PPP Contracts in Argentina: modifications to the traditional public procuring regime. Protection and other dispositions of interest to the private partner

Different laws govern the Federal Public Procuring Regime in Argentina.

On the one hand, the traditional public procuring methods are regulated by Law Number 13,064 (Public Works), Law Number 17,520 (Concession of Public Works), and Decree Number 1,023/2001 (Public Procurement of the National Administration), and its regulation by Decree Number 1,030/2016.

On the other hand, the new Public – Private Participation Contracts (the PPP Contracts) established by Law Number 27,328, and is regulatory Decree Number 118/2017 (both legal dispositions, the PPP Regime), as an alternative new tool to try to boost infrastructure development in the country[1].

The traditional public procuring regimes are based on certain legal principles that entitle the Procuring Authority to unilaterally exercise powers far exceeding those powers parties to a contract have under private law, such as to interpret the contract´s provisions, to modify the terms and conditions of the agreement, to impose sanctions, and to early terminate the contract based upon grounds of public interest, all without any judicial intervention.

To protect the Private Partner´s rights and attract investments that otherwise might be discouraged, the regulations on PPP Contracts in Argentina have introduced significant modifications to the traditional public procuring regime, suppressing or limiting the powers of the Procuring Authority. The PPP Regime brings about such significant changes to the extent of creating a brand new paradigm for public procuring in Argentina, as it will be explained below.

a) General legal regime of PPP Contracts in Argentina

PPP Contracts in Argentina are and alternative to the traditional public procurement methods. Therefore, no provision contained in any of the laws regulating such traditional public procuring methods will apply to the PPP Contracts, neither directly, nor in a supplementary or analogical way (Law Number 27,328, Article Number 31).

Before choosing the PPP Contract as the public procuring method for a particular project a comparative assessment must be run by the Procuring Authority. PPP Contracts may be entered into when it is previously determined that this contracting method allows fulfilling the public interest goals to be satisfied (Law Number 27,328, Article Number 1, final paragraph, and Regulatory Decree Number 118/2017, Annex I, Chapter I, Article 1).

b) Interpretation of the PPP Contract

The PPP Contract shall provide for procedures and methods to solve disputes on interpretation of the contract, technical or patrimonial issues (Law Number 27,328, Article Number 9, Section w), thus excluding any power of the Procuring Authority to interpret the contract by itself.

c) Modification to the PPP Contract

The Procuring Authority´s power to introduce modifications to the PPP Contract is tempered. In this line, the PPP Contracts must set out such powers, if any, and in no case may the Procuring Authority decide modifications other than those related to the project´s performance and up to a maximum of 20 percent, either above or below the total value of the contract.

Any alteration shall be in all cases fairly compensated, preserving the original economic-financial balance, and the financial possibilities and conditions (Law Number 27,328, Article Number 9, Section i)).

The Private Partner´s compensation for any modification introduced to the PPP Contract must be granted by modifying any factor of the contract´s economic regime. The factor´s variation must be set out so as to achieve that the net present value be equal to zero, considering the discount rate as determined by the bidding documents and the economic impact the variation may have on the project (Regulatory Decree Number 118/2017, Annex I, Chapter I, Article 9, Section 8).

Additionally, any potential extension of the PPP Contract´s original term shall be provided for in the agreement. In no case, may the term of the contract be longer than 35 years, including its extensions (Law Number 27,328, Article Number 4, Section d, and Article Number 9, Section a).

d) Sanctions to the Private Partner

Under the PPP Regime (Regulatory Decree Number 118/2017, Annex I, Chapter I, Article 9, Section 11), no sanction may be imposed to the Private Partner unless expressly provided for in the bidding documents and PPP Contract. Likewise, when sanctioning, it is forbidden to exceed the limits established in the bidding documents and PPP Contract. The Private Partner´s due process must be protected, having the possibility to be heard and present its case, and provide evidence. Any breach of contract cannot be subdivided to hold the Private Party accountable for more than one count for a single infringement. Likewise, counts may not be multiplied for a single obligation. Sanctions may be challenged in the ways set out by the bidding documents or the PPP Contract, with suspensory effect if established by said documents.

e) Anticipated termination of the PPP Contract

Anticipated termination of the PPP Contract on the grounds of public interests[2] may only be executed by a President´s Decree. The Federal State´s liability will not be limited whatsoever in case of termination of the PPP Contract (Law Number 27,328, Article Number 9, Section p), and Regulatory Decree Number 118/2017, Annex I, Chapter I, Article Number 9, Section 12)[3].

Further, in all cases of anticipated termination, prior to taking possession of the assets, a compensation must be paid to the Private Partner, following the stipulations of the contractual documents but never being it less than an amount equivalent to the unamortized investments, based upon principles and procedures generally and internationally accepted (Law Number 27,328, Article Number 10. Regulatory Decree Number 118/2017, Annex I, Chapter I, Article Number 10,  (Regulatory Decree Number 18/2017, Annex I, Chapter I, Article Number 10, first paragraph).

Furthermore, the repayment of the financing effectively applied to the project must also be assured (Regulatory Decree Number 18/2017, Annex I, Chapter I, Article Number 10, second paragraph).

Notwithstanding all of the above, the private contractor may be held liable to pay damages in case of breach of contract if any (Law Number 27,328, Article Number 10, final paragraph).

f) Protection and other dispositions of interests to the Private Partner

i) Price of the PPP Contract. Collaterals

To protect the Private Partner against currency depreciation,  the PPP Contract shall provide for procedures for revision of its price, to preserve its economic-financial equation (Law Number 27,328, Article Number 9, Section f). Consistent with this content, the PPP Regime excludes the application of the prohibition of indexation set forth by Law Number 23,928 (Law Number 27,328, Article Number 31, Section d).

