Originally Published March 2009
Michael O'Connor and Nicola Dunleavy of Matheson Ormsby
Prentice look at the impact of the turbulent credit markets on the
delivery of Public Private Partnership (PPP) projects and explain
that in the negotiated and competitive dialogue procedures,
amendments to the contracts with the final bidders are allowed,
provided certain criteria are met and provided that the competition
is set up correctly.
The current turbulence in the credit markets has raised many
questions about the future of public private partnerships as an
instrument for delivering public infrastructure. In the short to
medium term it is hoped that public authorities will start to
incorporate a degree of flexibility into procurements to enable
projects to react to the ongoing market disruption during the
procurement phases without the need to restart the procurement
process. This approach will not however address the challenges
faced by projects currently in procurement and which are struggling
to reach financial close. The answer for these projects lies in the
decided case law.
THE TRADITIONAL APPROACH
Public authorities believe that they have narrow rights to
change the contract after bids are in, even in the negotiated
procedure but particularly under competitive dialogue. On its face,
this belief is in line with the European Commission's views in
its Explanatory Note1 (which is not legally binding)
that once the preferred bidder has been identified, the
"room for manoeuvre... is fairly limited" and
the clarification process with the preferred bidder "does
not entail any negotiations solely with this economic operator
– amendments aimed at authorising such negotiations were
proposed and rejected by the Community legislative process. It
relates to something much more limited, specifically
'clarification' or 'confirmation' of undertakings
already appearing in the final tender itself".
THE REALITY OF CHANGE
The reality is that the procurement of a complex project can
take many months if not years. Many things change during that time.
The current credit crisis is a prime example.
In the recent past there was the impact of 9/11 on the insurance
markets. Changes can flow from planning permissions granted after a
final bidder is selected or from financial due diligence. The cost
and time involved in the financial due diligence means that lenders
do not usually engage until a final bidder is selected. Amendments
to the contract become essential to...