PPP Projects: Legal Framework, Unsolicited

Proposals, Negotiation and Swiss

Challenge Process
June 14 & 15, 2018

Philippine Institute of Civil Engineers, Inc.

By: Amelia S. Dela Rosa

International PPP Specialist
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What are PPPs?

PUBLIC PRIVATE PROJECT

Contractual arrangement between the government and private

sector partner to accelerate provision and/or implementation of
infrastructure and/or development of projects or services.
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Who are the parties to the contract?

PUBLIC PRIVATE PROJECT

Implementing Private Entity

Government
Entity
Banks and other financing institutions
Other parties (construction contractors,
software developers, equipment
suppliers, etc.)
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Who are the parties to the contract?

PUBLIC PRIVATE PROJECT

Must be qualified (can be a

• National Gov’t
consortium)
Agencies
• LGUs
• Technical knowledge and
• Universities
experience/construction
experience
• Financially capable
• O&M experience
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Why are PPPs different from conventional

government projects?

PUBLIC PRIVATE PROJECT

• Parties agree to share project responsibilities;

• Partnership built on the expertise of each partner that meets clearly defined
public needs through the appropriate allocation of:
 Responsibilities
 Risks and Rewards
 Resources
Source: PPP Guidebook, UN Economic and Social Commission for Asia and the Pacific, January 2011
What are the advantages and
disadvantages of PPPs?
• Increased efficiency in project delivery, operation and management;
• Availability of additional resources to meet the growing needs of investment in
the sector; and
• Access to advanced technology (both hardware and software);

• Higher borrowing cost of private sector;

• Substantial transaction cost for both parties (project preparation, development of
contract and bidding documents, conduct of bidding and negotiation; evaluation of
proposals and arranging of funds);
• Administrative costs for contract management;
• Many explicit and implicit liabilities on the government (fiscal costs and contingent
liabilities).
Source: PPP Guidebook, UN Economic and Social Commission for Asia and the Pacific, January 2011
Service to the public is the primary goal of
every project

Project = Service
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Completed & Operating Projects

Scheme Length
(km)
1) North Luzon Expressway JV with GOCC 84.96
2) Skyway JV with GOCC 16.30
(elevated)
13.50
(at-grade)
3) South Luzon Expressway JV with GOCC 36.10
4) Star Tollways BOT - Hybrid 19.74
5) SCTEX BOT - Hybrid 93.77
6) Manila-Cavite Toll Expressway JV with GOCC 13.75

7) Muntinlupa-Cavite Expressway BTO 4

8) PSIP I & II BT 14,000

classrooms
(est)
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Completed & Operating Projects

Scheme Length
(km)
9) TPLEX BOT 88.85
10) NAIAX BTO 7.5
Others
11) Mactan Cebu Airport BOT 8 million pax
12) Automatic Fare Collection System BTO/BOO
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Design and Construction Stage

Length
Scheme (km)
1) Cavite – Laguna Expressway BTO 44.6
2) MMS 3 (Metro Manila Skyway 3) BOT 14.82
3) NLEX-SLEX Connector BOT 8 km
Others
1) South Integrated Transport BTO
Terminal
2) Southwest Integrated Transport BTO
Terminal
3) LRT 1 Extension BTO
4) National Government JV
Administrative Center (New Clark
City) Page
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History of PPP in the Philippines

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History of PPP in the Philippines

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History of PPP in the Philippines

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Legal and Regulatory Framework

• 1987 Philippine Constitution

“The State recognizes the indispensable role of the private sector, encourages
private enterprise, and provides incentives to needed investments.”

