In February 2019, the World Bank issued its draft revised Guidance on PPP Contractual Provisions (the Guidance) in order to solicit feedback from stakeholders. After a public comment period, the World Bank plans to release the publication’s third edition in June of 2019.
The 2017 version (second edition) of these contractual provisions sparked a strong reaction from developing countries and civil society. It led to a comprehensive legal review by the law firm of Foley Hoag LLP, as well as a digest of key messages. The experts’ commentaries and engagement with the World Bank underscored important imbalances in the way risks and rewards, rights and responsibilities were allocated between the private sector partners and the public sector contracting authority. They also urged the World Bank to provide more specific contextual and drafting advice from the standpoint of the contracting authority. Moreover, a study by the International Institute for Sustainable Development (IISD) highlighted what the 2017 edition failed to address: the imperative of sustainable development and the role of well-executed infrastructure projects in promoting the achievement of the Sustainable Development Goals (SDGs). Regrettably, few of our comments were reflected in the Guidance. Our offer to work in a collaborative manner to contribute to the drafting of the Guidance was also not accepted.
As a result, the undersigned organizations are making another submission to the World Bank team on the draft third edition of the Guidance. This Joint Submission was developed by Foley Hoag LLP and legal experts at the IISD and the Observatory for Sustainable Infrastructure. Heinrich Böll Stiftung, Washington, DC, graciously provided financial support for the preparation of this document.
This submission notes that, while some changes in the text have been made to address concerns expressed in relation to the 2017 edition, the fundamental lack of balance seen in the 2017 version remains in place. For the most part, the Guidance is fixated on getting the PPP deal to a close by motivating the private partner at the expense of the host country and its people. The text sees the contract as the endpoint, rather than a key milestone in the life of a PPP and a formal starting point for a successful infrastructure project that supports sustainable development. Host countries are urged to accept as a cost of attracting infrastructure investment the negative consequences that may fall on them and their people as a result of these contractual provisions. This approach to minimizing the costs of the private partner while maximizing the liabilities of the contracting authority does not equate to the value-for-money proposition that the text seems to imply. It simply maximizes the profit margin of the private partner while potentially creating large contingent liabilities of the host country. The addition of new paragraphs that comment on sustainable development and climate change does little to clarify the link between sustainable development and the obligations of the contract parties that should be embedded in the PPP contract. In fact, the overall approach to PPPs advocated by the Guidance is either indifferent to countries’ international commitments to sustainable development, or worse, could hinder rather than support such commitments.
We did find that the three new chapters—Chapter 4 on Contracting Authorities’ Step-in Rights; Chapter 6 on Termination Events; and Chapter 9 on Handover of Assets at End of Contract—are written in an even-handed manner and offer advice that has the potential to assist in the negotiation of balanced contractual provisions. We also note the clear indication of local law as the appropriate governing law of the PPP contract (p. 164) and the accompanying sample drafting language (p. 177). These revisions respond to our earlier comments on the 2017 edition of the contractual provisions. Throughout the rest of the Guidance, however, the private partner consistently has the upper hand in the recommended contractual provisions. The contrast between the new chapters and the rest of the Guidance creates an internal inconsistency that may confuse the audience of the Guidance as to the identity of the real intended audience of the Guidance and the overall approach taken by the Guidance on the allocation of risks between the contract parties.
This Joint Submission encourages governments to voice their concerns in order to reorient the Guidance toward a more internally consistent and balanced document that clearly sets its objective as sustainable development of the host country with fair and equitable allocations of risks and rewards, rights and responsibilities between the contract parties.
We also recommend to the World Bank team, for reasons explained below, to delay publishing a revised Guidance for another year until thorough changes and updates can be made along the lines suggested below. The value added of publishing this edition is relatively minor compared to the importance of addressing the need for balance in the existing set of provisions and what remains absent from a broader SDG perspective.
This Submission covers five key points:
- Context of today’s PPPs
- Audience and purpose of contractual provisions
- Impacts of the contractual provisions and suggestions for revisions
- What governments should do in response
- Recommendations to the World Bank drafting team