Public-private partnership PPP in Poland – basic assumptions of legal support

Publication date: March 10, 2023

PPP is a legal institution introduced into the Polish legal order in 2008 by the Public-Private Partnership Act, which regulates the issues discussed below. To put it simply, a public-private partnership consists in the joint implementation of a project by a private partner and a public entity. It is based on a long-term agreement (which is concluded for 30 or longer) specifying the division of tasks and risks between the two cooperating parties.

The above regulations are used in particular by local governments – they are used by numerous cities and communes throughout Poland, which can perform some of the tasks entrusted to them in the form of public-private partnerships. Examples of good cooperation under public-private partnership are the city of Łódź, which took advantage of this opportunity when launching the Resident Card service, Kraków as part of the expansion and operation of a car park, as well as many smaller local governments such as Bochnia, Nowy Sącz or numerous communes in various regions of the country. However, the catalog of public entities is much broader and includes, among others, executive agencies (such as the Military Property Agency), state special purpose funds (such as the Social Insurance Fund), and many budget economy institutions. The group of public entities also includes public universities, the Polish Academy of Sciences, state and local government cultural institutions and film institutes. It is also worth noting that municipal companies and sole proprietorships of the State Treasury are also public law entities under the Act. As practice shows, however, the largest group of public entities are local governments.

According to the Act, a private partner may be an entrepreneur. The status of an entrepreneur may be granted to a legal person, a natural person or an organizational unit. An entrepreneur is to conduct business activity on his own behalf and in order to make a profit, which means that he cannot act pro publico bono. Therefore, associations, foundations, churches and other religious associations and trade unions cannot be a private partner, unless they are entered into the National Court Register as entrepreneurs. Most often, private entities are partnerships or capital companies. They can also be municipal companies, state-owned companies or state-owned enterprises , if they do not act as a public entity.

Each partner contributes its own contribution. It is a benefit consisting mainly in incurring part of the expenses for the implementation of the project, e.g. financing additional payments for services provided by the private partner as part of the project or contributing an asset – it takes place, for example, by way of sale, lending, usufruct, rental or lease. The public entity cannot fully finance the expenses, however, it can be an even greater part of the project costs.

Projects implemented with the use of public-private partnership are most often the provision of a service by a private partner using public infrastructure. Other projects that can be undertaken within this institution include the construction or renovation of buildings, performance of works consisting in equipping real estate or enterprises with devices (e.g. new machines), as well as other, not specified by law, services of a public entity that will serve the purpose of public tasks.

Various cooperation models based on PPP

BOT, i.e. Build – Operate -Transfer, which consists in the fact that the private partner builds on the basis of the received project, then exploits it and then transfers it to the public entity, which regulates and supervises the investment process at all times. Financing in this model comes from the public party, which is also the owner of the project. This model is most common when a public entity wants the most effective and correct operation of the infrastructure used to perform public tasks.

DBFO or Design- Build – Finance- Operate, which consists in designing the infrastructure, then building it, financing both of these elements and then its operation. The private partner is the owner of the created project – until the infrastructure is handed over to the public entity. This model is also used for the most effective and correct operation of the infrastructure used to perform public tasks.

BOO or Build – Own – Operate – in this model, the investment is not taken over by a public entity. The private partner finances a given investment, implements it and, having a given infrastructure, may charge user fees, because it remains its owner.

BTL or Build – Transfer – Lease – the private partner finances and implements the investment, taking the risk of cost overruns and delays in the implementation of the investment. Then, the ownership right to the investment is taken over by the public entity, and the private entity, on the basis of a lease agreement, operates the facility on behalf of the public party, e.g. under a lease agreement.

The contract for the provision of services is concluded by a public entity and a private partner. It provides that the private partner is to provide a specific service that is part of a wider project. An example of such services may be, for example, installation work, maintenance work, waste removal or waste collection. Agreements concluded under this model of cooperation are usually for a shorter period than agreements in other models presented above.

Operation and Management Contracts – the infrastructure management and maintenance contract is a comprehensive contract covering the entire service provision process (which distinguishes it from the previous contract, which covers only part of a wider project). In this contract model, the private partner is responsible for the entire project, takes control over all aspects of the service provision process – both the operation and maintenance of the necessary infrastructure. These contracts are also concluded for short periods, which may be extended by the parties depending on the circumstances.

Appointment of special purpose vehicles in PPP

Public-private partnership can be implemented by establishing a special purpose vehicle with mixed capital. This is aimed at even greater cooperation between the two partners for the best implementation of the subject of the agreement. Such a company must be in the form of a joint-stock company or a limited liability company. Pursuant to the provisions of law, the purpose and subject of such a company is outlined in the concluded public-private partnership agreement, however, the functioning of the company may be adjusted depending on the progress in a given field or innovative projects of the private partner (if, for example, the technologies used to operate the project change within ten years). It is a company established for a definite period of time – until the execution of the concluded public-private partnership agreement and the completion of matters related to this agreement. It is also possible to extend the duration of the partnership for an indefinite period if the private partner sold the shares in the partnership before the expiry of the deadline or the shares were redeemed. After the end of the public-private partnership agreement, the private partner is obliged to sell shares in the company to the public entity. They may also be redeemed.