• RA 6957, as amended by RA 7718

The Amended Build-Operate-and-Transfer (BOT) Law and its IRR

• Revised NEDA JV Guidelines

• Other Major Laws

RA 10752 (Right of Way Acquisition Act)

RA 8975 (Expeditious Implementation and Completion of Government
Infrastructure Projects by Prohibiting Lower Courts from Issuing Temporary
Restraining Orders)
RA 7160 (Local Government Code)
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SOLICITED BID PROCESS AS

REQUIRED UNDER THE BOT LAW (RA 6957
as amended by RA 7718)

Stage 3:
Implementation
Stage 2: Public (construction and
bidding and O&M)
award
Stage 1: Project
Review and Study - Two Stage
and government - Single Stage
approval (NEDA
ICC and NEDA
Board)
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UNSOLICITED BID PROCESS AS

REQUIRED UNDER THE BOT LAW (RA 6957
as amended by RA 7718)

Stage 3:
Swiss Challenge,
Stage 2: Secure Award and
NEDA approval of Implementation
project returns (construction and
Stage 1: Proposal and negotiations O&M)
Review and with original
agency to give proponent
Original
Proponent Status
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 Page 19

Common Structures/Contractual
Arrangement in the Philippines
Contractual arrangements
provided for under the BOT Law
 Build-Operate-Transfer (BOT)
 Build-transfer-Operate (BTO) Common structures defining role of
the private sector
 Build-Transfer (BT)
 Design-Finance-Construct,
 Build-Lease-Transfer (BLT) Operate and Maintain
 Build-Own-Operate (BOO)  Finance-Construct-Operate and
 Contract-Add-Operate (CAO) Maintain
 Develop-Operate-Transfer  Design-Finance-Construct
(DOT)
 Rehabilitate-Operate-Transfer
(ROT)
 Rehabilitate-Own-Operate
(ROO)
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UNSOLICITED BID PROCESS AS

REQUIRED UNDER THE NEDA JV
GUIDELINES
Stage 3:
Swiss Challenge,
Stage 2: Secure Award and
NEDA ICC Implementation
approval. (construction and
Stage 1: Proposal Negotiations to O&M)
Review and follow. Issuance
agency to advise of Original
Proponent of Proponent Status
acceptance of upon conclusion
complete proposal of negotiation.
submission
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Solicited vs Unsolicited Proposals

Item Unsolicited Solicited
1) Project ID and coverage Government/Private Government
2) Feasibility Study and Design Private Government
3) Draft contract/agreement Private Government
4) Secure approval Government Government

5) Conduct of bidding Government Government

(Swiss Challenge) (Open Bidding)
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Swiss Challenge Process for

Unsolicited Proposals Compared
A. Proposal Evaluation to Issuance of Original Proponent Status
Item BOT LAW & IRR NEDA JV Guidelines
1) Acknowledge Receipt of Proposal 7 calendar days

2) ) Agency to advise proponent Within 30 calendar

whether submission is complete or days from submission
incomplete of proposal

3) Evaluate proposal/ qualify Within 120 calendar

proponent days from receipt of
complete proposal

4) Issuance of Letter of Acceptance Within 120 calendar 60 calendar days

and OPS days from receipt of upon submission of
complete proposal complete proposal
(no OPS)
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Swiss Challenge Process for

Unsolicited Proposals Compared
B. ICC and NEDA Board Approval of RoR and Negotiation Parameters

Item BOT LAW & IRR NEDA JV Guidelines

5) Endorsement to ICC 5 calendar days from
issuance of
Acceptance Letter
6) Evaluation/Approval by ICC Open date
(determination of reasonable rate of
return and other parameters)
7) Endorsement to Approving Body Open date
(NEDA Board)
8) Evaluation and approval by Within 30 working
Approving Body days from receipt of
endorsement
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Swiss Challenge Process for

Unsolicited Proposals Compared
C. Direct Negotiation with Original Proponent and approval by ICC/NEDA
Board of results
Item BOT LAW & IRR NEDA JV Guidelines
9) Advise OP of commencement and 7 calendar days from
mechanics of negotiations receipt of advise
from Approving Body
10) Negotiation Period 80 calendar days 30 calendar days upon
from receipt of issuance of Letter of
written advise to Acceptance of
commence nego complete proposal
11) Submit results of nego to 7 calendar days after
ICC/Approving Body for approval nego period
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Swiss Challenge Process for

