Cooperation agreements vs. administrative contracts

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Much has been written to date on the impact that Information and Communication Technologies (ICT) are having, and will have, on the way Town Halls and other local entities have been traditionally offering the various public services that fall within their competence.

Although, from my point of view, there is no consensus on what a "smart city" actually means, there is an agreement over the need to apply ICT to ensure greater efficiency in developing local activities for the benefit of citizens.

In fact, in view of the leading role citizens are acquiring in designing plans, programs and projects for public ICT-based activities in very different areas, some people now call "smart cities", "sensible cities" instead. This is expressed by the lecturer at the Massachusetts Institute of Technology, Carlo F. Ratti, one of the leading experts in the field, who understands a city to be a place that is able to perceive its citizens, exchange information with them and respond in real time ("there should be a city that senses, that responds to us".

 

 

 

Are we talking sci-fi here? Probably not. However, the general idea of smart cities, or cities that are able to perceive their citizens, based on a technological platform that can both effectively and efficiently integrate information from multiple sensors distributed throughout the territory (to carry out public actions or to offer new generation public services); process the information and re-use it to find new ways of offering these services or to identify new needs or areas of local public interest and interact in real time with its citizens, is not a reality that is going to happen steadily and continuously in the short-term.

What is certain is that either because most of the so-called “smart” projects initially lack definition and certainty, or because there are numerous alternative techniques, most projects aimed at making cities “smart” are articulated through pilot tests covered by short-term cooperation agreements which are provisional, in view of the name of this type of tests. The bidding procedures for awarding contracts in the public sector are limited to situations where the service or action in hand is still offered or carried out in the traditional way, but incorporates some element that favours sustainability or an energy-related improvement or the use of ICT to provide information; or to award outsourcing clearly defined by Town Halls who really know how to make their city “smart” and have a definitive strategy and budget for achieving this aim. This would be the case, for example, of the contract awarded in April 2013 by the Town Hall of Santander for indirectly managing the public road cleaning and urban rubbish collection and transport services and other complementary services. The criteria for awarding this contract, which cannot be evaluated by formulae, include technological developments and oblige the awarded party to connect to the technological platform that the city is developing. A simple search on Google confirms these preceding conclusions.

Public sector cooperation agreements and contracts governed by the Amended Text of the Public Procurement Law, approved by Royal Legislative Decree 3/2011, of 14 November (TRLCSP) are forms of public-private cooperation. Both types of legal arrangements are drawn up by public Government offices to carry out actions or projects associated with transforming the city into a "smart city". However, choosing one formula over the other, in view of the Government’s intentions, is not discretional. According to the law, it will be necessary to resort to contract formulae in certain situations and to cooperation agreements in others.

It is well known that when the Government needs to hire building works, civil works, public services, supplies or outsource development or activities aimed at obtaining a different result in one works or supply (for example, preparing legal reports or offering electronic communication services), it has to resort to a bidding procedure to award some of the typical contracts regulated by TRLCSP, with a specific legal objective and regime. As the great master García de Enterría used to say, "here the Government acts as a "client" of private firms, i.e., in an arrangement of simple cooperation or patrimonial exchange; it pays money to said private firm, or transfers possibilities of acting vis-à-vis the public, which are reserved in exchange for things or services that it seeks and receives ".

So, when the Government identifies a public interest need for fulfilling and carrying out its institutional aims, and this need requires works, civil works, a supply or a service, or managing a public service, the Government must draw up a contract. In these cases, the nature and scope of the needs to be covered by the proposed contract, and the suitability of the contract’s aim and contents for satisfying said needs, must be accurately defined and recorded in the preparatory bid documents, before starting the procedure leading to the contract award decision.

Also, as well as many other aspects, the contract file must include the document confirming sufficient credit and auditing before taking part in the procedure, and the special administrative clauses (which must govern the contract from the legal perspective) and technical requirements (which must govern outsourcing and the level of quality required by the Government). If the Government intends receiving some of the services indicated above, in exchange for the payment corresponding to the contracted party, it must resort to the public sector hiring mechanism, bound by its legal stance on, for example, upholding the principles of transparency, equality without discrimination, advertising and competition in bidding procedures, minimum contract contents, party obligations, contract duration, payment, payment method, contract cancellation, etc.

