Decree No. 4183/2020 (the “New Decree”), which regulates Law No. 5102/2013, the Public-Private Partnership (“PPP”) Law, was recently issued, thereby replacing the previous regulation (Decree No. 1350/14). Below, we summarize the ten most important changes of the New Decree that you should know:
1. Mandatory prequalification phase: although the PPP Law indicates that a prequalification phase may be put into place, the New Decree establishes that the prequalification phase is mandatory. Only the prequalified bidders may participate in the competitive dialogue and in the bidding process.
2. Mandatory use of competitive dialogue: the New Decree establishes a mandatory procedure by which prequalified bidders may raise questions and send proposals for improvements to the draft bidding terms and conditions (pliego de bases y condiciones) (the “PBC”), as well as improvements to the draft PPP contract. The competitive procedure aims to achieve greater harmonization of PPP projects, so that PBCs are not subject to changes during the bidding process, and awarding the project is feasible.
3. Incorporation of different construction phases: the previous decree only contemplated two stages: the construction phase, which begins with the signing of the PPP contract until the commissioning of the works, and the operation phase, which begins with the completion of the construction phase until the end of the PPP contract. The New Decree includes four phases: (i) the preparatory phase, which runs from the signing of the PPP contract until the beginning of the construction, (ii) the construction phase, which runs from the order of commencement of the works until the beginning of the operation phase, (iii) the operation phase, which runs from the end of the construction phase until the end of the PPP contract, and (iv) the transitional operation phase, which starts with the interim commissioning of each milestone delivered by the private party until the beginning of the operation phase. These phases are important for determining certain aspects of the PPP contract, such as the financial closing (this term is explicitly included for the first time in the New Decree).
4. Incorporation of a variable term: the PPP contract may have a variable term subject to compliance with certain variables related to economic-financial matters that should be established in the PBC.
5. Increased participation of the Ministry of Finance: through the Dirección General de Inversión Pública of the tax authority (Sub Secretaria de Estado de Tributación - SET). Furthermore, the New Decree creates the Executive Committee of PPP Project Authorities, which is composed of the Minister of Finance, the Minister of Public Works, and the Executive Secretary of the Technical Secretariat of Planning.
6. Incorporation of “Declaration or Certificates of Accuracy”: in connection with the financing of a PPP contract, the government agency may issue a declaration or certificate of accuracy with economic, financial and social information regarding the project, prior authorization from the Ministry of Finance.
7. Expropriation: when the expropriation risk is allocated with the government agency, the government agency must foresee the administrative, budgetary, and financial resources for the expropriation and the cadaster of the land. Also, the government agency must provide for a detailed release plan before the signing of the PPP contract.
8. The government agency's right to withdraw from the project: the government agency may, for reasons of public interest, withdraw from the project at any time before the signing of the PPP contract, prior approval of the Ministry of Finance.
9. Operational risks: as a general rule, operational risks are to be allocated with the private party. The New Decree also establishes that within the pre-feasibility and feasibility stages, risks must already be identified, and the mitigation proposals and the allocation of risks must already be specified.
10. Greater flexibility regarding compensation due to modification of the PPP contract: the previous decree established that compensation to the private party due to modification of the PPP contract (either unilaterally by the government agency or by mutual agreement) could be granted when it had a negative effect on the economic and financial balance of the PPP contract. The new decree eliminates such references. Therefore, the PBC may establish that the administrating party may compensate to the private party even when there is no a negative impact on the economic-financial balance of the PPP contract.
For more information contact: