Ireland: The Public-Private Partnership Law Review - Ireland Chapter

I OVERVIEW

PPPs are the most widely used model of project finance in Ireland. The Irish government set up the National Development Finance Agency (NDFA) in 2003 to procure all PPP projects as well as all other infrastructure projects with a capital value in excess of €30 million, having first carried out several pilot projects in the schools and roads sector and determined what model was most suitable for use in Ireland.

The NDFA procures all PPP projects other than in the transport and water sectors. Road projects are carried out by the National Roads Authority (NRA) and rail projects are carried out by the Railway Procurement Agency (RPA) or by Iarnród Éireann. The government proposes to merge the NRA and the RPA and recently published the National Roads Authority and Railway Procurement Agency (Roads Bill 2014).

Project finance is also widely used in the energy sector, particularly on renewable energy projects such as wind farms. This is not the PPP model but is a very typical structure where finance is secured by way of a power purchase agreement.

The most successful sectors in Ireland in terms of PPPs have been the roads and education sectors. There has been a rolling programme of motorway and school projects since the early 1990s.

II THE YEAR IN REVIEW

Ireland has gone through a deep recession in recent years and has correspondingly seen the number of PPP transactions diminish. Banks have not been lending and the Irish government has cut back its capital spending as part of the austerity package agreed with the IMF and ECB. Indeed, as part of the government's deficit-reduction programme of 2009–2013, a number of PPPs were no longer affordable and were stopped including:

  1. the National Concert Hall;
  2. the Government Office Decentralisation Programme;
  3. the Third-Level Institutions PPP programme;
  4. Dublin's large-scale mass-transport projects; and
  5. Thornton Hall prison.

However, Ireland has returned to growth and there has been an increase in the number of projects coming onto the market in the past 12 months as well as a corresponding increase in interest from international bidders.

The government announced a stimulus package in late 2014 including a number of PPP programmes with a total value of €1.4 billion. These include the construction of two groups of six schools, two additional quadrangles for the Grangegorman campus of the Dublin Institute of Technology, around 20 primary care centres, three Garda divisional headquarters, six or seven courthouse developments and three inter-urban road-building projects.2

III GENERAL FRAMEWORK

The NDFA developed the Template PPP Project Agreement in 2006 following extensive consultation with stakeholders in the private and public sectors. In addition, it published a User Guide, which has a clause-by-clause commentary on the Template Project Agreement. These are available on the NDFA website at www.ndfa.ie/Publications/ stdDocumentation.htm.

The Irish Template PPP Project Agreement is based largely on the UK PFI model adapted to suit the Irish landscape. In summary, the contracts tend to be 25–30 year design–build–finance–operate or design–build–finance–maintain contracts. In almost all cases of public infrastructure, however, the PPP company at no point owns the asset. It is usually granted a licence by the commissioning authority to occupy and operate the land and asset for the term of the project. At the end of this period the licence terminates at the same time as the project agreement, and the asset remains at all times in the ownership of the procuring public body.

The operation aspect of most accommodation PPP contracts in Ireland tends to be confined to 'soft services' such as catering, cleaning and maintenance. This has avoided any real resistance from unions in Ireland as employment-protection issues have been minimised.

In contrast, full operation and maintenance of motorway PPP projects has been successfully included in the PPP contracts that have been entered into by the NRA.

The earlier motorway PPP projects in Ireland were done on the basis of a user-pays model, with or without subvention from the government. However, as the recent recession took hold, banks refused to finance on this basis and the motorway PPP projects were then executed on the basis of availability payments, in the same way as the financing of accommodation projects.

i The authorities

The NDFA procures all PPP projects in Ireland as well as all other infrastructure projects with a capital value in excess of €30 million other than in the road and rail sectors, which are procured by the NRA and the RPA respectively; local authority-led projects; and water and waste-water projects, which are procured by Irish Water.

While the NDFA advertises the PPP project, runs the procurement process and negotiates all project documentation, it does so on behalf of the public authority and it is the public authority that actually signs the contract.

The Central PPP Unit in the Department of Public Expenditure and Reform aims to facilitate PPPs by developing the policy framework for PPPs and issuing relevant guidance to departments and other authorities.

ii General requirements for PPP contracts

To be classified as a PPP contract, a contract must be for a minimum of five years. However, there is no upper limit on the length of a contract. In practice the longest contracts tend to be for 30 years and the term is dictated by the length of time needed to pay off the capital investment by the private sector and to allow the private parties to make a profit.