Unsolicited Proposals Compared
C. Direct Negotiation with Original Proponent and approval by ICC/NEDA
Board of results
Item BOT LAW & IRR NEDA JV Guidelines
12) Approval by ICC/Approving Body, Open date Within 7 calendar days
Acceptance by OP of terms and upon completion of
issuance of certificate of successful negotiation parties to
negotiation issue a certification
that they have reached
agreement and both
agree to submit
proposal to
competitive challenge.
(no need for OP
approval)
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Swiss Challenge Process for

Unsolicited Proposals Compared
D. Advertisement and Contract Review
Item BOT LAW & IRR NEDA JV Guidelines
13) Publish invitation for comparative 7 calendar days from 7 calendar days upon
proposals for 3 consecutive weeks issuance of approval of the
certificate of Approving Authority of
successful JV proposal. 1
negotiation advertisement in a
newspaper with
nationwide circulation
and posting in website
for 7 consecutive
calendar days
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Swiss Challenge Process for

Unsolicited Proposals Compared
D. Advertisement and Contract Review
Item BOT LAW & IRR NEDA JV Guidelines
14) Posting of bid bond by original On first day of On first day of
proponent advertisement advertisement
15) Statutory Counsel/DoF review of 10 calendar days
draft contract and issuance of from receipt of draft
opinion contract
16) Head of Agency review and Open date
approval of draft contract
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Swiss Challenge Process for

Unsolicited Proposals Compared
E. Submission of Comparative Bids

Item BOT LAW & IRR NEDA JV Guidelines

17) Issuance of tender/bidding Open date 60 calendar days from
documents last day of issuance of
bid dox to bid
submission for
projects PhP500
milion and above and
30 calendar days for
projects less than
PhP500 million
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Swiss Challenge Process for

Unsolicited Proposals Compared
E. Submission of Comparative Bids

Item BOT LAW & IRR NEDA JV Guidelines

18) Pre-bid Conference 30 calendar days 15 calendar days for
from issuance of projects below
tender/bidding dox PhP500 million and 30
calendar days for
PhP500 million and
above before bid
submission date
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Swiss Challenge Process for

Unsolicited Proposals Compared
E. Submission of Comparative Bids

Item BOT LAW & IRR NEDA JV Guidelines

19) Preparation of bid for Swiss 60 working days from 120 calendar days or
Challenge/Bid Submission issuance of as may be approved
tender/bidding dox by Approving Authority
from issuance of
tender documents
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Swiss Challenge Process for

Unsolicited Proposals Compared
F. Evaluation of bids
Item BOT LAW & IRR NEDA JV Guidelines
18) Evaluation of qualification 20 calendar days 15 calendar days from
documents (envelope 1) and from bid submission submission of
notification of qualified and qualification
disqualified bidders documents and notify
bidders within 7
calendar days upon
approval
19) Evaluation of technical proposal 20 calendar days 30 calendar days from
(Envelope 2) from date bids were date proposals were
opened opened
20) Evaluation of financial proposal 15 calendar days 15 calendar days from
(Envelope 3) from date of opening of financial
completion of proposal
technical proposal
review
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Swiss Challenge Process for

Unsolicited Proposals Compared
G. Right to Match and Decision to Award
Item BOT LAW & IRR NEDA JV Guidelines
21) Notification of result of Comparative Open date
Bid

22) Right to Match by Original Proponent 30 working days from No Right to Match but
were receipt of Original Proponent can
notification of result of submit an improved bid
comparative bid price on or before date of
bid submission
23) PBAC Recommendation of Award to 3 calendar days from Within 7 calendar days
Head of Agency date of financial JV-SC shall submit
evaluation recommendation of
award to head of agency
24) Decision to Award/Approval by Head 3 calendar days from 7 calendar days from
of Agency submission of PBAC submission of JV-SC
recommendation recommendation
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Swiss Challenge Process for

