Think broad: A lease is a PPP

Think broad: A lease is a PPP

Is a lease a public-private partnership (PPP) modality? What is a lease arrangement? What law governs leases as a PPP? How does the government, as lessor, select the private-sector proponent-lessee?

For those who are of the view that the build-operate-transfer (BOT) law is the only PPP law in the country, the answer to the first question is no. A straight lease is not one of the nine modalities listed under the BOT law. Said law only allows a build-lease-transfer arrangement, whereby the private sector designs, constructs, finances and leases out the facility to the government, and the latter lease rentals. This is the approach used in Phase 1 of the PPP for School Infrastructure Project of the Department of Education.

For those who subscribe to a liberal view of PPP (this columnist included) and consider the BOT law as just one of several PPP laws, a straight lease is a PPP. Under this view, any relationship between government and the private sector for an infrastructure or social service project, regardless of the allocation of functions and risks, is a PPP.

In a lease, under Article 1643 of the Civil Code of the Philippines, one of the parties binds himself/herself to give to another the enjoyment or use of a thing for a certain price, and for a period which may be definite or indefinite. The same provision sets the cap of the lease period to 99 years.

Unfortunately, the Civil Code does not spell out the procedure by which government, as lessor, selects the lessee. Again, the BOT law is not the relevant law. The guidelines on joint ventures (JVs) issued by the National Economic and Development Authority is also not applicable because, while a JV may include a lease component, a straight lease is not a JV.

The Government Procurement Reform Act cannot be made to apply to leases since a lease is not procurement transaction. In procurement of goods, services and infrastructure, government funds are used. In a lease of government asset, government receives, not expends, money.

Executive Order 301, Series of 1987, which decentralizes the power to determine the reasonableness of the terms of the lease and the rental rates subject, is silent on the manner of selection. The 1991 Local Government Code, which expressly empowers local governments to lease properties, likewise, does not outline the steps.

Memorandum Circular 3, Series of 2013, issued by the Governance Commission for Government-Owned and -Controlled Corporations (GCG) provides that bidding is the general rule, while unsolicited proposals is not favored. Said circular does not prohibit unsolicited proposals nor will noncompliance of the requirements set forth therein render a lease contract invalid. Further, GCG cannot prohibit a procedure that is allowed by law and affirmed even by the Supreme Court.

This columnist submits that government agencies are thus free to adopt their own selection procedures for as long as the four requirements of government contracts are present—PACT—public advantage, accountability, competition and transparency. They can go through bidding, accept unsolicited proposals or enter into competitive negotiations.

Government agencies must be encouraged to do PPPs and lease is the simplest and most straightforward arrangement.

Leave a Reply

Your email address will not be published. Required fields are marked *