Professional Interpretation

Abstract: Along with the entering of our country to new normal, PPP has not been regarded as a financing mode, but more about a project management mode. In addition, projects under PPP refer to financial fund, infrastructure and public area; hence, the selection of cooperation party shall be in compliance with statutory procedures. PPP project team of DOCVIT Law Firm will carry on the system combing with the discussion to PPP and the forms and types of project tender under it.

1. Classification of PPP Pattern

PPP pattern, a collective concept, is a general designation of series cooperation mode between government and social capital, including three major classes: Outsource; franchise; and privatization of social capital. More than ten different traditional operation modes under each classes are BOT, BOOT, BOO, DBT, DBTO, DBFO and so on, under which, both sides will share the profits and risks.

Up to now, the common operation modes under PPP in our country mainly include: Operations & Maintenance （O&M）,Management Contract（MC）,Build-Operate-Transfer (BOT),Transfer-Operate-Transfer（TOT）, Rehabilitate-Operate-Transfer（ROT）and Build-Own-Operate （BOO）and other modes.

(1) Operations & Maintenance (O&M), which designates a operation mode of cooperation projects between government and social capital that government entrust the social capital or projects companies to take the duty to operate and maintain the public assets but except the user service. Government keeps the asset ownership, and just pays commission fees to social capital and projects companies. The contract period is generally no more than 8 years.

(2) Management Contract (MC), which designates a project operation mode that government entrust the social capital or project companies to take the duty to operate and maintain the public assets as well as provide user service. Government keeps the asset ownership, and just pays management fees to social capital or project companies. The management contract generally serves as a transition mode of Build-Operate-Transfer, and the contract period is no more than three years.

(3) Build-Operate-Transfer (BOT）,which designates a project operation mode that social capital or project companies take the duty of designing, financing, building, operating, maintaining and providing user service for new projects, and the assets and related rights will be handed over to the government  after the expiration of the contract. The period of contract generally is about twenty to thirty years.

(4)Transfer-Operate-Transfer (TOT）, which designates a project operation mode that government transfer the stock assets to social capital or projects companies , and let them take the duty of operating, maintaining and providing user service. The assets and its ownership will be handed over to government after the expiration of the contract. The period of contract generally is about twenty to thirty years.

(5) Rehabilitate-Operate-Transfer (ROT）, which designates a project operation mode that government increases reorganization and expansion of projects under the mode TOT. The period of contract generally is about twenty to thirty years.

(6) Build-Own-Operate (BOO), a mode developed on the foundation of BOT, and the main difference between the both is the social capital or project companies keep the ownership of the projects, but the binding clause for public good guaranteeing shall be noted on the contract. There is no need to transfer after the project expiration

(7) Buy- Build-Operate (BBO), which designates a project operation mode that for a period of time, public assets will be transferred to the operation partner of private sector legally.

2. The analysis of project tender mode and type under PPP

During the popularization of PPP, the government procurement procedure is adopted by large amounts of projects in the selection of social capital by the government. Hence, the section7 in article 11 of    Operation guide proposal of government and social capital cooperation model implementation issued by Ministry of Finance provides that “Project procurement should be took underGovernment Procurement Law and related regulations, which include open tender, competitive negotiation, invite tender, consultation and single sourcing procurement. The project implementing agencies shall select the proper procurement with in law based on the demand characters of projects.”In addition, according to Measures for the administration of franchising of infrastructure and public utilities issued by National Development and Reform Commission, Ministry of housing and urban rural development and other ministries and commissions on 25, April,2015, franchise is carried on infrastructure and public work in the territory of the People's Republic of China such as  energy, translation ,water conservancy, environment protection, municipal work and other fields, which are compulsorily put out to tender according to the Law on Bidding and Regulations for Invited Public Bidding Extension and It's Scope Standard of Engineering Construction Item for they are large infrastructure and public works referring to public interests and safety, and partly using state  state-owned fund or financing by state. But if the franchise projects which shall take open bidding are not tendered, the franchise treaty between implementing party and the franchisee may face a legal risk of invalidity for its violation of the mandatory law of state. Hence, the implementing party should make clear that whether should take open bidding for the projects before selecting the cooperation party.

(1) The definition of the public bidding extension

According to the article 3 of the Law on Bidding, “In the territory of People's Republic of China, open bidding shall be taken including the survey, design, construction, supervision , the purchase of important equipment, materials, and other productive material for the following engineering construction projects :1.Large infrastructure and public work projects referred to public interests and safety.2.Projects partly or fully invested or financed by the state.3.Projects using loans or aid funds from international organizations or foreign governments”, open bidding shall be taken for the projects of large infrastructure and public works which referred to the public interests and safety or partly or fully invested or financed by the state.  