However, if the private partner wanted to sell the company’s shares to a third party (still during the term of the agreement), then the public entity has the right of pre-emption. This is a guarantee of free selection of a new partner and continuity of the project. It is worth noting that the private partner also has the right of pre-emption in the event of sale by a public entity or by the above-mentioned company of real estate, which was its own contribution. The right of pre-emption is also available one year after the end of the contract. However, it is burdened with the condition of the lack of a final court decision stating the improper performance of the contract by the private partner or when the public entity concluded a contract with a new private partner.

PPP can also be performed on the basis of a concession contract

A concession may be concluded only when the recipients of benefits are third parties and not the public entity itself. Third parties are, for example, a user of a toll road, a driver leaving a car in a parking lot or a fan buying a ticket to the stadium. Otherwise, the public-private partnership must be implemented in a form other than a concession.

On the basis of the Act on the concession contract for construction works or services, which entered into force at the same time as the Act on public-private partnership and complements it, two concession models can be distinguished:

a) the first one is a concession for construction works – the private partner, called the concessionaire, undertakes to perform the subject of the concession for remuneration, which is the right to exploit the building and the right to collect benefits (and it may also be combined with a payment by the concession-granting authority, i.e. a public entity). Such concessions are most common in the implementation and financing of large infrastructure projects, such as roads, tunnels, bridges, subways, sewage treatment plants, landfills, and smaller investments, such as the construction of a car park or a water park – the private partner is then remunerated in the form of user fees.

b) A service concession consists in the exclusive possibility of providing services by a private entity and also collecting benefits in this respect. As in the case of the first concession model, such remuneration does not preclude payment by the grantor. This concession model is most often used in the case of the desire to exploit and modernize already built infrastructure, such as a railway line, subway, stadium, part of a motorway, etc.

A concession contract may be concluded by a wider circle of entities than a public-private partnership contract, as there is no requirement in the Concession Act to have the status of an entrepreneur. A very broad definition of an interested entity means that practically every entity with legal capacity will be able to participate in the concession award procedure. Potential concessionaires may therefore include, among others: individual natural persons not conducting business activity, associations, foundations.

Efficiency assessment

An important stage on the way to concluding a public-private partnership agreement is the assessment of the effectiveness of undertaking a joint venture. This analysis aims to answer a number of questions, such as:

– is the cooperation project feasible, taking into account the technical, legal, organizational, market, financial and commercial conditions;

– are there obstacles to the implementation of the project and ways to overcome them;

– whether the project is justified from the social and economic point of view;

– the cost of cooperation under a public-private partnership agreement;

– will project users be financially able to benefit from the project;

– is the implementation of the project effective;

– should the PPP Project be implemented on the basis of the PPP model within the meaning of the PPP Act or the Concession model. In the case of the PPP model, is it reasonable to use institutional PPP as a cooperation model.

PPP and relationship with regulatory authorities

It is also worth adding that before initiating the public-private partnership procedure, it is possible for the public entity to seek the opinion of the minister responsible for regional development. Then the authority submits an application together with an assessment of the effectiveness of the project implementation. This opinion is confidential and is not disclosed to third parties until the conclusion of the contract between the public entity and the private partner.

Another example when the regulatory authority has influence on PPP is the consent of the minister responsible for finance to finance the project from the state budget in the amount exceeding PLN 100,000,000. An exception to this rule are EU programs included in operational programs such as development policy, financial cohesion policy and tasks financed from European funds in the 2021-2027 financial perspective. When granting consent, the proper minister of public finances shall take into account the impact of planned expenditures from the state budget on the security of public finances.

Criteria for the selection of a private partner

The selection procedure is carried out on the basis of the provisions of the public procurement law or – if the partnership is to be implemented through a concession – on the basis of the Act on the concession contract for construction works or services. The body which aims to select the most advantageous public-private partnership offer is the appointed tender committee. The choice of a partner is to guarantee fair and free competition, compliance with the principles of equal treatment, transparency and proportionality.

The first step is to place an announcement by the public entity in the Public Procurement Bulletin or in the Official Journal of the European Union (if the procedure is conducted on the basis of the Public Procurement Act or the Concession Agreement Act). The Public Information Bulletin also publishes information on the planned public-private partnership.

From among the submitted offers, the most advantageous is selected, which is understood as the most advantageous balance of remuneration of the private partner or company, or the most advantageous balance of the cost of the project incurred by the public entity. Other criteria relating to the project should also be taken into account, such as:

– division of income from the project,

– ratio of the public entity’s own contribution to the private partner’s contribution,

– effectiveness of the project implementation,

– criteria relating directly to the subject of the project, i.e. quality, functionality, technical parameters, the level of technologies offered, cost of maintenance or service,

– division of tasks and risks related to the project between the public entity and the private partner,

– deadlines for performance and the amount of expected payments.

In the case of proceedings based on the Act on the Concession Agreement, these criteria may differ – as examples, the criterion of the duration of the contract, the amount of user fees, the amount of payments made by the private partner (e.g. the amount of rent when leasing real estate belonging to a public entity) and the public entity may be indicated as examples (e.g. subsidies offered by a public entity).

The contract and the fees charged by the company

When a private partner is selected on the basis of the procedure, an agreement is concluded with this entity that regulates all issues related to the implementation of the project. It is worth noting that the act stipulates that if it is planned to collect fees from users of the project by the private partner, such an agreement specifies the maximum amount of these fees and the conditions for changing them. The amount of these fees may be changed only in the form of an annex to the agreement, unless the amount of fees and the conditions for their change are regulated in other regulations. (e.g. in the statutes of the company established to implement and operate the project).