PPP is not procurement

  • December 12, 2016

PPP is not procurement

When government enters into a public-private partnership (PPP) arrangement, is it “procuring”? When government procures, is it entering into a PPP? What is the difference between a PPP arrangement and a procurement contract?

Some consider PPPs as procurement contracts and vice versa. To some extent, this is true. For those who define PPPs as any relationship between the government and the private-sector proponent (PSP), then all procurement contracts, save agency-to-agency agreements, are PPPs. In the selection of the PSP for PPP contracts, some refer to this as a “procurement process.”

Management and service contracts whereby public funds are used are PPP arrangements governed under the Government Procurement Reform Act (GPRA). The overlaps between these two approaches are confined there. However, there are at least seven differences between the two.

Governing laws. Procurement of goods, services and infrastructure is governed by the GPRA, or RA 9184, while build-operate-and-transfer (BOT) or build-transfer-and-operate (BTO) arrangements are governed by the BOT law, or RA 6957, as amended by RA 7718. Joint ventures (JV) by government corporations and instrumentalities are regulated by the 2013 guidelines issued by the National Economic and Development Authority (JV Guidelines).

Objects of contract. Under the BOT law, the objects are infrastructure or development projects traditionally provided by the government. Under the JV Guidelines, the project must be for an investment activity. Under the GPRA, government procures either goods, services or infrastructure projects.

Specifications. In procurement, the “specifications are specific” whereby, typically, the contractors must follow them to the letter. In a PPP, minimum specifications or outputs are determined by the government, and the PSP is allowed to innovate, provided the desired outcomes or inputs are achieved.

Sources of funds. In procurement, public funds are used to buy the objects. For BOT law variants, PSP funds are used, save in the instance where government shares in the project cost. Under a JV, both parties contribute and the contribution may be cash or noncash.

Transfer of ownership. When government procures or buys, there is a transfer of ownership where private property becomes public. Under a BOT arrangement, the government becomes the owner of the asset at the end of the contract period. In a BT, the government becomes the owner and operator after construction and acceptance. In a BTO, the government becomes the owner even before the term expires and the PSP becomes the operator after the turnover. In a build-own-operate (BOO), the PSP becomes the owner in perpetuity. In a JV, the government or the PSP can be the owner depending on the arrangement.

Procedures. Under the GPRA, open bidding is the default procedure. In certain instances, the procuring entity can negotiate. Under the BOT law and JV Guidelines, the government may solicit bids or accept unsolicited proposals.

Bidding parameters. For procured goods and infrastructure projects, the parameter is the purchase price (i.e., lowest), while for services, the rating (i.e., highest). Under the BOT law, the options are highest revenues or concession fee, least government burden or subsidy, or lowest fee to be paid by the end-user. For JVs, the highest revenue or percentage share is the measurement.

The choice lies with the government, whether PPP or procurement. Regardless of the approach, the public good is the true index because we pay for all these, regardless.

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