Property law: Part 1 of 2 Easier partnership
However, public entities are also increasingly interested in the realization of their own projects. Despite having the will, they often lack the tools necessary for the investment. For this reason they are looking to enter into contracts with private-sector entities for the realization of their investment projects.
Basis for cooperation
Prior to July 2006, such cooperation could be based on two structures only - the appointment of a contractor pursuant to the Public Procurement Law, and the establishment of a company or partnership along with a private-sector entity that would perform all the necessary acts aimed at implementing the project. Such a company could be established under the provisions of the Municipal Economy Act. This act stipulates that the local government bodies may, within the sphere of public utility, create capital companies.
This has been affected by the entry into force of the Public-Private Partnership Act of 28 July 2005 (PPPA). The PPPA sets out the terms of formalized cooperation of a public entity and its private partner in what is called a public-private partnership (PPP). Pursuant to the PPPA, cooperation must be related to the performance of a public task. Moreover, this form of cooperation is possible only when a PPP is more beneficial to the public interest than other possible forms.
For a year the PPPA was practically inapplicable. Until July 2006, the secondary legislation (executive regulations) to the PPPA had not been issued. This meant that until that time there were no rules setting out how to assess whether PPP is more beneficial to the public interest than other forms. Most importantly, due to the PPPA, if an agreement on PPP was concluded without a prior analysis of the benefits to the public interest, it could be declared invalid.
Discouraging requirements
Although the PPPA and accompanying secondary legislation finally came into force, no contract concerning the performance of a public task has been executed under the provisions of this act. This comes as no surprise to commentators on the PPPA. They are of the unanimous view that the main reason why public entities are so reluctant to cooperate under the provisions of PPPA is the obligation placed on public entities to prepare very detailed analyses demonstrating the effectiveness of the project's performance under PPPA, and indicating various risks which could be involved in the project. Apart from the financial side, these analyses cannot be performed efficiently without a hypothetical assumption of the scope of the private partner's know-how, and the public entity does not know at that stage who the partner will be; the private partner is selected only after a tender procedure is conducted, following the analyses. This means that before the public body makes a decision on taking its project further, it must bear the expenses related to the compulsory analyses.
To avoid compulsory analyses, long-term investments executed with public bodies and entities from the private sector are sometimes based on different available legal forms. However, as already mentioned, this could result in the invalidity of all contracts under the PPP.
Easier procedures to come
The fact that no contract has been entered into under PPPA so far resulted in the Ministry of Economy proposing an amending act (the 'Amending Act') which is currently at the stage of public consultation. According to the Ministry, the aim of the new act is to implement more transparent procedures, which will, in particular, limit the scope of the aforementioned analyses. Simultaneously, the changes proposed in the Amending Act will make the choice between all possible forms of cooperation easier. Currently, if the joint execution of a public task occurred by way of a public and private entity creating a company without observing the formalities of the PPPA, it could be deemed an attempt at circumventing the PPPA, and would therefore result, in accordance with general principles of law, in the invalidity of legal acts undertaken under such cooperation. l
We will continue the discussion of this topic in next week's issue
Bartłomiej Kordeczka is an associate with Linklaters law firm
E-mail: bartlomiej.kordeczka@linklaters.com
