# C_2011051EN.01005901.xml

| 17.2.2011 | EN | Official Journal of the European Union | C 51/59 |
| --- | --- | --- | --- |

17.2.2011

EN

Official Journal of the European Union

C 51/59

---

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships’

COM(2009) 615 final

2011/C 51/12

Rapporteur: Mr HUVELIN

Mr HUVELIN

On 19 November 2009 the European Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships

COM(2009) 615 final.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 September 2010.

In view of the renewal of the Committee's term of office, the Plenary Assembly has decided to vote on this opinion at its October plenary session and has appointed Mr HUVELIN as rapporteur-general, under Rule 20 of the Rules of Procedure.

At its 466th plenary session, held on 21 October 2010, the European Economic and Social Committee adopted the following opinion by 151 votes to 3 with 11 abstentions.

1.   Introduction

Introduction

1.1   The European Commission recently published a communication on Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships (PPP), dated 19 November 2009, which sets out the direction of its future activity.

Mobilising private and public investment for recovery and long term structural change: developing Public Private Partnerships (PPP)

This document is a worthy initiative and contains an interesting basic discussion of PPPs, which is very relevant given the need to mobilise public and private investment, particularly during the period of financial crisis, and the significant drop in PPPs in 2009 (in terms of number and volume); it lists their advantages and specific features, and analyses factors which, in recent years, may have hindered their development. Due account must be taken of potential disadvantages associated with PPPs and experiences of certain past transactions (transaction costs, risk of contract renegotiation, medium-and long-term reduction in competition, frequent cost increases expected in the long term, (hidden) clauses in complex contracts, entailing long-term disadvantages for the public authorities, and less democratic control) as well as of problems arising from steps to avoid declaring budget deficits in order to comply with Eurostat rules and the accompanying false incentives (also associated with cost increases).

The Commission declares, in particular, that it wishes to ‘look at new ways to support the development of PPPs’. Proposals to further develop the institutional framework for reducing problems and disadvantages associated with PPPs should be added to the Commission communication.

The following arguments in support of PPPs are referred to in the communication:

| — | ensure better value for money from infrastructure, by exploiting the efficiency and innovative potential of a competitive private sector; |
| --- | --- |

—

ensure better value for money from infrastructure, by exploiting the efficiency and innovative potential of a competitive private sector;

| — | spread the cost of financing the infrastructure over its entire lifetime; |
| --- | --- |

—

spread the cost of financing the infrastructure over its entire lifetime;

| — | improve risk sharing between public and private parties; |
| --- | --- |

—

improve risk sharing between public and private parties;

| — | boost sustainability, innovation and research and development efforts; |
| --- | --- |

—

boost sustainability, innovation and research and development efforts;

| — | give the private sector a central role in developing and implementing major industrial, commercial and infrastructure programmes; |
| --- | --- |

—

give the private sector a central role in developing and implementing major industrial, commercial and infrastructure programmes;

| — | lastly, enlarge EU companies' market shares in the field of government procurement in third country markets. |
| --- | --- |

—

lastly, enlarge EU companies' market shares in the field of government procurement in third country markets.

It should also be noted that the concept of a public-private partnership, as understood by the Commission, covers all issues relating to both concession contracts (where the user pays) and public-private partnership contracts, where payment is made by the public authority, in whole or in part.

1.2   The five objectives set out by the Commission for 2010

The five objectives set out by the Commission for 2010

The Commission proposes the following in its communication:

| — | to set up a PPP group inviting relevant stakeholders to discuss their concerns, draw up guidance assisting Member States in reducing the administrative burden and delays in the implementation of PPPs; |
| --- | --- |

—

to set up a PPP group inviting relevant stakeholders to discuss their concerns, draw up guidance assisting Member States in reducing the administrative burden and delays in the implementation of PPPs;

| — | to work with the EIB with a view to increasing the funding available for PPPs, by developing or re-focussing existing Community instruments in the key policy areas; |
| --- | --- |

—

to work with the EIB with a view to increasing the funding available for PPPs, by developing or re-focussing existing Community instruments in the key policy areas;

| — | to ensure that there is no discrimination in the allocation of public funds, where Community funding is involved, depending on the management of the project, be it private or public; |
| --- | --- |

—

to ensure that there is no discrimination in the allocation of public funds, where Community funding is involved, depending on the management of the project, be it private or public;

| — | to put in place a more effective framework for innovation, including the possibility for the EU to participate in private law bodies and directly invest in specific projects; |
| --- | --- |

—

to put in place a more effective framework for innovation, including the possibility for the EU to participate in private law bodies and directly invest in specific projects;

| — | to consider presenting a proposal for a legislative instrument on concessions, based on the ongoing Impact Assessment. |
| --- | --- |

—

to consider presenting a proposal for a legislative instrument on concessions, based on the ongoing Impact Assessment.