There are no statutory constraints on particular sectors preventing the use of PPPs. However, in practice, the operations side of accommodation projects are confined to 'soft services' such as cleaning and catering and there has been no attempt to outsource services in, for example, the health, education and prison sectors.

IV BIDDING AND AWARD PROCEDURE

i Expressions of interest

Pre-procurement appraisal

Before a procurement process for a proposed project can begin, a rigorous preprocurement appraisal process must be followed, which is summarised below.

Preliminary appraisal

Before a choice of whether to proceed with the project through a PPP or traditional procurement is made, the responsible ministry (the sponsoring agency), carries out a preliminary appraisal to include the following steps:

  1. the need for the project and how the proposed project would meet these needs;
  2. options, including the option of doing nothing;
  3. a cost–benefit analysis of the options; and
  4. a preferred option;

NDFA assistance

Having completed the preliminary appraisal and received approval to undertake a detailed appraisal, the sponsoring agency must seek the advice of the NDFA which is the statutorily appointed financial adviser to the state for projects in excess of €30 million.

Detailed appraisal

The detailed appraisal should include the following:

  1. the needs the project should meet and its objectives;
  2. possible options;
  3. constraints;
  4. financial costs (full capital costs and costs over the life cycle of the project, including risk and contingency) and sources of funding;
  5. analysis of main options including:

    • multi-criteria analysis;
    • cost benefit analysis;
    • cost effectiveness analysis;
    • financial analysis;
    • exchequer cash-flow analysis; and
    • risk analysis; and
  6. preferred option.

The detailed appraisal will include a reasonable estimate of the overall budget required to procure the project.

PPP procurement assessment

If the detailed appraisal results in the preferred option being a PPP, a PPP procurement assessment should be carried out. The NDFA provides financial, insurance and riskanalysis advice to state authorities to help them decide which is the most appropriate procurement mechanism.

Approval to proceed

Following the detailed appraisal, the sponsoring agency should seek approval to proceed from the sanctioning authority, which in many instances will be the Department of Finance, but not necessarily. The sanctioning authority will give its approval subject to a project budget.

Once it receives this approval, the sponsoring agency either proceeds to procurement or hands the project to the NDFA for procurement on its behalf.

Pre-qualification of bidders

PPPs are public contracts and as such are awarded in line with EU public procurement law. Irish public procurement regulations closely mirror EU public procurement Directives at both the award and remedy stage and such regulations are rigorously applied and regularly challenged.

PPP contracts are almost always procured by way of a competitive dialogue or competitive negotiated procedure (see subsection iii, infra).

The initial expression of interest or pre-qualification stage follows the requirements of the EU Directives. Candidates are qualified on the basis of objective technical, legal and financial criteria. In the case of the negotiated or competitive dialogue, the authority qualifies at least three candidates but as many as six may be qualified depending on the sector in which the PPP project is being awarded.

There is a natural reluctance to run up unnecessary bid costs for a larger number of candidates, which is set against the need to ensure a healthy level of competition in case one or more bidders fall out of the process.

The NDFA reimburses the bid costs for unsuccessful bidders in Ireland, which also limits the number of bidders pre-qualified and invited to bid.

ii Requests for proposals and unsolicited proposals

Following the closure of the dialogue phase in the case of a competitive dialogue procedure or the end of clarification meetings in the case of a negotiated procedure, tenders are invited by the authority.

There are no formal procedures for submitting unsolicited bids in Ireland.

iii Evaluation and grant

The two procedures used for the award of PPP contracts are the competitive dialogue and the competitive negotiated procedure.

Competitive negotiated procedure

The stages involved in a competitive negotiated procedure, following pre-qualification are:

  1. the authority issues an invitation to negotiate (together with detailed technical, legal and financial documents to be returned with the bid);
  2. the authority then provides a period of time to respond to any written questions and to hold clarification meetings with bidders;
  3. submission of bids;
  4. appointment of a preferred bidder on certain agreed terms; and
  5. the negotiation of project documents with the preferred bidder and the achievement of financial close.

A variation on this may be to have a 'best and final offer' stage between the submission of bids and the appointment of a preferred bidder.

Competitive dialogue

The competitive dialogue process is similar to the above. However, following prequalification, the authority enters into dialogue meetings with each candidate and refines the bid until a point when it is happy to close the dialogue and invite tenders. Following submission of tenders and appointment of a preferred bidder, no negotiation of documents is permissible and only clarification and fine-tuning of documents is allowed.

To read this Chapter in full, please click here.

This article first appeared as the Ireland chapter in The Public-Private Partnership Law Review, 1st edition, published in March 2015 by Law Business Research Ltd.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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