The Trans-Pacific Partnership (TPP) broadens the public infrastructure projects that are covered by its government procurement provisions with its application to public-private partnerships (PPPs), in particular build-operate-transfer (BOT) contracts and public works concessions contracts. The TPP Government Procurement Chapter applies to all BOT contracts and public works concessions contracts, except in Malaysia, Mexico and Vietnam. Even though Mexico excludes BOT contracts, it covers turnkey and major integrated projects, a type of PPP. Japan also covers its Private Finance Initiative. This post examines the TPP’s coverage of PPP projects.
The TPP treats BOT contracts and public works concessions as a type of contractual arrangement. As a consequence, it applies to all parties, unless a party excludes them. Such contracts provide for the construction of infrastructure, facilities or other government-owned works under an arrangement in which a procuring entity grants to a supplier temporary ownership or a right to control and operate, and demand payment for the use of, those works for the duration of the contract. At the end of the contract, the private party transfers the facilities to the government. A typical example of BOT contracts is toll roads, which allows a private company that builds the road to collect tolls from those using it during the duration of the contract; at the end the contract, it transfers the road to the government.
The TPP’s coverage of BOT contracts and public works concessions is the approach the United States has followed in all of its FTAs, except for the North American Free Trade Agreement (NAFTA) and the U.S.-Israel FTA. It did not extend such coverage in the recent revision of the WTO Government Procurement Agreement (GPA), which covered PPPs for the first time.
The extent to which covering BOT contracts or public works concessions represent new market access opportunities under the TPP depends on whether a country covers the entities that undertake such contracts. Canada, for example, has added coverage of PPP Canada Inc., a federal Crown corporation, with a mandate to improve the delivery of public infrastructure through PPPs. On the other hand, Canada has excluded from its obligations “an international crossing between Canada and another country, including the design, construction, operation or maintenance of the crossing as well as any related infrastructure”. That exclusion would apply to the New International Trade Crossing project between Canada and the State of Michigan, which will be undertaken through “one or more Public-Private Agreements with one or more private sector Concessionaires”.
In the U.S., BOT contracts are used primarily at the state level. Since the U.S. has not yet offered any states under the TPP, the value of BOT coverage for the U.S. will be more significant if the U.S. eventually covers states. Expansion of sub-central coverage is an issue that the parties have agreed to take up no later than three years after the Agreement enters into force.
Malaysia carves all PPP contractual arrangements, including BOTs and public works concessions, from its TPP obligations. Mexico and Vietnam take exclusions for BOT contracts and public works concessions.
Mexico, however, covers turnkey and major integrated projects in the TPP, as it does in NAFTA, with restrictions. Such projects generally refer to a construction, supply or installation project undertaken pursuant to a right granted by an entity under which: (i) the prime contractor is authorized to select a general contractor or subcontractors; (ii) neither the Government of Mexico nor its entities provide funds for the project; (iii) the contractor bears the risks associated with non-performance; and (iv) the entity operates the facility directly or through a contract. Mexico reserves the right to impose local content requirements in these projects — up to 40% in labor-intensive turnkey or major integrated projects and 25% in capital-intensive turnkey or major integrated projects.
In the TPP, Japan covers its Private Finance Initiative (PFI), as it has in the revised GPA. Its commitment applies to procurement for construction projects within the scope of the “Act on Promotion of Private Finance Initiative, as of 30 November 2011”. In the 2011 revision of that Act, Japan created the PFI Act Concession, which allows private entities to operate and manage existing infrastructure by relying on fees charged to users.
Jean Heilman Grier
February 2, 2016