1.3   However, the Commission's text makes no reference to a number of less positive aspects displayed by certain countries or contracts. The problems encountered with certain projects should be mentioned, particularly so that the EESC can take account of them in its proposals. The main sources of problems noted relate to:

| — | insufficient transparency in certain countries or contracts, viability assessments or performance reports, etc between public and private partners, including sub-contracting to other firms, which restricts democratic control; |
| --- | --- |

—

insufficient transparency in certain countries or contracts, viability assessments or performance reports, etc between public and private partners, including sub-contracting to other firms, which restricts democratic control;

| — | potential incentives for politicians to put in place PPPs which may increase costs, because, under EUROSTAT's current budgetary rules, PPPs where construction investment at the start of contracts is primarily funded by private capital can carry out (infrastructure) projects more quickly than a conventional procedure using just public funding. In the case of PPPs where operators are paid from budgetary funds, however, private financing does indirectly increase public debt, because, just like government borrowing, private financing imposes future payment obligations that reduce subsequent budgetary legislators' room for manoeuvre; |
| --- | --- |

—

potential incentives for politicians to put in place PPPs which may increase costs, because, under EUROSTAT's current budgetary rules, PPPs where construction investment at the start of contracts is primarily funded by private capital can carry out (infrastructure) projects more quickly than a conventional procedure using just public funding. In the case of PPPs where operators are paid from budgetary funds, however, private financing does indirectly increase public debt, because, just like government borrowing, private financing imposes future payment obligations that reduce subsequent budgetary legislators' room for manoeuvre;

| — | the absence, in certain cases, of any real prior evaluation enabling an objective decision to be taken on both the PPP procedure and the contractor; |
| --- | --- |

—

the absence, in certain cases, of any real prior evaluation enabling an objective decision to be taken on both the PPP procedure and the contractor;

| — | risk-sharing, in certain cases, between the public and private sector departing from the principle of true partnership between stakeholders; |
| --- | --- |

—

risk-sharing, in certain cases, between the public and private sector departing from the principle of true partnership between stakeholders;

| — | finally, in certain cases, shortcomings in supervision by the competent public authorities. |
| --- | --- |

—

finally, in certain cases, shortcomings in supervision by the competent public authorities.

All these points have been taken into consideration in the EESC's proposals.

1.3.1   The EESC's proposal thus focuses on three ideas:

1.3.2   Firstly, it is important to be aware that a serious approach on the part of the EESC could enable the Committee to exert a real influence on an issue which is important for the future of infrastructure in general (and therefore on economic growth and public management), whilst never forgetting that the aim here is – whilst adopting a critical approach – to help develop a mechanism to be used by public contracting authorities, who will naturally always be free to choose whether or not to use it.

The EESC wishes to act as a real driving force for change in this area, ensuring that existing examples of good practice are developed and promoted, while false incentives are reduced, problems relating to democratic and social control recognised and remedied and the long-term effects of PPPs also duly taken into consideration. There is still much to do in order to ensure that the proposed instrument is optimised.

1.3.3   Lastly, in light of both the existing good practices and the failures which have occurred in a number of cases, several additions should be made to the Commission document so as to give the PPP mechanism an acceptable foundation in all EU Member States and to take account of the successes and difficulties experienced in its implementation and to put in place measures to avoid such difficulties in future.

1.3.4   The EESC calls for the application of PPP contractual provisions to comply with all the social legislation and regulations applicable to the activities in question (design, construction, maintenance). Steps should be taken to enable the relevant authorities to insist on taking over an existing work-force whilst maintaining the conditions already in place. The EESC recommends that the authorities concerned by PPP contracts include these social requirements in their specifications and take account of replies received in negotiations with tenderers. The same should apply to the question of disabled access to facilities established under PPP contracts in application of laws and regulations in force throughout the EU.

