Dissecting (and understanding) PPP Contracts No. 1: The Step-in Rights

Dissecting (and understanding) PPP Contracts No. 1: The Step-in Rights

When a government agency and a private-sector proponent (PSP) enter into a formal, often, long-term arrangement, the ultimate aim is to provide a public service. So it would be to the best interest of everyone, parties and nonparties alike, project lenders included, if the contract will be operative up to the time the stated period expires.

However, as history will teach us, glitches, to put it mildly, occur midstream. Public-private parnertship (PPP) contracts have been terminated, guarantees called upon, traffic projections become useless, tariff adjustments not realized, and the PSP performs below par.

In the latter instance, the “step-in” rights provision may be invoked. The insertion of step-in rights provisions, or protective or intervention schemes is a security mechanism, which provides comfort to stakeholders.

(1) Who steps out? The PSP is the one who steps out. In which case, the PSP, depending on the type of nonperformance, can no longer continue being the operator, builder or service provider.

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What the PACT?!

What the PACT?!

In public-private partnerships (PPPs), there are the two “PACTs”. The first one refers to the arrangement itself and the second one pertains to the manner by which the parties to the arrangement are determined.

Every PPP project must be embodied in a pact or formal agreement. The parties to a PPP—the public entity and the private-sector proponent (PSP)—consensually enter into a
contractual arrangement.

The PPP contract discusses the role of each party, the nature of the project and its performance targets, the appropriate PPP modality, and the contractual obligations and contributions. This pact governs the present and the future of the partnership, i.e., what happens after the effectivity date.

What the first pact does not cover, but is mentioned in the whereas or preambulatory clauses, is another pact. The second pact refers to the past or the necessary antecedents and prerequisites that led to the execution of the first pact. The legality of the PPP, the first pact, is determined, among others, through the legality of the process by which the PSP is chosen. In order to be valid, the selection of the PSP must comply with four core requirements—the P-A-C-T—where P stands for Public Advantage, A for Accountability, C for Competition and T for Transparency.

  • Public Advantage. The PSP selection process is anchored on the purpose of PPPs. All PPPs must advance the true north of all development initiatives, i.e., the public good. The procedure cannot be dissociated from the substance. The “P” is the tie that binds the “A”, “C” and “T”.
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PPP Conversations #6 with Rep. Arlene Arcillas

PPP Conversations #6 with Rep. Arlene Arcillas

TO date, some 80 provinces, cities and municipalities have adopted their own framework on public-private partnerships (PPPs) through the passage of local ordinances. This columnist hopes that, in the near future, the City of Santa Rosa will adopt its own to further accelerate development started by First District Rep. Arlene B. Arcillas when she was the city chief executive.

In a briefing last week on PPP, organized by Rep. Arlene B. Arcillas and attended by incumbent Mayor Dan Fernandez and Vice Mayor Arnold Arcillas, the city leaders disclosed their plans for integrated land development, market redevelopment, solid-waste management, mass transit, reclamation, sports development and knowledge creation. Representative Arlene shares with us her vision of the city, propelled by PPP.

• What is your concept of PPP?

Broadly, PPP is a partnership between a public entity and a private entity. Going deeper on the essence and objective of PPPs, it can address the limited financial resources for local infrastructure projects of the public sector, thereby, allowing the allocation of public funds for other government initiatives. PPP is also a program structured for both sectors to gain improved efficiency and project implementation process in delivering quality services to the public.

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PPP Conversations No. 5 with Laguna Lake Development Authority

PPP Conversations No. 5 with Laguna Lake Development Authority

On May 24 the Philippine Reclamation Authority, led by its General Manager (GM) Janilo Rubiato, and the Laguna Lake Development Authority (LLDA), represented by GM Jaime Medina, signed an Expression of Cooperation (EOC). The cooperation sets in motion two strategies aimed at advancing President Duterte’s “Build, Build, Build” program along Laguna Lake.

Pursuing legal reclamation, addressing illegal reclamation activities and undertaking developmental and sustainable projects along Laguna Lake will be jointly explored and addressed by the two government agencies through government-to-government (G2G) arrangements and public-private partnerships (PPPs). Your columnist, who witnessed the EOC signing, discussed the two-pronged strategy with LLDA general manager Medina.

  • What is your concept of PPP?

The concept of PPP, as the name implies, is a contractual arrangement between a public and private establishment and/or entities where, through mutual agreements, utilizes the skills of the private sector for the delivery of certain services to the general public at no cost to the public sector (government). In a softer approach, PPP shall mean that the public (people) shall have a chance to do business with the private sector.

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PPP Conversations No. 4 with National Housing Authority General Manager Jun Escalada

PPP Conversations No. 4 with National Housing Authority General Manager Jun Escalada

The socialized-housing gap cannot be plugged by the National Housing Authority (NHA) alone. Support from the private sector, among other stakeholders, must be harnessed. Under the innovative and participatory leadership of NHA General Manager Marcelino “Jun” Escalada Jr., public-private partnerships (PPPs) will be aggressively promoted.

The NHA will soon adopt its PPP Guidelines and organize a conference to sound off invitations for projects. The NHA recently signed a memorandum of understanding for a possible PPP for informal-settler families in Metro Manila. Escalada shares his thoughts on PPP.

What is your concept of PPP?

PPP is an arrangement that the government can adopt to hasten economic development by encouraging the private sector to help out in improving the quality of public assets and the efficiency of public services. The thrust of the current administration is to “build, build and build” infrastructure for the next six years. This opens up opportunities for the private sector to help the government boost economic growth and create more jobs.

What makes PPP a viable development strategy for socialized housing?

I think PPP is a viable development strategy for socialized housing. PPP will bring in private-sector capital and expertise in addressing the increasing housing need. Based on a 2016 housing-need study,  the Philippines has a projected need of 6.57 million units by 2022, which represents accumulated needs for socialized, economic, low-cost and the open market.

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PPP conversations #2 with Ayala Group

PPP conversations #2 with Ayala Group

The Ayala Group is one of the leading proponents and believers of the Philippine Public-Private Partnership (PPP) Program. Since 1996, it has been engaged in a water concession and, in the recent past, has been awarded the Muntinlupa-Cavite Expressway tollway, automated fare-collection system, extension of Light Rail Transit 1 system and integrated terminal system under the build-operate-transfer law.

Lawyer Solomon M. Hermosura, managing director, group head of corporate governance, general counsel, compliance officer and corporate secretary of Ayala Corp.,tells us Ayala’s PPP journey in this second edition of PPP conversations.

The Ayala Group has been an active participant in PPP projects. Why?

The Ayala Group’s commitment to PPP goes beyond any single project or legal framework. Whether the project involves hard infrastructure or investments in health and education, we see PPP as an avenue to be the government’s partner in effectively and efficiently delivering on the needs of the public.

What are the essential elements and ingredients for success in PPP projects?

We have been most successful in our PPP projects when stakeholders are committed to the desired outcome and cooperate toward getting the project done. We need to work closely with communities, similar to Manila Water’s previous experience in its “Tubig Para sa Barangay” program, which connected unserved and vulnerable communities to a safe and cheaper water supply. Our current work in the human infrastructure sector—health and education—is a response to glaring gaps that require complementary solutions.

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