The actual TRLCSP, however, excludes certain transactions and legal relationships from its objective scope of application. These include agreements which, according to their specific regulations, are drawn up by the Government with natural and legal persons who are subject to private law, providing that the object of said agreement is not included among the contracts governed by TRLCSP or special administrative rules. Many Town Halls resort to this type of cooperation agreement to carry out pilot tests on "smart" projects with companies in the private sector. It is possible that initially a Town Hall may not have a clear strategy on how to make their city smart, and wants to know the various alternatives available; or it does not have enough information; or, simply, it wants to offer the private sector an environment where it can develop technology-based projects for the city’s benefit. The Town Hall does not want to hire a service, works or supply, in exchange for payment, and neither does it want to award the management of a public service. It wants to promote the use of ICT when offering public services or carrying out actions within its own competence; and, to do this, in an initial stage of its conversion into a "smart" city, the Town Hall resorts to using the private sector cooperation agreement.

Our legal system does not include a general regulation for cooperation agreements. However both the regulations for the administrative procedure and the TRLCSP identify these agreements, and the High Court case law also recognises them as legal transactions adopted to improve the development and fulfilment of a public goal. However, unlike what happens with typical administrative contracts or private Government contracts, the legal system regarding cooperation agreements has not been defined in detail, without prejudice to the TRLCSP principles being applicable in the event of any doubts or loopholes. This infers that each cooperation agreement will contain the clauses best suited to its object and purpose, so that it cannot be subsumed in the object of public sector contracts.

Some of the other clauses that these agreements usually include are: conducting pilot tests or tasks for researching and developing technological applications in Town Hall institutional goals or competences; no exclusive treatment in favour of any natural or legal person in the private sector; no attribution of private sector R+D results to the Government; no compensation offered by the Government in favour of the private company; short-term pilot tests; subject to Administrative Law, providing that the public sector signatory entity acts in accordance therewith. An agreement of this type must respond to a local public interest need and a dossier must be processed before it is signed by the Town Hall, but without the content and budget formalities of a public sector contract and, as mentioned before, without any economic exchange. Therefore it is the easiest legal arrangement for a Town Hall to adopt.

What cannot happen at any event is that the agreement is used to evade the law, i.e., awarding some of the outsourcing as a public sector contract. Therefore, it does not look like the most recommendable strategy for a Town Hall is to commission “smart” city projects to the private sector according to multiple cooperation agreements, once the need or needs that the Town Hall has to satisfy in this field have been identified and which must be subsumed in some of the contracts defined by TRLCSP. At the moment, the corresponding contract bidding process must be performed, with the Town Hall having to pay to receive a certain outsource. And the fact that a certain company, under its own decision and as a unilaterally adopted obligation, has made huge investments according to a cooperation agreement for developing a specific pilot project, cannot be used as a counterargument so that the Government dealing with the issue, awards the contract directly to said company and they recover their investment. If, for example, we are dealing with identifying technological platforms for managing and subsequently processing all the information obtained from sensors located in the municipality, and a Town Hall has signed three or four cooperation agreements with different companies to develop pilot projects for technological platforms in the city, when outsourcing the definitive implementation, once the need to be satisfied and the relevant technical requirements have been identified, the Town Hall has to resort to the hiring mechanisms foreseen in the TRLCSP, including, inter alia, the specific cooperation contract between the public and private sectors; the possibility of awarding typical contracts, in some cases, through competitive dialogue; or, even, awarding a contract via a negotiated procedure in some circumstances. However, under no circumstances, and for no reason whatsoever, are direct contract award decisions included, as this would directly infringe the essential community principles of public sector hiring, adopted by the sector-specific ruling in Spain

In short, the decision to sign a cooperation agreement or bid for a government contract is significant because of the different legal systems applicable to one formula or another. At any event, Town Halls must have a clear view of what they are pursuing so that their legal services can decide on the legal transaction which, according to applicable ruling, must be adopted in each case.

Carme Briera

Lawyer of Clifford Chance S.L., Associate Professor in the Administrative Law Department of the Universidad de Barcelona

Cooperation agreements vs. administrative contracts

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