs. Staff in the DBJ and the sectoral agencies follow the policy and the manual because of administrative requirement.

Other common law jurisdictions, including New Zealand and the Canadian provinces such as Alberta, British Columbia, and Ontario among others, also embody their PPP frameworks in policies, manuals, and other non-legally binding documents. In common law jurisdictions such as these, the government has the powers of a natural person or corporation. Thus, it does not need legislation to enable it to enter contracts of any sort, including Public-Private Partnership contracts.

Moreover, these jurisdictions often have Westminster system[45] styles of government. Under the Westminster system there is a closer alignment between the legislature and executive than there is in the presidential systems adopted by many civil law countries[46] (note that some common law countries, including the US and Nigeria, have presidential rather than Westminster systems of government). In a Westminster system the executive branch typically feels confident controlling its own actions, and it does not need laws to either empower or control it. The executive is accountable to the public through general elections, and this is what gives government policy statements their force. Governments expect to be judged on whether they have adopted good policies and whether they have followed the policies to which they have committed themselves.

In Westminster system jurisdictions, policies written about how the government will implement PPPs not only communicate the framework, but also become the instrument by which the framework is made binding on government officials. By constitutional convention or civil service law (depending on the jurisdiction), civil servants are required to follow government policies.

The PPP contracts themselves are almost always normal private law contracts, given their force through ordinary contract law. Adjudication and enforcement of the contracts are also a matter of private law, handled through the regular courts (or by arbitration, if the parties opt into arbitration through the contract).

Some common law jurisdictions pass PPP laws, for a variety of reasons

Some common law jurisdictions do create PPP laws. This is often to override existing laws that would otherwise restrict or delay PPP projects. Another reason for putting the framework into a statute is to provide greater force, stability, transparency, and accountability.

In the US, states that want to develop PPPs pass PPP laws. For example, in Virginia, the Public-Private Transportation Act (PPTA) of 1995, and the Public-Private Education Facilities and Infrastructure Act (PPEA) of 2002 provide the legislative framework that allows the state to qualify local governments and certain government entities to enter into agreements with private firms to construct, improve, maintain, and operate transportation, education and other facilities.[47] Similarly, in California, The Senate Bill Second Extraordinary Session 4 (SBX2 4) was passed in 2009 to allow regional transportation agencies and the Californian transportation agency (Caltrans) to enter into an unlimited number of Public-Private Partnerships.[48]

To an observer accustomed to the Australian and British models, the approach taken by US states seems a bit odd at first sight. The states’ executives, after all, have the inherent power to enter contracts of all sorts. Therefore why do state legislatures need to pass laws empowering them to enter into PPP contracts? One important reason is to create exceptions to other state laws already on the books that prevent PPP contracts. In particular, public procurement laws in many states are prescriptive, and as a result they effectively outlaw PPPs.

Another reason is that the greater separation of powers in the American state governments (compared to the Westminster system) makes it more common for legislatures to control the exercise of executive power through laws. Moreover, since the US system allows the legislature and the executive to be controlled by different parties with opposing agendas, it is desirable for the stability of a PPP program if the legislature explicitly authorizes the executive to engage in PPPs.

Many EMDE countries with common law systems have passed specific PPP laws. Among them are India and Kenya. In India, individual states have passed legislation to promote private sector participation in infrastructure projects across sectors. States such as Andhra Pradesh, Gujarat and Punjab have developed specific laws and institutions for PPP projects.[49] Kenya has also recently instated a Public Private Partnership (PPP) Act, 2013.[50]

Although in most cases such PPP laws are not strictly necessary, there are several possible advantages to having a special PPP law: increased accountability and transparency of the program, greater policy stability (since laws take longer to change than policies), and a signal to investors and funding agencies which may perceive a law as a stronger commitment than a policy statement. Against these advantages must be weighed some disadvantages, including the longer time it takes to pass a law, the loss of flexibility in updating the framework in response to new situations and lessons learned, and the difficulty of coordination between the legislature and the executive (which may create inconsistencies or bottlenecks in the framework).

In common law jurisdictions that pass PPP laws, the legal instrument that governs the PPP is still a private law contract, adjudicated and enforced through the courts or contractual arbitration.

