At the end of the 1990s and the beginning of the 2000s, a number of so-called institutionalized public-private partnerships (IOPPs) were concluded, especially in the waste sector and for city cleaning. IPPs are public-private partnerships based on corporate structures, particularly in the provision of public infrastructure.
Since these structures are typically designed for 15 to 25 years for reasons of public procurement law, the question now regularly arises as to how the area in question can be restructured after the end of the cooperation. In 2018/2019, for example, the city of Frankfurt am Main with its 51 percent subsidiary Frankfurter Entsorgungs- und Service GmbH (FES) and in 2020 the state capital Düsseldorf with its (indirect) minority interest in the AWISTA Gesellschaft für Waste management and city cleaning mbH.
Strategic partner for municipalities
One possibility for restructuring is to re-tender the service contracts on which the cooperation is based – for example for waste collection and disposal. As an alternative to the tender for the service, however, a tender at the company level can also be considered.
The municipality is looking for a new strategic private partner, for example by putting the minority share of 49 percent in the existing IÖPP company into competition. The object of this Europe-wide tender is the sale of a share in the company, i.e. a “share deal”. The new service contracts on which the transaction is based are concluded in advance of the tendering process in compliance with pricing regulations and thus make the company share to be tendered valuable.
Tendering of Shares
The advantages of the tender at company level are obvious: It enables long-term continuity of the existing IÖPP company as a (partial) municipal company and thus gives the municipality planning security in an important area of public services. While a tender cycle for service contracts is usually limited to contract periods of between four and six years, a cooperation under company law can regularly be concluded for 20 to 25 years, in particular due to its comparatively long amortization period, even in accordance with EU specifications.
The corporate value created in the IÖPP company therefore remains stable in the long term – just like the fees for the citizens. This construction also offers considerable advantages for job security compared to tendering at the performance level.
Decisive influence for public authorities
A further advantage of this model variant is that the public sector can structure its participation under company law in such a way that it has a clear influence on the operative business without losing the entrepreneurial freedom of the private partner, which is just as important for the success of the IÖPP company.
The municipality can also work towards a transfer of know-how to society, for example in order to remunicipalise the relevant sector in the future. The configuration of the possibilities for municipal influence and the entrepreneurial leeway of the private sector typically takes place in a consortium agreement, which is concluded between the public sector and the private partner as soon as the contract has been awarded.
Set high standards
This contract can also specify the leeway of the IÖPP company in commercial business or third-party transactions and make further regulations that affect the profit expectations of the IÖPP company and thus the inflow of funds into the municipal budget.
In addition, the parties can stipulate high-quality standards for the provision of services, the development of which can be specified for private companies in the competition for the company share, for example on the basis of ESG aspects. Last but not least, this type of tender offers the chance of generating a significant purchase price for the company share from the winner of the tendering process.
The “Frankfurt Model”
Previous practice has shown that the market accepts the described model well and that it is manageable, albeit legally complex. It was implemented, for example, in the “Frankfurt Model”, with which the city of Frankfurt am Main put 49 percent of the shares in FES out to tender in a pilot tendering process in 2019 and successfully completed this in September 2020 with the award of the contract.
In other cases, the realization of the model described depends on how the end-of-life regulations – i.e. the specifications for the continuation or the end – of the previous (expiring) IÖPP cooperation are designed. If the public sector has access to the company shares of the private partner, the prerequisites for a new tender for the company share can be created comparatively quickly. Otherwise, the municipality must first negotiate the details with the private partner.
IÖPP model transferrable
In the event that no IÖPP company has existed so far, the public sector can use the model variant presented to set up a new IÖPP structure. This can happen, for example, by the public sector first founding a company and the future private partner bringing the assets required to provide the service. Cases are also conceivable in which the public sector has access to such assets from a previous cooperation, which a new IÖPP company takes over in the run-up to the tender.
The IÖPP model described for the waste sector can basically also be transferred to other sectors in which temporary IÖPP structures exist, in particular due to legal obligations. Typical applications are, for example, government services of general interest in the transport or water supply sector or in the field of rescue services.
Info
dr Heiko Hofmann and Dr. Matthias Menke are partners at the law firm Görg with a focus on public procurement and corporate law.
This guest article first appeared in the current newspaper edition of Der Neue Kämmerer. Click here to subscribe and here to subscribe to the newsletter.
