Infrastructure Projects in the Philippines – Public-Private Joint Ventures

Spurred by a need to encourage other forms of private sector investment in infrastructure projects and to clarify the rules on and policies of the Philippine Government on public-private joint ventures, the National Economic Development Authority (NEDA) issued the “Guidelines and Procedures for Entering into Joint Venture (JV) Agreements between Government and Private Entities” (the “JV Guidelines”). The JV Guidelines took effect  on 2 May 2008.

The issuance of the JV Guidelines was mandated by Executive Order No. 423 dated 30 April 2005, which prescribes the rules on the approval of all government contracts for the purpose of conforming to Republic Act No. 9184, otherwise known as the “Government Procurement Reform Act.”

Under the JV Guidelines, government-owned or controlled corporations (GOCCs), government corporate entities (GCEs), government instrumentalities with corporate powers (GICPs), government financial institutions (GFIs) and state universities and colleges (SUCs) (as these terms are defined in the JV Guidelines and which entities are authorized by law or their respective charters to enter into joint venture agreements) can enter into joint venture agreements with the private sector in respect of investments activities that are related to and in furtherance of their respective purposes and mandates.

The JV guidelines, however, provide that joint venture should not “crowd out” private sector initiative in a particular industry or sector. In addition, while the JV Guidelines allow the joint venture to be implemented either as an incorporated or contractual joint venture, the incorporated joint venture (where both the government and the private joint venture partner become stockholders in a joint venture corporation that is established in accordance with the provisions of the Philippine Corporation Code) is the preferred mode of implementation.

In the past, the selection by government of a private sector partner was not subjected to a competitive selection process under the partnership law principle of delectus personae – where a partner has the freedom to choose his partner. The JV Guidelines now clearly require a competitive selection process for the government’s choice of a private sector joint venture partner. 

This competitive selection process is either initiated by the government entity concerned through the issuance of tender documents (which includes a draft contract) or, in some instances, conducted after the negotiation of the terms of the joint venture, similar to the “Swiss Challenge” first introduced by Republic Act No. 7718, which amended Republic Act No. 6957, more popularly known as the “Build Operate and Transfer Law”.
By Rocky L. Reyes, Partner

SyCip Salazar Hernandez & Gatmaitan
105 Paseo de Roxas, Makati City, Philippines
(Phone) +632 817 98 11
(Mail) ralreyes@syciplaw.com
(Web) www.syciplaw.com