Unsolicited Proposals Compared
H. Issuance of Notice of Award (NOA) and Signing of Contract
Item BOT LAW & IRR NEDA JV Guidelines
25) Issuance of Notice of Award to 5 calendar days from 7 calendar days from
Winning Bidder Head of Agency approval
approval
26) Submission of NOA requirements 20 calendar days 30 calendar days from
by Winning Bidder from receipt of NOA receipt of NOA
27) Posting of NOA on PhilGeps, IA 7 calendar days from
and PPP Center websites receipt of NOA
28) Notification of NOA compliance 5 calendar days from
receipt of NOA
requirements
29) Signing of Contract 5 calendar days from 7 calendar days from
receipt of compliance receipt of compliance
notification by no
winning bidder
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• Terms and conditions of the

Concession Agreement are based on
risk allocation between private sector
and government.
• Viability a key driver.
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Sample Risk Allocation Matrix (Tollroad

Models)
RISK Grantor Private
1. Site Risks
a. Site Availability/ROW Acquisition 
b. Existing Structure 
c. Site Conditions 
d. Permits and approvals/Site Preparation 
e. Pre-existing Environmental Liabilities 
f. Environmental Liabilities created during 
construction and operation
g. Cultural Heritage 
2. Design, Construction and Commissioning
a. Design/Technical Risk Page

b. Inter-connectivity 
c. Inter-operability  
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Sample Risk Allocation Matrix (Tollroad

Models)
RISK Grantor Private
2. Design, Construction and Commissioning
d. Construction 
e. Commissioning 
3. Sponsor and Financial Risks
a. Interest Rate – pre-completion 
b. Interest Rate – post-completion 
c. Foreign Exchange 
d. Inflation (tariff adjustment) 
e. Financing (availability) 
f. Sponsor 
Page
g. Change in Ownership (lock-up period) 
h. Tax Changes 
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Sample Risk Allocation Matrix (Tollroad

Models)
RISK Grantor Private
4. Operating Risks
a. Inputs/Operating Cost Overrun 
b. Maintenance and Refurbishment 
c. Changes in agreed output specs (**)  
d. Service quality 
e. Technical Obsolescence 
5. Demand Risk 
6. Network and Interface 
a. Changes in Competitive Network 
7. Industrial Relations Page 
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Sample Risk Allocation Matrix (Tollroad

Models)

RISK Grantor Private

8. Legislative and Government Policy
a. Additional approvals 
b. Changes in Law/Policy 
c. Regulation 
9. Force Majeure  
10. Asset Ownership 
a. Default and termination Page 
b. Residual value on transfer to government 
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Contract Terms/Mitigating Measures

During Construction
 Concession Period
 Project specific (longest 35 yrs)
 Begins on signing date of CA as opposed to issuance of
Notice to Proceed (“NTP”)
 Government commits to a deadline for the delivery of
ROW. If not delivered within a prescribed period,
government may provide compensation and may be
called in default.
 Provides incentive to finish construction early to start
operations earlier thereby effectively increasing
operating years.
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Contract Terms/Mitigating Measures

During Design & Construction
 Design
 Government provides alignment and preliminary engineering
design.
 Government sets MPSS
 Concessionaire is free to revise design based on the MPSS
and along the same corridor/alignment defined by
government (largely due to ROW acquisition issues).
 Upon approval of design and partial or complete delivery of
ROW, government issues the NTP.
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Contract Terms/Mitigating Measures

During Design & Construction

 MPSS
 Government sets MPSS
 Project design and tollroad operation must comply with
MPSS
 Hiring of Independent Consultant (“IC”) to monitor
compliance to MPSS (from design stage) and settle
conflicts/disputes between the two contracting parties.
 IC engaged within 6 months from signing of CA. 50/50
sharing of cost between government and concessionaire.
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Contract Terms/Mitigating Measures

During Design & Construction

 Delivery of ROW
 Sole responsibility of government including relocation of
utilities.
 Contract provides for curing period + long stop date.
 Government default after long stop date.
 Government pay compensation to concessionaire (all costs
including breakage costs and upfront payment, if any)
 Due to long legal expropriation process, access to site will
be based on a Writ of Possession (WOP) issued by the
courts as opposed to transfer of title to government.
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Contract Terms/Mitigating Measures

