Research on bidding model of PPP project

Abstract: With our economy entering into a new era, PPP model is more like a project management model than just a financing way, besides, PPP project generally involves public capital and associates with public service field , infrastructure built, etc. So it’s important to choose a partner to comply with the legal procedures. The article will assort and analyze the bidding model and types into a systematic way and give advice on implementation.

PPP models classification:

PPP is a collective term to refer to all models of co-operation between government and private capital. It consists of three types: Outsourcing, Franchising and Social capital Privatization, under each type  there includes models such as BOT、BOOT、BOO、DBT、DBTO、DBFO. etc. partners jointly share the profit and bear the risks under these models.

Currently, O&M、MC、BOT、TOT、ROT & BOO are most frequently models operated in China.

1. Operations & Maintenance, its abbreviation is O&M.

Gov keeps the ownership of existing public asset to itself and only entrusts the operations & maintenance of PPP to Social Capital or Project Company via paying a sum of service fee to them, social capital or project company doesn’t take the responsibility of user service. Generally the term of contract under O&M is no more than 8 years.

2. Management Contract，its abbreviation is MC.

Gov keeps the ownership of existing public asset to itself and entrusts the operations, maintenance & user service to Social Capital or Project Company, to whom Gov pays a sum of management fee. This model generally acts as a transition way before TOT and management contract is less than 3 years. 

3. Build-Operate-Transfer，its abbreviation is BOT.

Under this Model, social capital or Project Company does the work of design, finance, build, operate for new project and maintain, provide service for user, project and relative rights then transfer to the government when the contract term ends. This kind of contract lasts 20 to 30 years.

4. Transfer-Operate-Transfer，its abbreviation is TOT.

Gov transfers the ownership of the existing asset to Social Capital or Project Company for a payment, the latter is responsible for operation, maintenance and user service, who transfer the asset and relative rights as a whole to Gov when the contract term ends, This kind of contract lasts 20 to 30 years.

5. Rehabilitate-Operate-Transfer，its abbreviation is ROT.

This modes refers the Gov supplements rehabilitation contents on TOT model. This kind of contract lasts 20 to 30 years.

6. Build-Own-Operate，BOO

 This model is developed from the BOT, the distinction between the two is social capital or Project Company owns the project under BOO all through, only with binding clause provided in the contract to ensure public interest of project, thus no project transfer to Gov when term ends.

7. Buy- Build-Operate,  BBO

Public assets are transferred by Gov to its private partner for a certain period of time on the surface of legal.

Bidding Model of PPP and analysis

No matter which PPP model chosen, an important step cannot be omitted is to choose a private partner, it often adopts Gov procuring process to choose partners. Item 7 of article 11 in the Trial Directive of Gov & social Capital Co-operate Model Guide issued by Ministry of Finance of the PRC provides project procurement should be in comply with laws of bidding of Gov Procurement and relative rules and regulations. Procuring methods include public invitation to bid, select bid, competitive negotiation, offer to tender, competitive discussion and the single-source purchase. Institution which should choose suitable way according to project features. Besides, Infrastructure and Public Utility Franchising Management Method released on April 25th ,2015 by national Develop & Reform Committee provides that  Franchising is permitted to practise in the fields of the Energy, Transportation, Environment protection, Civil engineering. This type of franchising project is of large infrastructure facility involves public interest & safety, or partly using national investment or financing. According to Bidding law of the PRC and Regulations on Bidding Ranges and Scale of Construction ,Should those projects belong to bidding-must catalog fail to call for bidding, then contract between employer & franchisee is possibly invalid due to violation of these national statute.

1. The Ranges of Public Invitation to Bid

Article 3 of Bidding law of the PRC provides that bidding shall be carried out for the following construction projects, including the survey ,design, construction, supervision of the project, and the procurement of the important equipment, materials relevant to the construction of the project:1. large projects of infrastructure facility or public utility that have a bearing on the social public interest and the safety of the general public; 2. projects entirely or partially use state-owned funds or loans by the state; 3. projects using loans of international organization or foreign Gov and aid funds. It can be  inferred that those infrastructure and public utilities associates with public interest and those projects using state capital or financing belong to bidding-must catalogue. PPP projects enter into a lot of  public interest projects such as energies, transportation, environment protection, civil engineering.

