By Giuseppe Giamundo Neto and Fernanda Leoni

Designed as large-scale contracts, public-private partnerships (PPPs) are often associated with more complex contracts, given that Federal Law 11,079/2004, which governs the matter, sets quite strict requirements for their characterization, involving considerable amounts, extended terms and multiple objects.

In recent years, however, there has been debate about the possibility of directing this contractual instrument not only to the more common infrastructure works traditionally linked to the model — such as highway concessions — but also to projects of a social nature, such as in the areas of health and education, for which the term “Social PPPs” has come to be used.

Indeed, there is no incompatibility between the model and this specific type of object, provided that the requirements set out in the legislation are met. The question to be debated is precisely how to extend this contractual logic to objects that, a priori, fall under the common model of administrative contracting more out of convenience than suitability.

The discussion presents positive prospects and there are already some specific experiences to be evaluated, although adaptive challenges inherent to any new legal undertaking can also be foreseen. The fact is that investment in this type of partnership is a bet of the current Federal Government, which even already has resources in a fund for this purpose [1].

Examples

In the area of education, the Federal Government has been studying, with the support of the Brazilian Development Bank (BNDES), the National Fund for Education Development (FNDE), Caixa Econômica Federal and the Ministry of Education, projects aimed at reducing the shortage of places in daycare centers and early childhood education.

The easy flow of federal funds for this type of project to states and municipalities as well certainly facilitates its improvement and expansion [2].

Another sector suited to the development of this type of project is health care, where there are some well-established experiences.

A success story was the concession of the Hospital do Subúrbio in Salvador in 2010, whose contract delegated the entire management and operation of the hospital, including hospital care services, which even today, more than ten years later, receive very positive ratings from the population [3].

Although not immediately linked to social issues, prison PPPs are also tied to several complex topics, ranging from the limits of the State’s responsibility for maintaining minimum conditions for the prison population to the recurring discussion about the delegation of the State’s police power.

Only in the long term will it be possible to link any alleged improvement in this environment brought about by private management to rehabilitation, and to collect data on the effectiveness of the model for this object.

Housing

Another sector in which the model is discussed is social housing, although experiences are still highly contested. This is the case of the concessions by the São Paulo State Government and the São Paulo City Government, which, despite their complex and modern structuring, still struggle to address this urban problem of access to and conflict over space in a megalopolis.

From an essentially legal standpoint, apart from the common debate on the proper balance between private profit and the public interest, always present in initiatives involving some form of privatization, several other aspects must also be discussed that may signal obstacles to applying the model and extending it to subnational entities, which usually have a greater shortage of complex infrastructure.

One of these challenges certainly lies in the difficulty of designing contracts that allow effective and adequate measurement of the private agent’s results, since performance evaluation in social sectors involves far more complex variables than services of a competitive nature.

Consequently, these difficulties may increase the financial and operational risks of projects, making them less attractive to the private sector and, therefore, more costly to the public sector, mainly because of a return that is not as clear and rapid as in activities naturally remunerated through tariffs.

Regulation is also an aspect whose complexity increases in this type of project, since any capture not only undermines trust in the public sector but also challenges the desired social outcomes themselves. It is not only a matter of guaranteeing the quality and efficiency of the services provided, but of ensuring social outcomes that are not affected by a logic of immediate profit.

Equally relevant are the challenges related to the acceptance of the model by society and directly affected interest groups, which often finds an echo in the assessments carried out by oversight bodies or the Judiciary when discussing the legality of projects, especially in the most contested sectors.

In this context, improving state capacity to design good projects is certainly a decisive factor.

On the other hand, there are also advantages to be considered in implementing this model which, to some extent, resemble the debates related to concessions in general.

Efficiency and innovation are recurring issues in this area, based on the common — though not always accurate — view that the private sector is able to offer higher-quality management that is more compatible with increasingly volatile technological premises.

The availability of financial resources from various sources — not exclusively public — and access to private financing are also important tools for overcoming the budgetary constraints common to the public sector.

Innovation

Even in the portion financed with public funds, there is broader room for innovation, allowing for effective performance-based remuneration structures with clear incentives for results.

Innovation also finds room when structuring the contractual clauses, which can be more flexible and adaptable to the needs of the contract.

In this context, a good contractual matrix, designed with the transfer of strategic risks to each player in mind, enables not only greater security and attractiveness, but also more efficient demand management.

Finally, due to the interest in and need for a financial return on the investments made, PPPs provide incentives both for faster completion of projects — of the portions involving the delivery of some infrastructure, for example — and for the maintenance of the public facilities delivered, since these assets need to withstand long-term contracts.

In general, the expansion of public-private partnerships to social sectors, while still quite challenging, has the potential to improve efficiency, innovation, access to new sources of funds and proper allocation of strategic risks, representing a significant bet for the legal debate as well.

 

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[1] See: https://agenciainfra.com/blog/com-fundo-de-r-1-bi-estruturacao-de-ppps-sociais-sao-aposta-do-ppi-para-deslanchar-parcerias/. Accessed on 02/14/2024.

[2] This is what can be drawn from the remarks of the special advisor to the Special Secretariat of the Federal Government’s Investment Partnerships Program, Viviane Moraes Moura, in episode 98 of Infracast. Available at: https://open.spotify.com/episode/3ZVzzVvnY80Rr454Ku2HdL?si=bd2e97ff9da8470d. Accessed on: 02/14/2024.

[3] See https://www.saude.ba.gov.br/2020/09/18/hospital-do-suburbio-completa-10-anos-com-98-de-satisfacao-do-usuario/. Accessed on 02/14/2024.

 

Originally published on ConJur.com (in Portuguese)