1.3.5   Since public money is used in PPP projects, and public contracting bodies must be able to make their decisions freely, the EESC calls for:

| — | the publication of contracts for PPP projects; |
| --- | --- |

—

the publication of contracts for PPP projects;

| — | consideration to be given to changing EUROSTAT rules so that outside capital used for PPP projects is taken into consideration when assessing compliance with budgetary rules, in exactly the same way as public capital in conventional projects financed from public budgets. |
| --- | --- |

—

consideration to be given to changing EUROSTAT rules so that outside capital used for PPP projects is taken into consideration when assessing compliance with budgetary rules, in exactly the same way as public capital in conventional projects financed from public budgets.

2.   Economic position and arguments in favour of PPPs in Europe

Economic position and arguments in favour of PPPs in Europe

According to Business Europe, barely 4 % of the world's infrastructure projects are in the form of PPPs. The United Kingdom signs the largest number of public-private partnership contracts in the European Union (58 % of all such contracts signed in the EU). The other countries which use PPPs most are Germany, Spain, France, Italy and Portugal.

Considering that the OECD has estimated that the annual cost of roads, rail, electricity and water will reach 2.5 % of world GDP by 2030, it is absolutely vital for public authorities to be able to use whatever form of contract allows them to meet the needs and requirements of public infrastructure and services. The historic impact of concession contracts and PPPs in addressing this problem is an inescapable fact, and shows that PPPs can strongly support economic growth by mobilising skills, energy and capital, particularly considering the need to take account of the expected cuts in investment budgets arising from austerity plans in almost all European countries.

2.1   The Commission document sets out the arguments in support of PPPs in some detail but does not highlight failures in certain PPP projects. These failures can be attributed to the following factors:

| — | PPPs are used for projects for which they are not appropriate; it should be noted in this connection that efficiencies are not necessarily achieved from transferring entire value-added steps together with the (cost) risk to private firms. Efficiency gains may be possible especially under specific conditions (a low level of environmental uncertainty, high optimisation potential between value-added steps, a high degree of competition, public-sector expertise in drawing up, issuing and supervising contracts and so on); |
| --- | --- |

—

PPPs are used for projects for which they are not appropriate; it should be noted in this connection that efficiencies are not necessarily achieved from transferring entire value-added steps together with the (cost) risk to private firms. Efficiency gains may be possible especially under specific conditions (a low level of environmental uncertainty, high optimisation potential between value-added steps, a high degree of competition, public-sector expertise in drawing up, issuing and supervising contracts and so on);

| — | PPPs have sometimes been used even if they increase costs, because, under EUROSTAT's current budgetary rules, PPPs where construction investment at the start of contracts is primarily funded by private capital can carry out (infrastructure) projects more quickly than a conventional procedure using just public funding. In the case of PPPs where operators are paid from budgetary funds, however, public debt may increase indirectly, because, just like government borrowing, certain PPPs impose future payment obligations that reduce subsequent budgetary legislators' room for manoeuvre. PPPs that circumvent the basic principle of budgetary restrictions on government borrowing should be avoided for economic reasons. Politicians and other stakeholders would also lose interest in an objective assessment of economic viability; |
| --- | --- |

—

PPPs have sometimes been used even if they increase costs, because, under EUROSTAT's current budgetary rules, PPPs where construction investment at the start of contracts is primarily funded by private capital can carry out (infrastructure) projects more quickly than a conventional procedure using just public funding. In the case of PPPs where operators are paid from budgetary funds, however, public debt may increase indirectly, because, just like government borrowing, certain PPPs impose future payment obligations that reduce subsequent budgetary legislators' room for manoeuvre. PPPs that circumvent the basic principle of budgetary restrictions on government borrowing should be avoided for economic reasons. Politicians and other stakeholders would also lose interest in an objective assessment of economic viability;

| — | insufficient transparency in certain contracts between the public and private partners, including subcontracts to other businesses; |
| --- | --- |

—

insufficient transparency in certain contracts between the public and private partners, including subcontracts to other businesses;

| — | given that there is frequently insufficient transparency regarding contracts, viability assessments, performance reports etc. the various problems of opportunism that arise with these complex, long-term contracts, as with contracts which provide opportunities for pre-funding, cannot even begin to be adequately managed or subjected to democratic control; |
| --- | --- |

