Regulation of the Bases Law concerning the Contracts Renegotiation, Concession Contracts for Public Works and Services, and the Private Initiative Regime
Public Law department report | Regulation of the Bases Law concerning the Contracts Renegotiation, Concession Contracts for Public Works and Services, and the Private Initiative Regime
On August 12, 2024, Decree No. 713/2024 (“Dec. 713/24”) was published in the Official Gazette of the Argentine Republic, through which the National Executive Branch approved the regulations for Title III (“Contracts and Transactional Agreements”) of Law No. 27,742, the Bases Law for the Freedom of Argentines (“Bases Law”, from the Spanish “Ley de Bases”).
Specifically, Dec. 713/24 regulates various aspects related to the regime for the renegotiation or termination of contracts (Annex I), the concession of public works and services (Annex II), and the Private Initiative (Annex III).
Below, we outline the most relevant aspects:
a) Contract Renegotiation or Termination Regime (ANNEX I)
Annex I regulates Articles 63 to 65 of the Bases Law, which authorized the National Executive Branch to renegotiate or terminate contracts, for reasons of emergency, that meet the following requirements: (i) contracts for public works, public works concessions, or the supply of goods and services; (ii) having a value exceeding ten million (10,000,000) modules as established in Article 28 of the Regulation on the Contracting Regime of the National Administration approved by Decree No. 1030/2016; and (iii) having been entered into before December 10, 2023.
Scope of Application: The provisions of Articles 63 to 65 of the Bases Law apply to contracts for public works, public works concessions (including the concession of administration, expansion, repair, maintenance, conservation, exploitation, and/or operation of infrastructures; construction) and the supply of goods and services, as well as their annexed and associated contracts, entered into by the bodies and entities that make up the National Public Sector, within the terms of Article 8 of Law No. 24,156. With regards to contracts financed by international credit organizations, it is established that they will be governed by the conditions agreed upon in the respective Loan Contracts and, subsidiarily, by national regulations (Art. 1, Annex I).
Initiation of Proceedings: The renegotiation or termination procedure may be initiated ex officio or at the request of the contractor and will be processed within the respective bodies. The renegotiation or termination of the contract will be approved by the National Executive Branch (Art. 2, Annex I).
Renegotiation Guidelines: Within thirty (30) business days from the publication of Dec. 713/24, the Ministry of Economy will establish the financial or economic guidelines to be considered in determining the renegotiation or termination of contracts (Art. 3, Annex I).
Renegotiation Procedure: From the issuance of the guidelines mentioned in the previous point, the competent authority may initiate the renegotiation of contracts. This procedure involves different stages, such as (i) notifying the contractor of the intention to renegotiate the contract; (ii) drafting of technical reports accrediting the financial or economic convenience for public interest; (iii) elaborating the legal analysis of the contract execution to be renegotiated; (iv) preparing a report by the highest authority of the body on the transparency and convenience of continuing with the contract; (v) providing the contractor access to these reports; (vi) drafting the renegotiation agreement; and (vii) involving the General Syndicate Office of the Nation and drafting an opinion by the National Treasury Attorney’s Office (Art. 4, Annex I).
Procedure Initiated by the Contractor: In this case, the contractor must submit, at least, the following documentation: (i) a precise description of the emergency and its causal connection to the impact on the contract execution; (ii) a description of the detrimental change in the economic-financial situation and its impact on the contract execution; (iii) the new investment curve and work plan; (iv) a detailed account of the progress and compliance with the contract up to the date of the application; and (v) a proposal for overcoming the emergency (Art. 5, Annex I).
Content of the Renegotiation Agreement: The renegotiation of contracts will be subject to the following guidelines: (i) The contractor must waive claims for emerging damages, lost profits, unproductive expenses, and potential economic losses of a similar nature resulting from the slowdown, suspension, or cessation of works or services due to the emergency situation, as applicable according to the contract nature; (ii) no sums will be paid to the contractor as compensation or for benefits not received for the works, goods, or services eliminated by mutual agreement modification of the contract; (iii) the payment schedule and form for sums owed to the contractor; (iv) ensuring the balance of the economic-financial equation of the contract; (v) proposing and approving the adjustment of the contract execution deadlines and/or the new work plan; and (vi) express waiver or withdrawal of any claim or administrative, arbitral, or judicial action, initiated or to be initiated, and the right on which they are or may be based concerning the matters resolved in the renegotiation agreement (Art. 6, Annex I).
Approval of the Renegotiation Agreement: The agreement must be approved by the National Executive Branch, following an opinion from the General Syndicate Office and the National Treasury Attorney’s Office (Art. 7, Annex I).
Termination Procedure: A procedure similar to that of renegotiation is established, but aimed at terminating the contract due to emergency reasons and only if it is convenient for public interest (Art. 8, Annex I).
Compliance with Obligations: In no case will adherence to the renegotiation or termination procedure authorize the parties to suspend or alter the fulfillment of their obligations unless expressly provided (Art. 10, Annex I).
