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Taking counsel: PPP projects to become more transparent

  • 2007-01-31
  • By Inga Murula [ Teder, Glikman and Partners ]
Previously public and private sector cooperation projects (PPP) in Estonia have not often been based on public procurements, as these projects have a complicated structure and the law has not provided a suitable resolution. But thanks to a new public procurement act being considered in Parliament, the situation is changing and PPP projects will become significantly more transparent.

Mandatory public procurements: Several PPP projects are based on the following principle: a private sector representative obtains a building title and constructs the necessary infrastructure (e.g., school, municipal residential building, physical training facility) using its own finances, while the public sector gains investment profitability by means of future user fees. An example is Tallinn residential buildings, which were constructed and are maintained by the private sector for 30 years based on building title. The city pays the private sector for these investments by leasing out of municipal residential building areas.

So far in PPP projects the provision of building title has usually not been preceded by public procurement, because building title as property right is not listed among the objects which require public procurement.
After adoption of the amendment, which is being considered by lawmakers, public procurement will also be mandatory in respect to such PPP projects that are performed by provision of building title and lease back of building premises.

According to the present procedure, each municipality has its own regulation for granting building title 's in general, it is granted via competition, which means oral or written public auction or tendering procedure with negotiations. In such cases the local municipality publishes competition announcements in a newspaper (usually local) and on its Web site. Any potential participant must therefore pay attention to these sites in order to become aware of any competition and its terms.

Appearance of international bidders: The current procedure means that a competition for building title is announced on the municipality level, and in the best cases in national newspapers, as a result of which European construction enterprises clearly have limited access to Estonian PPP projects. Participation of international bidders in the competition is not forbidden, but such limited notice significantly decreases participation possibilities of foreign construction enterprises. As a result, competition winners end up being local construction firms, and the municipality does not receive possible competitive solutions from international constructors.

The present procedure does not provide sufficient transparency, which is an inseparable part of public procurement. Transparency means, for example, obligation of the supplier to grant access to tender notices for possibly many potential bidders, thus securing competition in providing service and surveillance for granting impartiality of the procurement procedure.
Transparency and the appearance of international competition is also important because of the fact that PPP projects of Estonian municipalities are often large in volume and exceed the international public procurement limit rate by several times. For example, when construction costs in a public procurement deal exceed the international limit of 5 million SDR (90 million kroons) the relevant announcement must be published in the Official Journal of the European Union in order to grant competition for construction works between different bidders on the EU level.

Wider notification allows for honest competition 's for EU principles to be implemented, i.e., non-discrimination, mutual acknowledgement, proportionality and transparency.
The new public procurement act should resolve the aforementioned problems and provide transparency of PPP projects and also additional security that a tender has been based on all possible comparable parties.

Inga Murula is a lawyer at the law firm Teder, Glikman and Partners, a member of Baltic Legal Solution, a pan-Baltic integrated legal network of law firms which includes Kronbergs and Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.