From federal or regional megaproject to local collaboration
When hearing the term ”PPP” (“public-private partnership”), we often immediately think of large infrastructure projects, based on the DBFM(O) formula. In these DBFM(O) projects, a single private partner – typically a consortium – handles the full package: design, build, (pre)finance, long-term maintenance and sometimes also some operational services.
DBFM(O)
Public actor
owner
owner
Private partner
design
build
finance
maintenance
(operation)
build
finance
maintenance
(operation)
These DBFM(O) projects require intensive negotiations and extensive contracts (including subcontracting agreements and financing documentation), attempting to mitigate as much as possible the risks that such long-term partnership may entail. Federal and regional governments often opt for DBFM(O) because it allows the project to be structured in an ESA-neutral manner.
But that is only one form of PPP.
While DBFM(O) projects represent a substantial share of the PPP market, a collaboration between a public actor and private partner needn't be so complex. This is important (and good news) for numerous smaller public entities. For these (often local) authorities – which lack the resources or capacity for long, complex processes – there are simpler, useful alternatives.
But that is only one form of PPP.
While DBFM(O) projects represent a substantial share of the PPP market, a collaboration between a public actor and private partner needn't be so complex. This is important (and good news) for numerous smaller public entities. For these (often local) authorities – which lack the resources or capacity for long, complex processes – there are simpler, useful alternatives.
Different forms of appearance
PPP projects take many forms: from D&B (design & build) through DBM (design, build and long-term maintenance) to DBFM(O) or a concession for works or services.
These projects occur at all governance levels, certainly also locally: provinces, provincial development companies, municipalities, autonomous municipal companies, intercommunal associations, public social welfare centres, etc.
These local actors often possess assets (unfortunately often outdated and at least requiring intensive maintenance) they wish to enhance. With a limited budget and limited capacity, they seek smart solutions to deploy these assets as policy-supporting instruments serving residents.
A partnership with a private partner beyond the traditional “procurement” then offers significant added value, without necessarily being highly complex.
Simple transactions and their limitations
Sometimes the transaction is limited to a sale of real estate. This generates quick money, but these plots then permanently leave the public estate. The buyer then determines freely – within the spatial designation – what happens to the purchased plots. This is a “one-shot” solution, but without long-term added value.
These projects occur at all governance levels, certainly also locally: provinces, provincial development companies, municipalities, autonomous municipal companies, intercommunal associations, public social welfare centres, etc.
These local actors often possess assets (unfortunately often outdated and at least requiring intensive maintenance) they wish to enhance. With a limited budget and limited capacity, they seek smart solutions to deploy these assets as policy-supporting instruments serving residents.
A partnership with a private partner beyond the traditional “procurement” then offers significant added value, without necessarily being highly complex.
Simple transactions and their limitations
Sometimes the transaction is limited to a sale of real estate. This generates quick money, but these plots then permanently leave the public estate. The buyer then determines freely – within the spatial designation – what happens to the purchased plots. This is a “one-shot” solution, but without long-term added value.
Sale
Public actor
owner
owner
Private partner
buyer
buyer
Possible projectco
with investor
with investor
architect/contractor
Area development as sustainable PPP solution
In area development, public assets also often remain in public hands. Rather than selling, the public actor then grants a long-term right in rem: leasehold, building right or possibly usufruct. The private partner pays a market-based fee and develops and operates the relevant plots within the spatial designation. Often, the completed structures are then made available to the public actor for compensation in the reverse direction. In this way, the plots remain publicly owned while being actively used and enhanced.
Right in rem
Public actor
owner
owner
Private partner
holder right in rem
holder right in rem
Possible projectco
with investor
with investor
architect/contractor
In Flanders, the Decree of 18 July 2003 on public-private partnerships already facilitated this establishment of rights in rem more than twenty years ago. Later legislation, such as the Decree of 22 December 2017 on local government, adopted this principle – in favour of among others municipalities and autonomous municipal companies.
Mixed development
Area development needn't have an entirely public purpose. A combination is possible: public development (school, library, sports facilities, etc.) and private development (residential housing with private parking, retail, etc.) on the relevant plots. The land value for the private development can then serve as (partial) compensation for the realisation of the public development.
