International Bar Association Annual Conference PUBLIC PRIVATE PARTNERSHIP IN THE CONSTRUCTION INDUSTRY How to optimize the selection process: the experience of competitive negotiation and competitive dialogue in Europe & France Marc FRILET, Avocat - Paris Secretary General of the French Institute of International Legal Experts (IFEJI) Visiting Professor, University Paris V-René Descartes Deputy General Secretary International Bar Association (IBA) Fellow American College of Construction Lawyers (ACCL) Head of the PPP working Group - Paris Bar Chicago, September 17-22, 2006 FRILET Société d’Avocats B642 kv IBA

OUTLOOK OF THE PPI FAMILY FRILET Société d’Avocats French type Concession Public Service Concession and assimilated schemes (ROT, Affernage)

Traditional public procurement: not adapted to PPP For a long period, no special procurement rules where designed for PPP. Public procurement has been essentially limited to construction of service contracts without obligation to operate or maintain the related infrastructure service. However, equality of treatment, non discrimination and fair competition has always been the corner-stone of European laws, France in particular has a long tradition of comprehensive public procurement regulations. FRILET Société d’Avocats

Traditional public procurement: not adapted to PPP (continued) It has been gradually felt in France that the traditional PPP forms (Concession and assimilated schemes i.e. when the end user is paying a price for an “essential” or “public” service) should be awarded in a competitive manner. However, procurement rules have been difficult to design due to the particular nature of the PPP family to which the concession and assimilated schemes (C & A) belong. In C&A there is generally no price to be paid by the public authority to the Concessionaire company: the initial costs of the infrastructure cannot be the awarding criteria. FRILET Société d’Avocats

Challenges in designing public procurement rules for C & A Price for the public services to be rendered to the end users and the best compromise price/quality of service appears to be a more appropriate criteria. However, in the French experience, the scope of the public services to be rendered to the end users is likely to change over the length of the concession period (20,30 or 40 years) since the end users enjoy a basic right to benefit from a service which remains adapted to their needs. FRILET Société d’Avocats

Challenges in designing public procurement rules for C & A (continued) Consequently, the awarding or performance criteriae should not be too precise or too detailed failing which they run the risk to become obsolete in a foreseeable future The French answer for awarding C&A schemes in a transparent and competitive manner has been to focus on a well prepared project based on functional specifications and competitive negotiation. FRILET Société d’Avocats

Procurement of C&A: the Sapin law and competitive negotiation The Sapin law of 1993 is a compromise between a long line of case law relating to the conditions of delegation of a public service to the private sector, the condition for delivering such services under a strict control from the public authority which has a duty to guarantee the satisfaction of the end users and the underlying principles of competition and transparency deriving from the European legal framework as interpreted in France. FRILET Société d’Avocats

Procurement of C&A: the Sapin law and competitive negotiation (continued) Loi Sapin : Basic principles 1. The public authority must sufficiently define its need in terms of quality of services. It must then issue functional specifications, and propose a venture where the concessionaire has reasonable chances to make a profit for the overall period of the venture. 2. The duration of the venture is equal to the amortization period of the infrastructure assets created by the concessionaire. 3. At the end of the concession period, the whole infrastructure will revert in good operating condition and without considerations to the public authority. 4. Before issuing the request for expression of interest, the public authority must justify that the end users will be better served by a public service delegated to the private sector than the public service directly delivered by the public authority. FRILET Société d’Avocats

Procurement of C&A: the Sapin law and competitive negotiation (continued 2) Loi Sapin : procedural steps : 1. Public notice requesting expressions of interest 2. The public authority establishes the list of qualified candidates taking into account their financial and professional guaranties and their capacity to insure the continuity of the public service and the equality between the users of the service 3. The pre-qualified candidates receive a set of bidding documents very different from bidding documentation for public construction works, with limited technical specifications and with a comprehensive set of functional specification. The key document is a «cahier d’objectifs» which request a lot of skills for its preparation. FRILET Société d’Avocats