Those projects which possess clear and complete ranges and tech & economic indexes, totally conform to state legislation and procurement policy, no amendment made in the process, full competition guaranteed should go to call for bidding. Therefore the project involves public interest should go through the consultancy institution to testify to see if its core ranges and tech & economic index explicit and complete, no amendment needs to be done, only such projects are suitable for public invitation to bid.

2. The Ranges of Invitation to Bid by request

Article 8 of Regulation on the implementation of the Bidding law of the PRC provides :Projects for which state-owned funds take the controlling or leading position and bidding is required according to law shall be subject to public bidding. selected bidding is permitted under any of the following circumstance: 1.only a small number of potential bidders are available for selection because of complicated technologies, special requirements or restrictions from the national environment or 2 the cost of adopting public bidding accounts for an excessively large proportion of the project contract amount. where the circumstances as listed in item 2 of the preceding paragraph occur to the project prescribed in Article 7 of the Regulation, the department in charge of project examination, approval and verification shall make a determination when it conducts project examination, approval and verification, other projects shall be determined by the relevant administrative supervision department upon receiving an application from the tenderee.

Since PPP involves a large capital, above situation 1 could take selection bidding not public invitation to bidding due to its specialty, while a more specific criteria on its limitation of complicated technology, special requirement and natural environment is required to avoid this situation is abused.

3. Situation apply to competitive negotiation or single-source Purchase

According to article 30 of Gov Procurement Law of the PRC :competitive negotiation apply to the four situations as following:1.no supplier come to offer after being invited , no qualified offer made or fail to call for bids again; 2.complicated technology and special nature, specific index or requirements are difficult to confirm; 3. Calling for bid takes too long to meet the urgent need from the user; 4. the total sum cannot be calculated in advance. laws or state council stipulated the ranges of bidding-must other than stipulated herein, should comply with those regulations either.

Article 31 of Gov Procurement Law of the PRC :Single-source purchase is applicable if one of the following situations occurs: 1. have to purchase from the sole supplier; 2. cannot purchase from other suppliers else due to unforeseeable emergency occurs; 3. purchase from the original supplier due to warrant the conformity with the original purchase or match the original service, moreover, the new purchase amount is no more than 10% of original purchase contract. From the law, we can conclude that non-public bidding model is permitted to take for PPP project under some special situation.

4. Circumstances where bidding is not required

Article 66 of the bidding law of the PRC provides: for a project concerned with national security, state secrets, emergency handling, disaster relief, or belonging to special occasions such as the use of poverty alleviation funds or the use of the labor of farmers and is not suitable for bidding ,the method of bidding shall not be applied. Except above-cited article 66 of bidding law, article 9 prescribed in Regulation on the implementation of the Bidding Law of the PRC provides bidding is not required under any of the following circumstances: 1.any irreplaceable patent or proprietary technology is required; 2.the project can be legally constructed, produced or provided by the purchaser;3.the project can be legally constructed, produced or provided by the purchaser;4.the project can be legally constructed, produced or provided by the franchise project investor that has been selected through bidding ;5.It is necessary to purchase projects, goods or services from the original bid winner, otherwise the construction or supporting functions would be affected or 6.any other special circumstance prescribed by the state, item 1 to 4 are comparatively explicit while the last item is vague, so analysis in details need to be done under special circumstances so as to avoid evading the public bidding intentionally. Because PPP project involves state capital or state-financing project, it goes through long time and with obvious feature of public-interest, so public bidding prescribed in the bidding law and law of Gov Procurement is the most fashion taken of PPP project purchase.

Conclusion

Data as displayed on China PPP center of Ministry of Finance of the PRC, all PPP projects in pool nation-wide is up to 12287 until March 2017, its accelerated investment amounts to 14,600 billion, it increases a lot to compare those indexes with that of 2016 no matter in the quantities of project or investment scale. With the rapid growth of quantities of PPP projects .its disorderly implementation and risks become more conspicuously. It can be found from quantities of cases received by the court that PPP disputes continue to increase and mainly fall within the field of sewage disposal, heating& gas supply, road construction etc. these cases are more of civil and administrative type. With the further exploration of PPP, its dispute will extend to the civil, administrative review even criminal fields. Choice of PPP partner should comply with the legitimate procedure , strictly obey the procedures prescribed by bidding law and Gov Procurement Law of the PRC, or huge legal risks would occur.

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