During Design & Construction
 Financing
 Government may set maximum leverage ratio (80/20) to ensure
that the concessionaire has enough skin in the game.
 If project is not viable, government may provide VGF or may
undertake certain aspects of the project.
 Financial closure 6 months from signing date
 Concessionaire may assign its rights, interest and obligations
under the contract.
 Concessionaire may assign its actual or expected income or
revenues without prior approval by DPWH but government must be
given written notice prior to the assignment.
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Contract Terms/Mitigating Measures

During Design & Construction
 Construction Completion
 Government will issue the NTP upon complete or partial delivery of
ROW as may be provided for in the contract.
 Completion deadline will be set in the contract based on result of
negotiation in the bidding stage and starting from date of NTP.
 Contract provides for curing period + long stop date
 Concessionaire pays Liquidated Damages during curing period up
to long stop date.
 Failure to complete on long stop date will trigger Concessionaire
default.
 Performance Security is required for any Concessionaire Default
which occurred during construction period.
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Contract Terms/Mitigating Measures

During Design & Construction

 Construction Completion (continuation)

 Defined excusable delays such as:
• Variation beyond the control of the concessionaire
• Issuance of relevant consents from national and local
government authority not due to failure of concessionaire to
comply with requirements
• Relocation of utilities
• Delivery of basic or additional ROW
• Failure to sign IC contract 12 months from signing of CA
• Any Force Majeure event
 Liquidated Damages after construction completion deadline if
construction failed to complete on time.
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Contract Terms/Mitigating Measures

During Design & Construction

 Project Cost and Cost Overrun

 Government provides estimated project cost based on
preliminary engineering design.
 Sole responsibility of concessionaire
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Contract Terms/Mitigating Measures

During Operation & Maintenance
 Start-up
 Contract may allow partial operation; provides incentive as
concessionaire may start collecting earlier without changing
the end of the concession period.
 Concessionaire is responsible for ensuring that toll road will
start operations upon completion.
 3-year lock up period for equity shareholders

 Market
 VGF to address viability issues
 Hybrid structure
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Contract Terms/Mitigating Measures

During Operation & Maintenance
 Regulatory/Tariff Regime
 TRB approval of tariff, escalation formula, timing of
application for tariff increase and implementation of the tariff
increase prior to bidding
 Should government disallow implementation of the tariff
increase, the difference will be covered by the government.

 MPSS
 Private sector risk
 Liquidated Damages (LD)
 Maximum amount of LDs is set and will trigger default if
reached.
 Performance Security for any major defect/damage one year
after issuance of Final Completion Certificate
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Contract Terms/Mitigating Measures

During Operation & Maintenance
 Maintenance
 Concessionaire to maintain tollway and ensure compliance
to MPSS
 Liquidated Damages for non-compliance to MPSS

 Toll Collection
 Ensures efficient toll collection
 Compliance to MPSS
 O&M Performance Security requirement

 FX
 Toll rate adjustment formula does not provide adjustment for FX
related cost due to relative stability of the peso against the US
dollar.
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Contract Terms/Mitigating Measures

Others
 Variation order
 Cost will be paid for by the party who initiated the variation
 Must comply with MPSS

 Force Majeure
 Shared risk
 Insurance

 MAGA
 Covers changes in law at the national level that has material
adverse effect on the Concessionaire’s rights and privileges under
the contract.
 Imposition of new national tax and change in the maximum rate of
any national tax except VAT. Local taxes not yet included.
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Contract Terms/Mitigating Measures

Others
 Termination Payments
 Government will compensate the Concessionaire for default.
 Lenders to be kept whole including breakage cost, etc. and
has step in rights or may appoint a replacement.
 If Concessionaire Default, government will not compensate
equity.
 If Government Default, government to compensate all
including equity.

 Dispute Resolution
 Dispute Resolution Board
 Arbitration
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THANK YOU