Procurement of C&A: the Sapin law and competitive negotiation (continued 3) 4. The candidates submit their proposals including technical and financial proposal In practice they must explain also how their offer will have the best chances to satisfy the end users in the long run inter alia by meeting of the fundamentals requirement of public service obligation (PSO) developed by along line of case law i.e. continuity, equality, adaptability. 5. Thereafter, the public authority is free to enter into negotiation with one or more candidates of its choice, and to award the concession to the best candidate or to cancel the whole process. 6. The conditions of negotiation are strictly limited by the case law and it is not possible for the public authority to change the initial conditions and specifications. This is a guaranty for non discrimination and transparent negotiation and this must be well understood at the time of designing the bidding documentation failing which the overall results of the negotiation is unlikely to be satisfactory. FRILET Société d’Avocats

Procurement of PPP other than C&A: the competitive dialogue By a recent ordinance of June 2004, France has promulgated a PPP law limited to the so-called “Partnership” Contracts. Partnership Contracts are different from C&A since : -the price of the service is not paid by the end users, but by the public authority (i.e. Tax payer money) -PPP are limited to complex projects (technical, financial and legal) that the public authority cannot objectively define and develop.In addition PPP and cannot be used for delegating a public service to the private sector. FRILET Société d’Avocats

Procurement of PPP other than C&A: the competitive dialogue (continued) Consequences on procurement : Although the focus is to render services in the long term to the public authority, a price is to be paid for those services. As a result, the general principles of public procurement regulations deriving from European directives and French laws are applicable. However, due to the special nature of this contractual venture, the “competitive dialogue procedure” recently permitted by the European directive 2004/18 is the only delivery method for French PPP. This is new for all the interested parties and the results remain to be evaluated. FRILET Société d’Avocats

Procurement of PPP other than C&A: the competitive dialogue (continued 2) Since PPP are limited in France to complex projects, that the public authority is by definition unable to develop without the help of the candidate from the private sector, the overall preparation of a PPP project and the related competitive negotiation has given rise to new practices tested to a limited extent in pioneer projects based on special laws for hospitals and prisons : 1. The public authority must define its basic needs and prepare a functional program (results to be reached) 2. The public authority establishes a list of candidates admitted to participate to the dialogue (5 maximum) FRILET Société d’Avocats

Procurement of PPP other than C&A: the competitive dialogue (continued 3) 3. The public authority enters into a dialogue with each candidate on a strict egalitarian basis. It cannot provide to certain candidates information which could advantage them and cannot reveal to other candidates the solution proposed by any other candidate. 4. The dialogue continues up to the time when the public authority is able to identify one or more solution(s) (benchmarked with the others if necessary) which will meet the best its needs. 5. When the public authority is of opinion that the discussion has come to an end, the candidates having participated to the whole dialogue are invited to submit their final offer on the basis of one or several solution submitted and specified during the dialogue. This will include contract conditions, and more detailed awarding criteriae. 6. Thereafter, the public authority awards the contract to the candidate having produced the best offer. FRILET Société d’Avocats

CONCLUSION Competitive negotiation has been developed for more than ten years for C&A schemes and the number of C&A awarded mostly at local level, are far above thousands. It is generally recognised that the Loi Sapin is working well and the overall balance cost/benefits is rather satisfactory. Competitive dialogue is much more recent and it has been used so far for large projects essentially at the central level, where the tradition of dialogue and negotiation between the public authority and the private partner is far less developed than at the local level. So far, even if some procedures have been successfully completed, there is no project in the operation phase and a lot of questions remain to be answered, inter alia : -On the sustainability of the projects -On the cost and length of the dialogue -On the benefit of the existing procedure for the public authorities. This situation has led to the constitution of a working group under the auspices of the French Institute of Delegated Management (IGD). After six months of activity, this working group has drafted a « competitive dialogue» charter quite useful and which should be released in the coming months. FRILET Société d’Avocats

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