Projects referring to social public interests and safety are also related to PPP, such as energy, translation, water conservancy, environment protection and municipal works. Open bidding shall be took for subjects, of which parameters of core boundary conditions and technical economy are complete and explicit, conform to state legal regulations and policies, and are not changed in the purchase; and which can ensure the highly competitiveness in the market. Hence, the projects proper to open bidding must get through the certifying by advisory bodies to make sure the parameters of core boundary conditions and technical economy are complete and explicit and not be changed in the purchase.

(2) Make clear of the scope of invite tenders

Article 8 of Regulations for the implementation of the Bidding Law expressly provided the scope of invite tenders: 1.only small number of potential bidders are optional for the projects with complicated technologies, special requirements or restricted by natural environment.2. The opening bidding fees of projects accounting too large proportion of the project contract amount. For the projects under the above conditions, belongs to under the article7 of this regulations, cognizance shall be made by examination and approval departments. For other subjects, bidders could apply for examination and approval by supervision departments concerned.”According to the main characters of project investment under PPP, the project under the condition of the first article could take invite tenders instead of open bidding for the particularity; Of course, assessment criteria of evaluating the project with complicated technologies, special requirements or restricted by natural environment, shall be cleared for prevention of misuse.

(3) Conditions applicable to competitive negotiation and single sourcing procurement

According to the article 30 in Government Purchase Law,“ Goods or service under the following conditions could be purchased by competitive negotiation in accordance with this Law:1. Projects with no supplies bidding or qualified, or with failed retender. 2. Projects with no specified detailed specifications or specific requirements due to their complicated technologies and special properties of projects 3. Time of tender does not meet the urgent need of users 4.Projects of which total price cannot be calculated in advance.” and article 31 “Goods or service under the following conditions could be purchased with single source in accordance with this Law:1. Goods or services with only one supplier. 2. Goods or services could not be purchased from other suppliers due to unforeseen emergencies 3. Goods or services must guarantee the consistency of original purchasing items or smooth service, need to be purchased from  original suppliers and the total purchase amount are less than 10% of contract amount”, we seen that non-public tender could be took for projects under PPP under special circumstances.

(4) The scope of projects with no demand of tender

Article 66 of Tendering and Bidding Law provide that “Projects with special conditions involving in national security, state secret, emergency-rescue and disaster-relief , food-for-work programs using anti-poverty funds and employment of migrant workers, which are not proper to tender, could carry out without tender according to relevant state regulations. Except that, article 9 of Regulations for the implementation of the Bidding Law also provide the projects without demand of tender: “Except the special conditions of projects provided by 66 article of Tendering and Bidding Law, projects under any of the following circumstances could implement without tender: 1.Projects which need to use irreplaceable patent technology or proprietary technology. 2.The purchaser may, according to law, build, produce or supply by himself 3.Franchise project investors selected through tender may, according to law, build, produce or supply by themselves. 4.Projects need purchase programme ,goods or service from original bidder, otherwise may impact the implement or may not compliant with the matching requirements.5.Other special conditions provided by state stipulated. Bidder cheating to apply the above provisions regarded as circumvention bidding provided by article 4 of Tendering and Bidding Law. The provisions of the first to forth items are relatively clear, but for the fifth one ,“other special conditions” ,with vague meaning, specific analysis is needed to avoid queasy transaction caused by evading statutory public bidding process. 

However, projects under PPP ,because involving state funds or state financing programme, were invested with large scale with long construction period, which has obvious social public welfare. Hence, tender carried out according to the provisions of Government Procurement Law and Bidding Law, especially purchase by public bidding are bound to become the main stream of procurement method under PPP.

3. Conclusion

According to the data published by National PPP Comprehensive Information Platform of PPP Center of Treasury Department, up to the end of Marh,2017, the total number of national projects put into storage is 12287, the total amount of investment is 14 trillion and 600 billion yuan. Compared with that of in late 2016, no matter the number of project implemented or the investment scale, all have greatly growth. However, with the high-speed increase of the number of projects under PPP, un-standardized implement and risks are further prominent. From the view of the number of cases accepted by people’s courts on cooperation between government and social capital, we can see that the number of disputes is continually increasing in recent years, which mainly are civil and administrative actions concentrating upon such fields as treatment of municipal sewage, gas supply, heating, and road construction. However, with the further extend of PPP project area, disputes will cover more fields, and the more types of case will appeared, such as civil action, administrative reconsideration, administrative actions and even criminal actions. Hence, election of cooperation party for projects under PPP must be compliant with statutory procedures; the tender of projects must be implemented according to the provisions of Bidding Law and Procurement Law and other relevant legal regulations, otherwise, it will face to huge legal risks.