—

given that there is frequently insufficient transparency regarding contracts, viability assessments, performance reports etc. the various problems of opportunism that arise with these complex, long-term contracts, as with contracts which provide opportunities for pre-funding, cannot even begin to be adequately managed or subjected to democratic control;

| — | in some cases the lack of a proper preliminary examination that would make it possible to make an objective choice relating to the PPP process and the contract partners; |
| --- | --- |

—

in some cases the lack of a proper preliminary examination that would make it possible to make an objective choice relating to the PPP process and the contract partners;

| — | in some cases a distribution of risks between the public and private sectors where there is no real partnership between the parties; |
| --- | --- |

—

in some cases a distribution of risks between the public and private sectors where there is no real partnership between the parties;

| — | and, finally, there are sometimes deficiencies in monitoring by the relevant authorities, particularly in terms of the impact on public budgets and the quality of the service. |
| --- | --- |

—

and, finally, there are sometimes deficiencies in monitoring by the relevant authorities, particularly in terms of the impact on public budgets and the quality of the service.

In order to ensure that its opinion adds value, however, the EESC suggests a slightly different method of presentation, ranking the advantages and disadvantages of using PPPs in what is possibly a more realistic way.

2.1.1   All too often there is a tendency to believe that the most important argument to be taken into account when considering whether to choose a PPP contract is the ‘budgetary argument’. While not wishing to detract from its importance (which will be discussed below), detailed analysis and experience show, however, that, in terms of overall economic impact, it is not the most important issue.

The main argument for employing PPPs is that it optimises the time factor. All impartial, careful observers of operations involving PPPs agree that:

| — | the use of PPPs means it is possible to launch public infrastructure projects much more rapidly than using traditional procedures. This time advantage represents a ‘social utility’ which, although we may not be able to measure it effectively, is clearly considerable. This social utility usually entails an increase in economic activity, which itself generates tax revenue, and can lessen the financial burden on the local community; |
| --- | --- |

—

the use of PPPs means it is possible to launch public infrastructure projects much more rapidly than using traditional procedures. This time advantage represents a ‘social utility’ which, although we may not be able to measure it effectively, is clearly considerable. This social utility usually entails an increase in economic activity, which itself generates tax revenue, and can lessen the financial burden on the local community;

| — | documentation and survey reports are often processed in a shorter timeframe than under classic public procurement procedures provided that all the choices within its remit have been made by the public-sector client; |
| --- | --- |

—

documentation and survey reports are often processed in a shorter timeframe than under classic public procurement procedures provided that all the choices within its remit have been made by the public-sector client;

| — | lastly, there is greater respect for deadlines as the contractors have more sense of responsibility. |
| --- | --- |

—

lastly, there is greater respect for deadlines as the contractors have more sense of responsibility.

A potentially shorter timeframe should therefore be seen as the major advantage of a PPP contract even if, at times, this would seem to rather fly in the face of the traditional habits of public sector clients, and their almost routine use of conventional procedures.

In these times of economic recovery as we seek to find a way out of the crisis, PPPs may represent an important factor in speeding up the implementation of decisions, and serve as a first-rate tool for giving the recovery programme the pace it needs to increase its impact.

2.1.2   A second argument in favour of PPPs is their inherent ability to improve project consistency, and thus ensure maximum economic efficiency for public authorities.

As mentioned in the Commission's text, this is due to the complete integration of all stages of the production chain, from the design phase to the maintenance and operational stages, including the actual construction of the infrastructure in question.

In this context, designers of infrastructure understand that they need to optimise construction procedures and quality as they will be responsible for the infrastructure's operation in due course, and as, at the end of the contract, they will be required to hand over properly functioning infrastructure to the authority, in accordance with the contract implementation rules. Accordingly, they adopt a naturally integrated approach to such projects, which is much more difficult to achieve when there is a more rigid division of tasks and related responsibilities, as is often the case for public procurement contracts.

2.1.3   The third principal argument for using PPPs is, of course, the question of financing.

It is easy to imagine the choice facing the public-sector decision-maker, who manages a budget (the limits of which he knows all too well) and who is trying to provide facilities needed by the local community for which he is responsible. A PPP contract can provide him with the financial solution to a problem for which his budget is inadequate.

Before examining in more detail the proposals we could put forward to extend PPP financial solutions in general, we should perhaps question the limitations of public accounting rules in almost every EU country, a problem which everybody has been long aware of yet has not dared address. One particular example is that current accounting rules do not allow the cost of a public investment to be spread over its normal useful life.