The price may also be agreed upon in foreign currency, and the Procuring Authority may not discharge its obligations paying the equivalent in local currency (Law Number 27,328, Article Number 31, Section c), expressly excluding the application of Article Number 765 of the Civil and Commercial Code of the Nation).

As to collaterals, the payment commitments the Procuring Authority takes on may be secured through the following possibilities listed by the PPP Regime (Law Number 27,328, Article Number 18):

·               The specific allocation and / or assignment of tax resources, assets, funds and any other type of credits and / or public revenues, with the relevant authorization from the Federal Congress (Law Number 27,328, Article Number 18, Section a);

·               Trusts set up over credits, assets, funds, and any other type of public revenues, with the relevant authorization from the Federal Congress (Law Number 27,328, Article Number 18, Section b); and

·                Any other guarantee or security granted by a local or foreign entity, as allowed by Argentine law (Law Number 27,328, Article Number 18, Section c).

ii) Suspension of performance

The PPP Contract has to set out the Private Partner´s right to temporarily suspend performance of obligations in case of the Procuring Authority´s default (Law Number 27,328, Article 9, Section s).

iii) Assignment of the PPP Contract. Assignment of rights. Subcontracting

The PPP Contract shall provide for the Private Partner´s power to assign its rights or constitute security interests over them, including the rights over the contributions committed by the Procuring Authority, indemnifications, and the cash flow securitization (Law Number 27,328, Article 9, Section q).

The PPP Contract must also grant the Private Partner the right to totally or partially assign the agreement, as long as the assignee meets the proper conditions to be a contractor and at least either 20% of the contractual term has expired, or 20% of the committed investment has been disbursed. Before executing the assignment, the Private Partner has to get the acceptance of the financing agents and guarantors, and the Procuring Authority authorization. If properly executed, the assignment will release the assignor of all obligations under the PPP Contract, unless otherwise stipulated on the contrary by the bidding documents  (Law Number 27,328, Article 9, Section t).

Finally, the PPP Contract has to allow the Private Partner to subcontract, prior notification to and approval issued by the Procuring Authority. In the case of subcontracting, the Private Partner will preferably choose national companies and/or local small and medium-sized enterprises (Law Number 27,328, Article 9, Section u).

iv) PPP Contract´s suspension or nullity

The suspension or nullity of the PPP Contract on the grounds of illegitimacy may be only judicially declared (Law Number 27,328, Article Number 9, Section p).

v) Dispute resolution. Technical panels. Arbitration

The PPP Contract may set up technical panels to deal with controversies on technical issues, interpretation of the PPP Contract or patrimonial aspects. Such technical panels must be composed of professionals and representatives from domestic or foreign universities, with an accredited independence, impartiality, proficiency and national and international career. The technical panels may only issue recommendations. However, if said recommendations are not challenged by the parties within the terms established in the PPP Contract, they turn into binding decisions. When recommendations are objected to, the challenging party may submit the dispute to arbitration – if allowed by the bidding and contractual documents – or to the federal justice (Law Number 27,328, Article Number 9, Section w), and its Regulatory Decree Number 118/2017, Annex I, Chapter I, Article Number 9, Section 13).

The bidding and contractual documents may also allow for de jure arbitration as a dispute resolution method. In the case of providing for foreign arbitration, the relevant stipulation must be approved by the Executive Power and notified to the Federal Congress (Law Number 27,328, Article Number 25. Regulatory Decree Number 118/2017, Annex I, Chapter VII, Article Number 25).

The arbitration clause or arbitration contract shall be autonomous from the PPP Contract so that the potential PPP Contract´s ineffectiveness will not affect the arbitration clause or contract. Further, the arbitrators will keep jurisdiction to rule on the parties´ rights, demands, and allegations, even in the case that the PPP Contract is void. Additionally, the arbitration clause or arbitration contract shall grant the Arbitration Court the power to decide on its own jurisdiction, even on the defenses and motions related to the existence, scope or validity of  the arbitration clause or arbitration contract, or whatever other defense whose progress prevents from dealing with the substance of the controversy (Regulatory Decree Number 118/2017, Annex I, Chapter VII, Article Number 25, Section 3).

Awards rendered by arbitrators seated in Argentina may be only challenged to be clarified or annulled. In no case may challenges to the arbitration award give grounds to review the facts of the case and the applicable law (Law Number 27,328, Article 26).

g) Conclusion

The PPP Regime fairly balances the exceptional powers the Administration is conferred with under the traditional procuring methods, protecting the private partner´s right to a fair contract to encourage the private sector to participate in the needed investments to boost the country´s infrastructure.

Should you want further explanation on any issue of the PPP Regime or any other related to Argentine law, please, contact us at your convenience.

[1] See our article on http://cspabogados.com.ar/en/public-private-contracts-in-argentina/. [2] To avoid doubts and prevent later and surprising arbitrary interpretations, on structuring PPP projects and considering every project´s circumstances and characteristics, the Procuring Authority must clearly specify the public interest goals the procuring tends to satisfy (Law Number 27,328, Article Number 4, Section c). [3] The parties’ liability shall be governed by the PPP Regime, the bidding documents and the PPP Contract. The Civil and Commercial Code of the Nation will be supplementarily applicable (Law Number 27,328, Article Number 11). Therefore, Law Number 26,944 regulating the Federal State´s liability and all the limitations stated therein will not affect the PPP Contracts.

Mario Eduardo Castro Sammartino

Our publications exclusively express the author´s opinion and do not purport to be legal counsel on any case. Should you need it, you must consult with your trusted lawyer or may contact us at your convenience. If you liked the article, please, share it.

 

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