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Public Private Partnership: Government has regulated by emergency ordinance the cost cutting through “Value for Money” analysis

de Adrian N Ionescu , 18.12.2017

The Government has established the new regulations on the public-private partnership (PPP) by an emergency ordinance issued Thursday and introduced the Value for Money concept, the implementation of which should optimize the contribution and costs of the contracting public authority.

The Value for Money (VfM) is a cost-benefit type of analysis and in the same time “a good practice in the initial preparation of a project, whether it is run through traditional procurements or PPPs,” according to a guideline of the European Investment Bank (EIB).

The Ordinance on PPP provides for the use of the VfM modelling, because it “reflects the differentiation in estimating costs during the whole project lifetime, adjusted by the value of the risks, in the scenarios of the completion by the traditional method (public procurement) and (respectively) public-private partnership” says also the Government’s communication announcing the adoption of this legislation.

We would get to “transferring the risks and a lower cost, in the long run, for the Romanian state compared to the traditional public procurement”.

The ordinance “regulates the approval steps/competencies in evaluating the project, from the point of view of its classification in the public administration (on-budget)”.

If the analysis of the PPP contract reveals that the project is to be categorised as on-budget, central public administration’s projects can be implemented only after the Government’s approval by a Memorandum.

In the case of projects of local interest, they are approved by the Committee for the authorization of public-private partnership contracts, at the local level. This committee will be established later by a government decision.

It also regulates:

  • The establishment of the project evaluation mechanisms to avoid deviations from the deficit and public debt targets assumed by Romania through the fiscal-budgetary strategy.
  • The external evaluation of the public partner’s capacity to manage risks at the level of a PPP contract, at the level the establishment study.
  • Measures to exclusively include into the PPP regime the well-prepared projects that prove an economic efficiency and a priority at the central/local level:
    • the net updated cost for the project implementation by the traditional method (public procurement) is to be used as an “affordability threshold” compared to the net updated cost of the project implementation under the public-private partnership regime;
    • the elaboration of a strategic program assumed at the level of the Government, which will provide for categories of projects that can be developed under the PPP regime.
  • Ensuring the continuity of the project by regulating the situations for the replacement of the private partner:
    • the regulation of some mechanisms that would allow the replacement of the private partner in case of non-performance without resuming the contract award procedures, by avoiding possible situations of some off-budget projects becoming on budget projects;
    • protecting the company’s public assets from the project.

The emergency ordinance adopted today amends and supplements Law 233/2016 on the public-private partnership.

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