Financing by means of a PPP contract, which enables a public authority to spread this cost over the normal depreciation period, may represent a first step towards introducing a much needed change in public accounting rules, which are increasingly slowing down decisions and which never truly reflect often obvious realities.

Using the PPP model to help launch a political debate on this issue could allow the European Union to demonstrate that it is adopting a pragmatic approach in this field. In certain countries, the introduction of PPPs has been presented as a first step towards the necessary reform of public administration and the tools which it uses.

2.2   The EESC calls for a comprehensive impact assessment and an independent evaluation of the advantages and disadvantages of PPPs to be undertaken and for proposals by the social partners, including organisations representing SMEs, to be taken into account and capitalised on before further-reaching policy decisions are taken. This evaluation should look into the speed of procedures, the cost issue, the quality of the services provided and the social impact on employees and users. The EESC believes that it is important to make PPPs more accessible to SMEs.

3.   The EESC's areas for discussion

The EESC's areas for discussion

They must be consistent with the three main arguments developed above (timeframe – project consistency – financial solutions) and reflect the Commission's proposals and existing legislative and regulatory framework.

These proposals are grouped into two categories:

| — | all issues relating to financing in general |
| --- | --- |

—

all issues relating to financing in general

| — | all issues relating to legal structures, seeking to establish which of them need to be:






  — | maintained, |
| --- | --- | --- |

—

all issues relating to legal structures, seeking to establish which of them need to be:

—

maintained,

| — | modified, or |
| --- | --- |

—

modified, or

| — | developed. |
| --- | --- |

—

developed.

They must also clearly take account of the three requirements which are essential for this and all public procurement procedures, namely:

| — | prior assessment, which is used to justify the planned investment and the use of a particular procedure chosen by the contracting authority; |
| --- | --- |

—

prior assessment, which is used to justify the planned investment and the use of a particular procedure chosen by the contracting authority;

| — | transparency in consultation, initial selection as well as in the progress of the operation; |
| --- | --- |

—

transparency in consultation, initial selection as well as in the progress of the operation;

| — | lastly – monitoring, both by the administrative authorities charged with this role and the elected assemblies responsible for the budgets involved. |
| --- | --- |

—

lastly – monitoring, both by the administrative authorities charged with this role and the elected assemblies responsible for the budgets involved.

3.1   Financial aspects

Financial aspects

Four key issues are highlighted in this respect.

3.1.1   The definition of PPPs in EUROSTAT procedures should be amended in such a way that public payment obligations under PPPs are treated similarly to payment obligations in the field of conventional public contracts in the public debt.

3.1.2   To date, we have scarcely seen the Structural Funds play any role in financing PPPs: is this not something of a paradox given the perfect match between the objectives in question?

the Structural Funds

While there have already been a number of experiments in this field (in seven countries), we can almost certainly do much better, particularly by doing more to educate the Member States and public authorities concerned to help them see the PPP as a tool which may be linked to all forms of public funding and, above all, to EU funding.

3.1.3   As proposed by the Commission, it is only natural that the EIB should be asked to play a pivotal role in PPP financing policy in Europe. It should not only play a coordinating and advisory role regarding action in this field but should also support financial structures which, in these times of crisis, demand an increasing level of skills and know-how.

The EIB has the double advantage of technical expertise in the field and the necessary political neutrality. It could also play a permanent interface role with national or local monitoring bodies.

It would therefore be appropriate to ask the EIB to provide assistance:

| — | with the desirable increase in the operational role of the EPEC (a body specifically set up under the auspices of the EIB to monitor PPP operations in Europe), on which a European public body should be built to follow and monitor joint PPP policy, and in practical assistance to the Member States. The organisation and monitoring of aid to small authorities, where resources are lacking, should be one of the new tasks of the EPEC; |
| --- | --- |

—

with the desirable increase in the operational role of the EPEC (a body specifically set up under the auspices of the EIB to monitor PPP operations in Europe), on which a European public body should be built to follow and monitor joint PPP policy, and in practical assistance to the Member States. The organisation and monitoring of aid to small authorities, where resources are lacking, should be one of the new tasks of the EPEC;

| — | with the establishment and monitoring of a group of private-sector experts (made up in balanced proportions of representatives of employers, trade unions and civil society, including SME representative organisations, financiers, lawyers etc) who would provide a useful point of contact with the public-sector experts within the EPEC in the context of a consultative approach; |
| --- | --- |

