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Puerto Rico Enacts Broad Public-Private Partnership Statute

 

14 October 2009

On June 8, 2009, the Commonwealth of Puerto Rico enacted legislation that authorizes public-private partnerships (P3s) for projects across multiple classes of infrastructure.  

(See Public-Private Partnership Act, S.B. 469, Act No. 29 of June 8, 2009 (SB469 or the Act), Preamble.)

On June 8, 2009, the Commonwealth of Puerto Rico enacted legislation that authorizes public-private partnerships (P3s) for projects across multiple classes of infrastructure. (See Public-Private Partnership Act, S.B. 469, Act No. 29 of June 8, 2009 (SB469 or the Act), Preamble.)  Commonly known as the "Public-Private Partnership Act," SB469 creates the Public-Private Partnership Authority (the Authority) as a public corporation and affiliate of the Government Development Bank for Puerto Rico (see id.) and designates the Authority as the sole government entity responsible for determining the functions, services or facilities for which P3s are to be established. (See id. § 6(b).) Notable features of SB469 are as follows:

  • Broad Scope. Under SB469, transactions may assume a wide range of procurement structures including, but not limited to, design/build, design/build/operate, design/build/finance/operate, and design/build/transfer/operate as well as turnkey, long-term lease, surface right, administrative grant, and joint venture contracts, and "any other kind of contract that separates or combines the design, building, financing, operation or maintenance phases of the priority projects." (See id. § 2(g).) Such transactions are authorized for projects in over ten classes of infrastructure, including energy, transportation, and tourist facilities. (See id. § 3.)
  • Creation of Public Agency with Wide Discretion. SB469 creates the Public-Private Partnership Authority as an affiliate of the Government Development Bank for Puerto Rico (the Bank) (see id. § 5(a)) and grants to it wide discretion over the procurement of P3s under the Act. The Authority is governed by a Board of Directors comprised of the President of the Bank, the Secretary of the Treasury, the President of the Planning Board, and two public interest representatives approved by the Governor (id. § 5(b)), with any action to be taken by the Board requiring the affirmative vote of both public representatives. (Id. § 5(c).) The Act designates the Authority as the "sole [g]overnment [e]ntity authorized and responsible for implementing the public policy on [p]artnerships . . . and for determining the [f]unctions, [s]ervices or [f]acilities for which such [p]artnerships are to be established," and authorizes the Authority to evaluate the government entities and proposals and promulgate regulations setting forth the procedures for establishing the projects, including the evaluation criteria. (See id. § 6(b).) The Act also empowers the Authority to negotiate and execute contracts in connection with P3s under the Act, agreements with the Bank and other government entities in connection with fees for procedures to establish such P3s, and service contracts to assist the Authority in the discharge of its responsibilities. (See id. § 6(a)(viii)-(ix). See also id. at § 6(b)(ii)(D); 6(b)(v).) In turn, the Authority creates Partnership Committees whose functions include evaluating potential contractors and proposals, and negotiating and approving contracts in relation to P3s under the Act. (Id. § 8(a)-(b).)
  • Flexible Criteria for Both Project Inventory and Proposal Awards. The Authority is empowered to evaluate proposals from government entities for partnership projects. Under the Act, the Authority must consider a wide variety of factors including economic considerations, social impact and feasibility, technical and functional feasibility, justification of choice of procurement structure, operational and technological risks, environmental effects, and local market considerations. (See id. § 7(b).) In addition, the Act does not require legislative approval prior to the receipt of a proposal, potentially eliminating conflicts between the executive and legislative branches. The Authority may also consider services and facilities for P3s at its own initiative—i.e., services and facilities which have not been submitted through the project inventory procedure established by the Act—and the corresponding government entity must consider such projects accordingly. (Id. § 7(a).) Similarly, under the Act, the Authority may consider unsolicited proposals from contractors, and the criteria for the award of proposals are numerous. Factors of note include income to be received by the partnering government entity and the priority of hiring employees from the partnering government entity. (Id. § 9(c)(viii), (x).) Other proposal award criteria include, but are not limited to, reputation, capacity, and experience of the person/entity seeking to enter into the partnership (the Proponent), quality of the design, engineering and estimated building time (as applicable), pledged capital, and economic and financing considerations. (See id. § 9(c).)
  • Authority Discretion as to Confidentiality. Under the Act, the Authority establishes the confidentiality criteria as to the information furnished and generated in connection with the procedures for the evaluation, selection, and negotiation with Proponents and the grant of proposals. (See id. § 9(i).) Such information can be disclosed upon approval of the partnership contract by the Governor except with respect to trade secrets, proprietary information, or privileged or confidential information of either the applicable Proponent or the Authority. (Id.) The Authority must provide public access to documents generated by the Authority unless deemed confidential under the Act or where publication might affect the Proponent selection procedures. (Id. § 9(j).)
  • Flexible Terms for Partnership Contracts. The Act is flexible as to the requirements of partnership contracts. The term of a partnership contract can extend up to fifty years, and may be extended thereafter for up to twenty-five years if approved by the Puerto Rico legislature. (See id. § 10(e).) The Act also relieves P3 contractors from meeting fee requirements imposed on government entities. (See id. § 10(c).)
  • Permissive Funding Structure. Under the Act, the financing of a partnership contract can combine "federal, local, and private funds or other resources." (See id. § 11.)
  • Certain Tax Benefits. Real and personal property used for the project under the Act are exempt from any Puerto Rico government, agency, public corporation, or municipal entity tax. (See id. § 12(a).) Contractors, including both individuals and taxable business entities, benefit from a fixed income tax rate of 10% over the net income derived from operations provided for in the partnership contract. (Id.) Any distribution by a Contractor corporation or partnership to its owners, i.e., the dividends paid to shareholders or profit-sharing, remains subject to the 10% tax generally applicable to such distributions. (SB469 § 12(a); 13 L.P.R.A. § 8412.)

The enactment of SB469 presents wide opportunity for the development of P3 projects. Proposals from government entities were due on September 15, 2009. A 108-item list of proposed projects can be found by clicking here. Draft regulations in relation to SB469, the Proposed Regulations for the Procurement, Evaluation, Selection, Negotiation and Award of Public-Private Partnership Contracts under Act No. 29 of June 8, 2009, were available for public comment from September 3, 2009 to September 23, 2009. As of the date of this eBulletin, no further action with respect to such regulations has yet been taken.

If you have any questions about the information contained in this eBulletin, feel free to contact one of the individuals listed or your usual Allen & Overy advisor.

 

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