Government obligations in public-private partnership contracts
| Date | 01 March 2010 |
| Pages | 564-598 |
| Published date | 01 March 2010 |
| DOI | https://doi.org/10.1108/JOPP-10-04-2010-B004 |
| Author | Sandeep Verma |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 10, ISSUE 4, 564-598 WINTER 2010
GOVERNMENT OBLIGATIONS IN
PUBLIC-PRIVATE PARTNERSHIP CONTRACTS
Sandeep Verma*
ABSTRACT. Traditional models of full and open competition are generally
applied for ordinary public procurement contracts, whereas special
competitive procedures (such as unsolicited proposals) are permissible
under various international and domestic frameworks for “Public-Private
Partnership” (PPP) contracts. In case of the latter category of contracts,
some concerns about relative lack of transparency and competition in the
award process have begun to surface, while they are being increasingly
relied upon for development of public infrastructure and services. This paper
focuses on certain aspects of competition and transparency in the award of
PPP contracts, vis-à-vis normal public procurement contracts. To facilitate a
sharper identification of legal issues, it compares the relevant regulations
and case law in India applicable to unsolicited proposals (UNPs) with that in
the United States and those under available international frameworks. It
concludes with recommendations on identified legal dimensions of UNPs
with reference to government obligations on transparency and competition,
so as to adequately preserve these elements in procurement of PPP
infrastructure projects.
INTRODUCTION
Infrastructure has come to be recognised as a prime driver for
economic growth, and a number of developing countries have begun
adopting new procurement frameworks for enhancing innovation and
efficiency in public infrastructure development. Public-private
partnerships1 (PPPs) have been recognised as an important vehicle to
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* Sandeep Verma, L.L.M., is a senior civil servant working with the
Government of Rajasthan in India. His research interests include law
enforcement, government contracts and property laws. He also runs
www.BuyLawsIndia.com, a website dedicated to legal research on public
procurement issues in India.
Copyright © 2010 by PrAcademics Press
GOVERNMENT OBLIGATIONS IN PUBLIC-PRIVATE PARTNERSHIP CONTRACTS 565
this end, and many countries now have special regulations for the
award of such concessions. Some of these require the use of
standard, fully competitive procedures for award of PPP contracts;
most others allow for the use of “special” competitive procedures
(Verma, 2009). The notion that ordinary competition rules may not be
sufficient for the award of PPP concessions appears to have gained
widespread acceptability (Hodges, 2003a, pp. 1-2; Hodges 2003b, p.
1; Hodges & Dellacha, 2009, pp. vi-vii; Klein, 1998; Vives &
Benavides, 2009); and that the normal government obligations of
ensuring transparency and competition need not be fully extended to
the award of PPP contracts appears to have assumed a certain
doctrinal connotation—as a fundamental, self-evident legal principle
requiring no further validation.
This push for reduced transparency and competition appears
counter-intuitive, given that PPPs are typically far more complex as
compared to traditional work contracts, and since they require the
application of advanced risk-allocation methodologies for the private
partner (Garsse, 2008, pp. 231-232). In addition, intensive academic
research has highlighted concerns about possible opportunism and
corruption on the part of both the government and private partners in
PPPs (Engel, 2008, pp. 18, 22), together with limited ability of the
government to maintain long-term capabilities (Zheng & Caldwell,
2008, p. 350) and unfavourable outcomes for the public partner
(Chong & Callender, 2006, pp. 111-113). Ensuring competition and
transparency should logically therefore be of far greater importance
in PPP concessionaire-selection—a position significantly different from
the current frameworks being advocated for their award.
Amongst various international frameworks, that of the
Organization for Economic Co-operation and Development (OECD)
advocates the use of transparent and fully competitive procedures in
PPPs. Its Basic Elements of Law on Concession Agreements expects
all bidder responses to be in relation to a public announcement by a
contracting authority (CA), requiring fair and non-discriminatory
treatment of all bidders. Even in the case of complex projects, the CA
is required to supply all bidders with the same information on which
to base their detailed initial proposals, and to allow them same bid-
submission time-frames (OECD, 2000).
However, as noted earlier, a number of processes currently in use
in the case of PPPs curtail competition in contract-award. For
566 VERMA
instance, many regimes allow the submission of “Unsolicited
Proposals” (UNPs) as an instrument to enhance innovation in PPP
contracting.2 This instrument has traditionally been unavailable in the
case of ordinary works contracts but finds widespread use in PPPs;
and its effects become severe when the original proponent (OP)—the
party submitting the initial UNP—is provided a bonus as a price
advantage or a right-of-first-refusal during negotiations. Competition
is also adversely affected because PPP contracts, by definition,
bundle build, operation, financing and maintenance functions into
one single concession—processes which were hitherto farmed out
separately. While this increases efficiency in contract performance, it
also reduces competition by keeping out smaller contractors or those
with limited skill sets. An extreme form of bundling occurs when
substantially unrelated public services are bunched together to
enhance financial viability of the basic PPP project, for instance,
combining an airport concession with real estate development in
nearby areas—two separate commercial activities with significantly
different user sets.3 Other than bundling and submission of UNPs,
competition in PPP contracts also gets restricted on account of
contractor qualifications systems that have been adopted because of
the complex and high-risk nature of PPPs.
Given the limitations of space and time, and given that the first
process—namely, the submission of UNPs—is formally recognised in
many jurisdictions, this paper limits itself to surveying the relevant
provisions in public infrastructure contracting amongst important
international frameworks and amongst the procurement systems in
India and the United States. The selection of only two national
systems may prima facie appear to be of limited value, but the
discussion on various legal dimensions of UNPs in the selected
country systems, in addition to the international frameworks covered,
is expected to generate lessons for procurement reform across many
other jurisdictions as well. This paper also expands prior original
research conducted by this author4 on UNPs in the context of Indian
procurement regulations and case law, so as to include a detailed
examination of prevailing international and domestic legal
frameworks, with the objectives of identifying essential dimensions of
unsolicited proposals and formulating proposals for reform.
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