—

with the establishment and monitoring of a group of private-sector experts (made up in balanced proportions of representatives of employers, trade unions and civil society, including SME representative organisations, financiers, lawyers etc) who would provide a useful point of contact with the public-sector experts within the EPEC in the context of a consultative approach;

| — | in the systematic monitoring of all PPP contracts at European level; |
| --- | --- |

—

in the systematic monitoring of all PPP contracts at European level;

| — | with setting up the refinancing mechanisms for PPPs after the construction phase, in particular through the bond market, as proposed in point 3.1.4 below. |
| --- | --- |

—

with setting up the refinancing mechanisms for PPPs after the construction phase, in particular through the bond market, as proposed in point 3.1.4 below.

3.1.4   An analysis of PPPs reveals that, in financial terms, their principal characteristics (long duration – first class public-sector backers) potentially make them an exceptional tool for harnessing savings via the market, including for pension funds.

Certain countries are already working actively towards creating one or more specialised funds with access to the financial market and which will be dedicated to refinancing PPP operations after the construction phase (and thus without exposure to the risk of delays and cost overruns). The creation of this type of tool at European level could have a noticeable impact and the EIB could be responsible for its technical management, at least during an initial phase.

At the same time, however, the EESC points out that many PPP projects involve services of general (economic) interest. The quality, accessibility and affordability of these services must be ensured, in addition to purely financial criteria.

3.2   Legal and regulatory considerations

Legal and regulatory considerations

The EESC intends to work towards a lasting arrangement whereby PPPs would only be implemented if they lead to a reduction in costs – provided that certain political conditions are met (social standards, quality of services, etc.), adopting a long-term view which also takes into account the costs of transactions, problems with renegotiations, etc. At the same time, pre-financing incentives should be removed; this makes consideration of a revision of the EUROSTAT criteria all the more urgent. A closer examination of PPPs reveals that due to their current complexity, coupled with insufficient transparency in the case of certain countries or contracts (regarding contracts, viability assessments, etc.), some PPPs escape democratic control. We therefore urgently call on the Commission to raise Member States' awareness of the problems associated with this.

We will look at the existing situation below and identify aspects that should be:

| — | retained, |
| --- | --- |

—

retained,

| — | modified, or |
| --- | --- |

—

modified, or

| — | developed. |
| --- | --- |

—

developed.

3.2.1   What should be retained from the current texts?

What should be retained from the current texts?

There is no specific definition of what is meant by PPP in the rules on public procurement, concessions and the execution of infrastructure projects.

On closer examination, and taking into account the experiences of numerous countries which already use PPP, it would seem that the absence of any clear definition at EU level does not in any way impede the development of such operations or monitoring by EU authorities.

If we are to deduce from the Commission's silence on this issue that it does not feel there is any need for a more precise definition, it would seem that the EESC may and should share this point of view, which leaves it up to the Member States to draw up a definition which is adapted and tailored to their own particular circumstances and practices.

This approach leaves open the question of whether to leave unchanged certain texts currently in force, bearing in mind that a recent vote in the European Parliament recommended that, in the area of public procurement, existing texts first be used rather than seeking to draw up new ones.

In light of this, the EESC recommends retaining Directive 2004/18, which deals with procedures for the award of public works contracts, in this case concessions, without adding to it a definition of PPP, the regulation of which remains the responsibility of the public authorities in each EU Member State. It defines public works concession as ‘a contract of the same type as a public works contract except for the fact that the consideration for the works to be carried out consists either solely in the right to exploit the work or in this right together with payment’.

The definition of service concession is identical (with service replacing public works) but the directive does not specify any award conditions while devoting a whole chapter to award procedures for public works concessions.

The above definitions deliberately avoid going into detail or pre-empting national provisions which would, in reality, prevent convergence on a common text.

Given these practical considerations, the EESC takes the line that a more specific definition of the term ‘concession’ (namely, a long-term contract covering the design, construction, funding, management and/or maintenance of a public work or service) is unnecessary since the current situation effectively covers all types of public contract – including those which differ from traditional public procurement procedures – by making them all subject to minimum European award rules.

The EESC takes the view that it is best to avoid legislating in this area, as it could quickly become highly complex. Moreover, stakeholders in every EU Member State are currently able to enter into PPP contracts in the broad sense of the term (concessions paid for privately by the user, publicly funded partnership contracts and other public-private partnership contracts), which meet the need effectively and are in keeping with national practice.

