Building on Portugal’s two decades’ of projects experience

The introduction of Portugal’s Public Contracts Code has dramatically simplified the
execution of projects and PPP agreements but difficult issues do still arise

A pesar de la cantidad de
proyectos planeados en
Portugal de infraestructura,
ferrocarril, del volumen de
carreteras y proyectos
sanitarios que hay en
marcha, no hay una forma
de presentar propuestas, ni
un proceso de concursos
claramente establecido,
comenta Pedro Melo de
PLMJ en Lisboa.

Despite the scale of the rail and
airport infrastructure projects planned
in Portugal and the continuing focus
and volume of road and health
projects underway, there is no
common single preferred bid or
tender process, says Pedro Melo, a
public and administrative law partner
at PLMJ in Lisbon.

“It is not exactly a question of
'preference’ but instead a question of
complying with the relevant public and
utilities procurement law, alongside the
EU regulations concerning the matter;
having said that the usual procedure
for awarding an administrative
contract, for example, a concession
contract, normally encompasses an
international public tender with a
negotiation phase at the end of the
procedure for the two best bids.”

Until the enactment of Portugal’s
Public Contracts Code in July 2008,
such procedures would depend upon
the creation of a specific statute setting
out all the necessary legal provisions
by which the award should be made,
he says. The introduction of the new
Code has however done away with this
requirement as the possibility of an
international public tender with a
negotiation phase is already foreseen.

“Also and perhaps more
importantly, the Code encompasses
the typical issues that were necessary
in the realm of public-private
partnerships (PPPs) – for example,
direct agreements are now expressly
covered within the Code,” he says.

“Simply put, from a legal point of
view, Portugal now has the proper
judicial environment to set up PPPs.”

Such a belief is borne out by the
figures, according to the 2009 PPP
Annual Report issued by the
Portuguese General Directorate of
Treasury, Portugal currently has 86
concession agreements underway: 57 in
operation, 17 under construction and a
further 12 currently out to tender.

Nonetheless controversies do still
arise. Most recently, the Portuguese
Audit Court rejected the user pricing
mechanisms of several motorways
launched by EP – Estradas de Portugal.

“These decisions were immediately
challenged in the same Court, with the
final decision expected in the very near
future,” says Melo.

And despite the similarity of the
procurement processes utilised across
rail, road and healthcare schemes,
different projects do require different
perspectives at least regarding the risk
matrix involved, he says. In addition,
on a contractual level different issues
may also arise within different sectors,
he notes.

The health sector particularly may
prove more complex due to the models
used in the so-called “first wave of
hospitals” programme: “This model
entails a management contract, a
construction and maintenance contract,
a clinical services contract and finally
an utilisation contract – between the
special purpose vehicle (SPV)
responsible for the construction and
maintenance and the SPV responsible
for rendering the clinical services.”

Consortia are inevitably also a
feature of PPPs due to the varying
demands of project scales, cost and
know-how and inevitably issues can
arise among “partners” during the
bidding, construction or maintenance
phases, he says.

“All projects are different but the
major players now active or engaged in
PPP projects in Portugal are usually
acquainted with such contracts and so
the level of experience with consortium
agreements is quite significant.”

He stresses however that confidence
– or the lack of it – between partners
may often be the main “sticking point” when it comes to setting up a
consortium agreement.

It is vital therefore that agreements
between consortia members are in
place before the major phases of a
project are undertaken, but Melo
emphasises that as a result of the
tremendous experience of the
Portuguese market fewer issues do now
arise. With more than two decades of
infrastructure developments in
Portugal, investors, contractors and
operators can benefit from the lessons
that have already been learnt.

“Due to the remarkable experience
of the Portuguese in the field of public
procurement and PPPs, consortium
contracts, like many other types of
contracts, are nowadays relatively
standardised. The result is that parties
are often more aware of their roles and
the relationship demands made upon
partners across the cycle of a specific
project, in both the pre- and post-bid