PPP add-ons

PPP add-ons

What are the possible add-ons to government projects and existing Public-Private Partnership (PPP) contracts and projects? What are the benefits to add-on arrangements? Will adding-on components and contractual obligations require another round of competition?

There is room for improvement and dynamism. This is the rationale behind add-on schemes. An old and poorly maintained or even existing and kempt government or PPP projects can still benefit from enhancements. There could have been supervening events that were not contemplated at the beginning. Occurrence of risks is another reason. Government may, likewise, be impelled to do more.

The add-ons can take different forms.

(1) Rehabilitating existing facilities. Under the BOT law and concession laws, like the National Water Crisis Act and the Electric Power Industry Reform Act, rehabilitation and improvement of existing facilities may be introduced. High incidence of nonrevenue water or transmission losses, in the case of the water and transmission concessions, respectively, poor management and dilapidated systems may have prompted the add-ons.

In these cases, the add-ons were the rehabilitation of existing facilities, introduction of the PPP arrangement and entry of the private-sector proponent (PSP). Since there are new contracts, the selection of the PSP should go through a competitive process prescribed under the relevant law.

(2) Adding parties, local and foreign. During the recent trip of President Duterte to Beijing, several government-to-government and private-to-private initiatory deals were hatched. China state-owned corporations are being eyed to become cofunders, corisk takers, coproponents and/or engineering, procurement and construction contractors of reclamation, land development and transport projects. Some of these projects are already the subjects of existing PPP arrangements.

By adding parties, project viability is enhanced. Good bilateral relations between neighbors are, likewise, fostered. Adding parties, when contemplated under existing or awarded contracts, no longer needs another round of competition.

(3) Incrementing PPPs with another PPP. A sealed PPP arrangement can be the platform of future PPPs and government projects. For example, vertical development, like warehouses, hospitals, power and water utilities, can be added on to pure horizontal development reclamation PPPs. On the government share, government centers, roads and parks may be funded and built by government and/or by the PSP.

Similarly, septage and sewerage projects can be added on to water supply and distribution projects, while malls and transport terminals can be added on to market-redevelopment projects. If the additional segments of the projects were not envisioned to be part of awarded contracts, then the subsequent PPPs must be vetted through procedures mandated by law or regulations.

(4) Supplementing agreements. Another type of add-on is the contractual add-on. This may take place even if no additional project components are brought in. When tariff adjustments are made, when variations are allowed, when terms of a PPP contract are amended, provided no additional burden is assumed by the government and no additional benefit is extended to the PSP, then supplementary agreements are made. Without these, the original terms remain unaltered and continue to be enforceable. If contemplated under the terms of the competitive procedures, no new bidding or challenge is mandated.

Adding on is good. More is good.

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