The term “public-private partnership” is not defined in the EU legislation on public contracts. In general, it refers to forms of co-operation between public authorities and the private sector which aim at ensuring the funding, construction, renovation, management and maintenance of infrastructure associated with the provision of a service. Guidance 1

A legal and regulatory framework that supports PPPs is meant to facilitate investments in complex and long-term PPP arrangements, reduce transaction costs, ensure appropriate regulatory controls, and provide legal and economic mechanisms to enable the resolution of contract disputes.

The design of PPP legal frameworks varies across EU countries depending on legal tradition and existing laws. A PPP legal framework should include: Guidance 2, 3, 4

• Provisions that make a PPP project possible and facilitate its functioning (e.g. the legal right to establish a PPP company, the terms and conditions under which public assets may be transferred to non-public entities, the power of the PPP company to choose sub-contractors on its own terms); and

• Provisions that enable governments to provide financing, where relevant (for example, to provide subsidies or to make long-term commitments of public expenditure for the life of the PPP contract).

A PPP legal framework is typically identified in laws and regulations, but also in policy documents, guidance notes and in the design of PPP contracts. The exact nature of the legal and regulatory framework applicable to a particular PPP transaction also depends, among others, on the financing mechanisms contemplated and the scope of responsibilities transferred to the PPP company. These are issues on which the public sector should always secure advice from suitably qualified advisers.

Country legal traditions

Most countries in Europe have a legal tradition based on civil law. Their law derives from a set of written rules or a civil code. By contrast, in common law jurisdictions such as England and Wales, Ireland and Gibraltar, it is the common law (meaning case law and precedents rather than a civil code) which forms the fundamental basis of all commercial transactions and from which the principles underpinning the allocation of risk have developed.

PPP arrangements in many civil law countries are governed by administrative law. Administrative law sets out fundamental principles which, in many cases, cannot be derogated from or overridden by agreement of the parties. As such, it provides the framework within which PPP contracts must be negotiated. Guidance 5

Common law and civil law jurisdictions have distinct approaches to many issues relevant to PPPs. Differences also exist among civil law countries. It is not possible to explore here all European jurisdictions and we will instead highlight only some of the main aspects that could be particularly important.

In many civil law countries, a number of rights implied by law are relevant to PPPs. A public authority may often be unable to renounce a right conferred upon it by the administrative laws and regulations that govern it. This can be perceived by the private party as a limitation to negotiations of bespoke PPP contracts. These rights may include the right of a contracting authority unilaterally to cancel a contract early, the right of an operator to compensation following an unexpected rise in the cost of operations, or the right of an authority to make unilateral changes to the contract if they are in the public interest. Some civil law jurisdictions also contain mandatory notice periods which must be observed before termination for breach of contract (by either party) can be invoked. In certain civil law jurisdictions, direct agreements with lenders or step-in rights are not possible or if they are, they are limited in scope and reach by the existing administrative laws and regulations.

Different approaches are also adopted towards security and insolvency in civil and common law jurisdictions. In insolvency situations, the emphasis in common law jurisdictions is on rescue and reorganisation. In contrast in civil law jurisdictions, the insolvency process focuses on winding companies up. In relation to security, which generally forms an important part of PPP arrangements, the concept of trusts in common law jurisdictions allows a security trustee to hold security on behalf of lenders. This avoids the civil law practice of granting security separately to all lenders, and re-registering it if they change, which can be costly and impractical.

A further practical issue in some civil law jurisdictions is that PPP contracts are not allowed to be transferred to a replacement PPP company without going through the whole re-tendering process. This is the case for example in Slovakia, and causes major issues for any project lenders who may need step-in and cure rights, which is a fundamental principle of project finance. This issue can be partially addressed by allowing for the transfer of the shares in the PPP company, but with the disadvantage that any transfer of shares carries with it the liabilities of the PPP company and the asset of the concession.

In general, common law jurisdictions will have a less prescriptive approach to the structuring of PPPs than civil law jurisdictions. One has to ensure that both in substance and in terms of formalities public bodies exercise powers to enter into PPP contracts within the scope of their powers, particularly in the case of authorities which are not departments of State (that is, part of central government).

Specific PPP laws

Often in civil law countries, concession laws are introduced to enable PPP projects and to define the type of services that could be procured under PPPs. Specific PPP laws have been introduced in Belgium, Italy, Poland, Portugal and Spain, among others. These laws may focus on a specific sector (e.g. motorways) or may apply to PPP arrangements across sectors. When a country enacts a PPP law, it normally requires changes and references to other binding legislation and regulations.

A specific PPP law is not a necessary condition for PPP development. The legal framework can also be provided by changing existing legal provisions which may have an impact on the PPP project. For example, the UK has developed its pioneer PFI model with no PPP law, although specific legislation to confirm powers to enter into PPP contracts was introduced in the UK in respect of health service bodies and local authorities to address concerns expressed principally on behalf of funders. Nevertheless, PPP laws can establish fundamental principles that PPP arrangements should adhere to (for example, the need to assess Value for Money) and to ensure transparency and accountability in the provision of infrastructure.

EU legislation

Under EU law, there is no specific system governing PPPs. There is, however, EU legislation which is relevant to certain aspects of PPPs. For example, PPPs represent one method of public sector procurement. The EU has two procurement directives: (i) the Public Sector Directive (2004/18/EC), which prescribes the procedures for the award of works contracts, public supply contracts and public service contracts and (ii) the Utilities Directive (2004/17/EC), which prescribes procurement procedures for entities operating in the water, energy, transport and postal sectors. Furthermore, all contracts in which a public body awards work involving an economic activity to a third party, whether PPPs or not, must be examined in the light of the rules and principles of the EC Treaty, including, in particular, the principles of transparency, equal treatment, proportionality and mutual recognition. Guidance 6