Civil law jurisdictions generally embody their PPP frameworks in laws

Civil law countries tend to embody their PPP frameworks in laws. This follows from the civil law tradition that government agencies may only do what they are explicitly authorized to do, as well as the tradition of limiting government discretion with tightly defined rules. However, as we have seen, the types of law used differ from jurisdiction to jurisdiction. Spain and a number of other civil law countries empower and control PPPs through the public procurement law. Chile controls all PPPs through its concession law

The Philippines (a predominantly civil law country) created a special BOT Law which then evolved into a PPP law. The BOT Law is prescriptive detailing how PPPs are to be undertaken, including the government bodies that can enter into contract with a private company for a PPP project, eligible projects, approval processes, how negotiations are to be undertaken, repayment schemes, and similar matters.[51]

France, despite being the well-spring of much modern civil law (through the Code Napoleon) developed a legal framework for concessions which is similar to common law in important ways. Government agencies, including local governments, were taken to have an inherent power to enter into contracts that delegate the provision of public services. The award and enforcement of these contracts was subject to a special administrative court (the Conseil d’Etat) which built a legal framework for such contracts from case by case decisions over more than 200 years[52],[53] “Government-pays” PPP contracts on the other hand were recently authorized and controlled by a specific statute.[54]

As in France, concession contracts in Spain are not private law contracts, but are subject to special administrative law provisions. This is not the case in all civil law countries, however. In the Philippines, Power Purchase Agreements (PPAs) and the Manila Water Concessions are treated as private law contracts.

The PPP framework can be used to reduce the need for court action

The PPP framework should be explicit about mechanisms that are used to reduce the need for court action. In many countries, it can take years for disputes to be resolved through the courts. Court processes can also be expensive. They rely on judges who are typically not familiar with the complex and technical matters involved in PPP contracts. For this reason, it is often a good idea to include alternative dispute resolution mechanisms in contracts. Mediation and arbitration provisions are often included (options to solve disputes and the role of “dispute resolution processes” are explained further in chapter 5.8). Enforcement mechanisms that reduce the need for court action, such as escrow accounts and performance bonds, can also be useful tools.

 

[42] HM Treasury (2013) Public Private Partnerships. [Online]  Available at: http://webarchive.nationalarchives.gov.uk/20130107105354/http://www.hm-treasury.gov.uk/infrastructure_public_private_partnerships.htm

[43] Infrastructure Australia (2008) National Public Private Partnership Guidelines Overview. Commonwealth of Australia.

[44] Development Bank of Jamaica Limited (2012) Shaping New Partnerships For National Development.

[45] In the Westminster system, the leader of the executive branch (the Prime Minister) is the leader of the party able to command a majority in the legislature. Cabinet members are appointed by the Prime Minister from among members of the legislature. Although this is often said to imply legislative control of the executive, in reality it tends to create a legislature that follows the lead of the executive.

[46] Koopmans, T. (2003) Courts and Political Institutions. Cambridge University Press, p180-182.

[47] Reese., B. (2008) Virginia’ s Public-Private Partnership Program. Commonwealth of Virginia: Office of the Secretary of Transportation, U.S.A.

[48] California Department of Transportation: Official Website. [Online] Available at: http://www.dot.ca.gov/hq/innovfinance/public-private-partnerships/PPP_main.html

[49] Energy and Infrastructure Unit and Finance and Private Sector Development Unit (2006) India – Building Capacities for Public-Private Partnerships. South Asia Region. The World Bank.

[50] Government of Kenya (n.d.). Legal and Regulatory Framework. [Online] Available at: http://pppunit.go.ke/index.php/legal-regulatory-framework

[51] Republic of the Philippines (2012) The Philippine Amended BOT Law R.A.7718.

[52] Koopmans, T. (2003) Courts and Political Institutions. Cambridge University Press, pp. 135-147.

[53] Shugart, Chris. (1998) Regulation-by-Contract and Municipal Services: The Problem of Contractual Incompleteness. Ph.D. thesis, Harvard University.

[54] European PPP Expertise Centre (2012) France: PPP Units and Related Institutional Framework.

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