3.2.2   What should be modified?

What should be modified?

As far as the 2004/18 Directive is concerned, however, the EESC, with a view to the coherence of the texts used, suggests that, in the context of this opinion on PPPs, thought be given to ways of clarifying award conditions for service concessions, which have been overlooked in the directive despite being clearly defined.

In this context the EESC takes the opportunity to clarify the difficult problem of the institutional public-private partnership (PPPI), which is partially covered by an interpretative communication of 2008 which called on public institutions having recourse to para-state entities to comply strictly with the rules on competition.

In reality, public institutions are either unaware of this communication or choose to ignore its contents. If the Commission were to continue down the path of drafting specific legislation on concessions, such legislation would have to include specific rules on the initiation and renewal of PPPI activity, and improve the law in order to prevent abuses, of which there are plenty of examples in EU case law, and which at times fly in the face of the transparency which is sought.

3.2.3   What should be developed?

What should be developed?

As regards procedures, the EESC recommends an improved framework for three aspects of PPPs, namely:

| — | the prior assessment, which is widely used to compare the total cost of a PPP with that of a traditional public procurement procedure; the ‘public sector comparator’ is also a useful tool; |
| --- | --- |

—

the prior assessment, which is widely used to compare the total cost of a PPP with that of a traditional public procurement procedure; the ‘public sector comparator’ is also a useful tool;

| — | the process of competition, where slippage sometimes occurs in terms of ethics, deadlines and the demands placed on private companies; |
| --- | --- |

—

the process of competition, where slippage sometimes occurs in terms of ethics, deadlines and the demands placed on private companies;

| — | monitoring PPP operations to assess their usefulness as accurately as possible and therefore improve the prior assessment of subsequent operations. |
| --- | --- |

—

monitoring PPP operations to assess their usefulness as accurately as possible and therefore improve the prior assessment of subsequent operations.

3.2.3.1   Prior assessment

This initial analysis, the purpose of which is to justify the use of a particular procedure, should become the binding rule for the award of public contracts.

For the public contracting authority, it is the best way to measure the impact of the decision it is preparing. Requiring publication of the results of the assessment would, in many cases, be an important step towards greater transparency, which is essential if we are to identify the best solutions and ensure rigorous competition.

This should also be the time to assess the impact, in terms of the overall cost, of any differences in funding between the rate which the markets apply to public borrowers and the rate applicable to the PPP project, bearing in mind that prior assessment is already obligatory in the countries which are most advanced in the use of PPP.

In France, the prior assessment focuses on four criteria: total cost, transfer of risk, sustainable development and contract performance. The EESC suggests systemising these criteria by adding the publication of contracts and the strict application of social legislation in the countries concerned, as pointed out above (point 1.3.4).

3.2.3.2   Competition process

This procedure, which differs from the simple bilateral negotiation method used to finalise traditional procedures, is currently widely used – and is even mandatory in some countries – for the award of PPP contracts in the broader sense. It follows an initial, preliminary choice made by the client and consists of finalising the contract, in dialogue with the partner or two partners selected, by successive additions and improvements to the contract data.

Nonetheless, a detailed analysis of the current use of this procedure reveals the following:

| — | With little experience of this procedure, some public bodies have launched poorly prepared competitive procedures. This has led to disputes over contract clauses, delays and sometimes excessively detailed demands being made of businesses in the final phase. |
| --- | --- |

—

With little experience of this procedure, some public bodies have launched poorly prepared competitive procedures. This has led to disputes over contract clauses, delays and sometimes excessively detailed demands being made of businesses in the final phase.

| — | There is still some temptation for public contracting authorities to exploit this procedure in order to avoid compliance with laws on intellectual property rights and the protection of innovative ideas. |
| --- | --- |

—

There is still some temptation for public contracting authorities to exploit this procedure in order to avoid compliance with laws on intellectual property rights and the protection of innovative ideas.

Naturally, original ideas are supposedly protected by the confidentiality of tenders. However, experience shows that, in reality, this is not the case, and that it is easy to blame what actually amounts to unethical behaviour on undetectable ‘leaks’.

A degree of harmonisation of the EU contractual framework should give consideration to ways of protecting intellectual property, which is itself a guarantor of progress and innovation.