Mixed development
Area development needn't have an entirely public purpose. A combination is possible: public development (school, library, sports facilities, etc.) and private development (residential housing with private parking, retail, etc.) on the relevant plots. The land value for the private development can then serve as (partial) compensation for the realisation of the public development.
Mixed development
Public actor
owner
owner
D&B contract public part
Right in rem private part
Private partner
developer/investor
developer/investor
Delivery public parts
Public actor
Sale/rental
Private
buyers/tenants
buyers/tenants
architect/contractor
Partnership vehicles
For a more complex collaboration, a partnership (special purpose vehicle or SPV), can be established with a private partner, directly or via an intermediate structure. The public actor contributes the relevant plots (possibly indirectly); the SPV develops and operates. An important prerequisite is that the regulations must permit this. This requires examination for each specific public actor.
For a more complex collaboration, a partnership (special purpose vehicle or SPV), can be established with a private partner, directly or via an intermediate structure. The public actor contributes the relevant plots (possibly indirectly); the SPV develops and operates. An important prerequisite is that the regulations must permit this. This requires examination for each specific public actor.
Partnership vehicle
Public actor
owner
owner
Contribution real estate assets
Public entity
Minority %
Private investor(s)
Majority %
Pubco
transfer of shares
SPV
architect/contractor
Regulatory considerations
Above, already a number of points for consideration were mentioned regarding area development: compliance with applicable regulations on establishing rights in rem (particularly Book 3 of the Civil Code) and possible participation in public-public or public-private partnerships (such as intercommunal associations and other forms of associations provided in applicable local government legislation).
Additionally, the principles of equal treatment and transparency, and public procurement or concessions legislation must be taken into account:
Additionally, the principles of equal treatment and transparency, and public procurement or concessions legislation must be taken into account:
- Area development, in any of the forms outlined above, generally requires at minimum a transparent competitive procedure with appropriate publication, where the choice of private partner must be justified. Direct "negotiated" transactions without broad competition are the exception and must be thoroughly justified.
- Depending on the degree of control/influence the public actor wishes to retain over the project development and operation, and the compensation structure, public procurement legislation or concessions legislation may apply.
The straightforward sale of developed or undeveloped land by a public actor to a private partner does not constitute a public procurement contract or concession.
However, when as part of the transaction works are executed where the public actor has a direct economic interest (e.g. as the (future) owner of the works) and exercises a decisive influence on the final design, with an enforceable construction obligation for the private partner, then in principle, a procedure for a public procurement contract or concession must be organised.
Another consideration concerns applicable spatial plans: a designation change for the relevant plots may be necessary. In that case, the collaboration can be concluded subject to such designation change. If the public actor-contracting authority is also competent for spatial planning, impartiality and absence of conflicts of interest must be guaranteed.
Furthermore, not all plots where the intended development is planned may be in the hands of the relevant public actor. In that case, it often has – as "last resort" – expropriation powers (for example under the Decree of 24 February 2017 on expropriation for public benefit or the Decree of 22 December 2017 on local government) which can be used to first acquire all plots.
Finally, the financial and fiscal aspects connected to the intended property transaction are crucial. Particularly a correct valuation of the relevant plots and an optimal fiscal structure (considering regulations on VAT and registration duties among others) are essential for a successful transaction.
Furthermore, not all plots where the intended development is planned may be in the hands of the relevant public actor. In that case, it often has – as "last resort" – expropriation powers (for example under the Decree of 24 February 2017 on expropriation for public benefit or the Decree of 22 December 2017 on local government) which can be used to first acquire all plots.
Finally, the financial and fiscal aspects connected to the intended property transaction are crucial. Particularly a correct valuation of the relevant plots and an optimal fiscal structure (considering regulations on VAT and registration duties among others) are essential for a successful transaction.
Why involve BDO in your project?
BDO is a solid multidisciplinary advisory organisation. We support public actors and private partners with PPPs, including area development. Our expertise encompasses integrated financial, legal and fiscal advisory services. This means you receive integrated, tailor-made guidance that fits your strategic, financial and operational objectives.
Would you like to get started with area development? Contact BDO for an exploratory conversation. We'll examine opportunities and risks and establish a practical action plan together.
Would you like to get started with area development? Contact BDO for an exploratory conversation. We'll examine opportunities and risks and establish a practical action plan together.
