“PPPs, procurement process” by Mellany Morales M. De Ocampo (June 4, 2012)

SUITS THE C-SUITE By Mellany Morales M. De Ocampo
Business World (06/04/2012)

President Benigno S. Aquino III launched the Public-Private Partnership (PPP) Program on 10 November 2010 and since then, the local press has had numerous articles about PPP projects, focusing on the infrastructure that will be finally put in place, the foreign investments that will come in, the employment that will be generated, and concluding that these would lead to economic growth with the Philippines finally transcending its developing country status.

The first PPP project, a toll road, was actually bid out last December 2011, and eight more will be launched, if not actually tendered, this year. What is it about PPPs that generates so much attention if it is merely another form of procurement?

While the concept of PPPs can be extended to all forms of contractual relations between the private sector and Government, a PPP infrastructure project is brought about by means other than traditional procurement. Traditional procurement is governed by Republic Act No. 9184, also known as the Government Procurement Reform Act or the GPRA. The Revised Implementing Rules and Regulations (IRR) of the GPRA, issued in 2009, specifically state that the IRR shall not apply to public-private sector infrastructure or development projects and other procurement covered by Republic Act No. 6957 as amended, which is the “Act Authorizing the Financing, Construction, Operation, and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes.” Republic Act No. 6957, as amended, is known as the “BOT Law.” Nevertheless, the GPRA IRR shall apply for portions of a PPP Project which are financed by Government.

A PPP infrastructure project is governed by the BOT Law, although bills are pending in both the Senate and the House of Representatives seeking to amend some of its provisions. The BOT Law allows any one of the following contractual arrangements: build-operate-and-transfer (BOT); build-and-transfer (BT); build-own-and-operate (BOO); build-lease-and-transfer (BLT); build-transfer-and-operate (BTO); contract-add-and-operate (CAO); develop-operate-and-transfer (DOT); rehabilitate-operate-and-transfer (ROT) and rehabilitate-own-and-operate (ROO). Other variations may be used subject to the approval by the President of the Philippines. It should be noted that not all the announced PPP Projects will go by these contractual arrangements, as some of them are limited to Operating and Maintenance (O&M) contracts.

An infrastructure project procured under the GPRA is limited to civil works, i.e., the construction, improvement, rehabilitation, demolition, repair, restoration, or maintenance of roads and bridges, railways, airports, seaports, communications facilities, etc.. In contrast, the Project Cost of a PPP infrastructure project includes the total cost to be expended by the proponent to plan, develop, and construct the project to completion stage, including, but not limited to the cost of feasibility studies, engineering and design, construction, equipment, land and right-of way, taxes imposed, and development cost. This illustrates that the private sector proponent is more involved in a PPP project than in a GPRA project since it may also undertake the design, financing, construction, completion, and management of the project.

PPP infrastructure projects require the approval of the National Economic and Development Authority (NEDA) Investment Coordination Committee (ICC). The Revised IRR of the BOT Law specifically provides that NEDA ICC approval is required for projects to be implemented by government agencies which cost up to PHP 300 Million and for projects to be implemented by local government units which cost above PHP 200 Million. Projects to be implemented by government agencies that cost more than PHP 300 Million need to be submitted to the NEDA Board for its approval upon the recommendation of the ICC. The President of the Philippines sits as Chairman of the NEDA Board.

In contrast, procurement pursuant to the GPRA is, as a general rule, approved by the procuring government entity itself. The Budget Office evaluates, approves, and includes in the budget proposal the Project Procurement Management Plan (PPMP) prepared by the end-user units of the procuring entity. Upon approval by the Head of the procuring entity, the Bids and Awards Committee Secretariat consolidates the PPMP into to the proposed Annual Procurement Plan. There are instances when the approval of the approval of the Government Procurement Policy Board is required, such as when the contract involves an amount of at least PHP 500 Million and an alternative method of procurement (ie, procurement not by way of public bidding) is employed. Certain national infrastructure projects are also required by law to be approved by the President.

Both the BOT Law and the GPRA require public bidding. Traditionally, Government bids out (i.e., solicits) the projects. The procedure involves: advertisement; eligibility screening or pre-qualification; bid submission and evaluation, post-qualification, award of contract, execution of contract; and issuance of notice to proceed and contract implementation. It is, however, possible that Government will receive an unsolicited proposal from an entity which is given the status of an “Original Proponent.” The implementing agency or local government unit is compelled to invite comparative proposals. The Original Proponent is allowed to match a lower price submitted by another project proponent.

Lastly, it should be noted that the private sector proponent of a PPP infrastructure Project which costs more than PHP 1 Billion and which is undertaken through a contractual arrangement authorized under the Revised IRR of the BOT Law may apply for registration with the Board of Investments to qualify fully for fiscal incentives such as an income tax holiday. This, along with an appropriately determined payment scheme, should induce greater private sector involvement in PPP infrastructure projects.

Investors, both foreign and local, are watching the Philippines with fresh eyes and giving the country yet another chance to prove that it has turned the tide. A full understanding of the PPP and the procurement process is essential in maximizing the benefits of such investments, both to the investor and to the country.

Mellany Morales M. De Ocampo is a Tax Senior Director of SGV & Co.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.