3.2.3.3   Monitoring PPP operations

To comply with transparency and monitoring requirements, there is a need to compile a systematic list of PPP operations and to monitor their implementation at national and European level. This task, in addition to that mentioned above in connection with the EIB and the EPEC, must be entrusted to a neutral body that has no inherent incentives to give preference to PPPs or place them at a disadvantage in its evaluations; it could therefore be transferred to the group of experts.

4.   Conclusions

Conclusions

| — | The Commission communication is interesting and of great relevance given the need to mobilise public and private investment, particularly during the period of financial crisis. It is necessary to continue building on the institutional framework in order to improve PPPs and enhance the advantages and opportunities they bring, and to reduce the problems faced by some PPPs, as referred to above (problems with pre-financing or the cost increases that are often encountered in PPP's long-term contractual relations). |
| --- | --- |

—

The Commission communication is interesting and of great relevance given the need to mobilise public and private investment, particularly during the period of financial crisis. It is necessary to continue building on the institutional framework in order to improve PPPs and enhance the advantages and opportunities they bring, and to reduce the problems faced by some PPPs, as referred to above (problems with pre-financing or the cost increases that are often encountered in PPP's long-term contractual relations).

| — | The opportunities offered by PPPs for promoting the development of public infrastructure (both large and small-scale) and, accordingly, the economic progress of the European Union, should simply not be ignored. |
| --- | --- |

—

The opportunities offered by PPPs for promoting the development of public infrastructure (both large and small-scale) and, accordingly, the economic progress of the European Union, should simply not be ignored.

| — | With regard to PPP projects, Europe should ensure it has the means to learn from the difficulties encountered in the past by improving existing monitoring procedures and by systematically monitoring the final results of operations. The EESC believes that it is important for small and medium sized enterprises to have greater opportunities for participating in PPPs. |
| --- | --- |

—

With regard to PPP projects, Europe should ensure it has the means to learn from the difficulties encountered in the past by improving existing monitoring procedures and by systematically monitoring the final results of operations. The EESC believes that it is important for small and medium sized enterprises to have greater opportunities for participating in PPPs.

| — | There are many EU and national-level legal mechanisms in existence: the EESC considers that it is unnecessary to build a unique and – in principle – ideal framework from scratch. We would waste a great deal of time for a limited gain, and it might even be counterproductive. Stakeholders work within this legal framework on a daily basis and calling it into question could slow public procurement or even seriously destabilise the PPP mechanism. The current definitions provided by Directive 2004/18 should not be changed or added to, thereby enabling each Member State to establish a definition of PPP tailored to its specific context and recorded best practices. |
| --- | --- |

—

There are many EU and national-level legal mechanisms in existence: the EESC considers that it is unnecessary to build a unique and – in principle – ideal framework from scratch. We would waste a great deal of time for a limited gain, and it might even be counterproductive. Stakeholders work within this legal framework on a daily basis and calling it into question could slow public procurement or even seriously destabilise the PPP mechanism. The current definitions provided by Directive 2004/18 should not be changed or added to, thereby enabling each Member State to establish a definition of PPP tailored to its specific context and recorded best practices.

| — | Let us optimise the existing methods, by clarifying and improving a number of points, by taking advantage of the skills we have available, particularly the EIB financing platform, by strengthening the role of the EPEC and the group of experts which could help popularise these contract methods further by collecting best practices and liaising with the private sector at European level by setting up a ‘mirror’ group of private experts. |
| --- | --- |

—

Let us optimise the existing methods, by clarifying and improving a number of points, by taking advantage of the skills we have available, particularly the EIB financing platform, by strengthening the role of the EPEC and the group of experts which could help popularise these contract methods further by collecting best practices and liaising with the private sector at European level by setting up a ‘mirror’ group of private experts.

| — | The development of transparency, prior assessment based on total cost, analysis of successes and failures and compliance with the law are all subjects for future studies. |
| --- | --- |

—

The development of transparency, prior assessment based on total cost, analysis of successes and failures and compliance with the law are all subjects for future studies.

| — | Let us reflect on how we can set up a mechanism for refinancing PPPs after the construction phase in order to harness the bond market, which could be used more widely in this respect. |
| --- | --- |

—

Let us reflect on how we can set up a mechanism for refinancing PPPs after the construction phase in order to harness the bond market, which could be used more widely in this respect.

Brussels, 21 October 2010.

The President of the European Economic and Social Committee

Staffan NILSSON

---