Transactional Agreements: The possibility of reaching prejudicial, judicial, or arbitral transactional agreements is regulated, as provided in Article 65 of the Bases Law, which can be initiated ex officio or at the request of a party. The minimum conditions to which the transactions will be adjusted are: (i) a reduction of no less than thirty percent (30%) of the amount of the claim in favor of the National State on which the dispute revolves; (ii) provision to share costs according equally between the parties; and (iii) waiver and/or withdrawal of the parties and/or their shareholders to any claim or administrative, judicial, or arbitral action, initiated or to be initiated, regarding the subject matter contained in the transaction. The budgetary allocations destined for the payment of the transactional agreement must be foreseen in the draft budget law corresponding to the fiscal year immediately following that in which the agreement is signed (Arts. 11 to 15, Annex I).
b) Concession Regime for Public Works and Services (ANNEX II)
Annex II regulates specific articles (66 to 72, 74, and 75) of the Bases Law, which amended various aspects of Law No. 17,520 related to the concessions of public works, infrastructures, and services. Essential regulated aspects include:
Fixed and Variable Term Concessions: For fixed-term concessions, the determination of the concession contract’s duration must consider the estimated time required for the amortization of capital invested by the concessionaire, payment of financial services, recovery of maintenance, conservation, administration, and operation costs of the work or infrastructure, and the concessionaire’s profit. Extensions may depend on economic and operational parameters. When it is not possible to determine the volume of traffic or users of the works, infrastructure, or the concessioned service, variable-term concessions may be tendered. The term will depend on the demand for the works, infrastructure, or service in question (Articles 1 and 2, Annex II).
Enforcement Authority: The enforcement authority of Law No. 17,520 will be the Ministry of Economy or its future replacement, which will issue the necessary complementary and/or clarifying regulations for the application of the regulation (Article 5, Annex II).
Public Bidding Procedure: This will be mandatory and will observe the provisions of Law No. 17,520, the regulation, complementary and/or clarifying norms, and the conditions established in the bidding documents. The public tender can be national or international and may consist of one or several stages, justified by the complexity of the project, the contract duration, and the financing structure, among other aspects (Article 6, Annex II).
Preliminary Observations: When deemed appropriate, a preliminary stage may be authorized before the call for tender to receive observations on the draft bidding documents (Article 9, Annex II).
Bidding Documents: The bidding documents must establish, among other issues, (i) whether the concession will be granted for a fixed or variable term; (ii) the maximum value of tariffs, tolls, or other remunerations; (iii) the methodology or formula used to calculate the present value of the total concession income; (iv) the probable estimated duration of the concession contract in the case of a variable term; and (v) the possibility for the bidder to improve the contract execution conditions when its profitability exceeds a pre-established maximum percentage (Article 11, Annex II).
Publicity of the Public Tender: Public tender announcements must be published in the Official Gazette for a minimum period of three (3) days. The last publication must take place at least forty-five (45) calendar days before the deadline for submitting bids or withdrawing documents for national tenders, whichever occurs first. In international tenders, the notice must be given sixty (60) days in advance (Article 15, Annex II).
Awarding: The award must go to the offer considered most advantageous for the public interest in accordance with the criteria established in the Bidding Documents, considering the following factors: (i) tariff structure; (ii) concession term; (iii) the existence and, if applicable, the amount of subsidy from the grantor to the bidder; (iv) the existence of guaranteed income by the grantor; (v) the level of risk commitment assumed by the bidder during the construction or operation of the work or infrastructure or the provision of the public service; and (vi) the quality of other useful and necessary additional services (Article 24, Annex II).
Bidding Documentation: The bidding and contractual documentation under which concessions of public works and infrastructures or public services are awarded must include, among other aspects: (i) Details of the sanctions for contractual breaches that may be applied to the concessionaire, with sanctions not foreseen in the concession contract or exceeding pre-established quantitative limits not being applicable, and (ii) The form, method, and timing of the concessionaire’s remuneration payment, including agreed-upon price and remuneration review procedures and, if applicable, minimum income guarantees (Article 29, Annex II).
Unilateral Modification of the Contract by the Grantor: Unilateral modifications to the concession contract ordered by the grantor related to the project’s execution must be compensated to the concessionaire to maintain the balance of the concession’s economic-financial equation (Article 30, Annex II).
Unilateral Termination: The unilateral termination of the concession contract for reasons of public interest must be declared by the National Executive Power, ensuring the concessionaire’s right to be heard and prior evaluation by the Ministry of Economy regarding the economic impact of the measure on the relevant budget exercise and the existence of legal credit to cover the payment of economic compensation (Article 31, Annex II).
Technical Panel: The bidding documents will provide for the establishment of technical panels to which disputes related to the contract may be submitted (Articles 35 and 36, Annex II).
Arbitral Tribunal: The bidding terms may establish the formation of an Arbitral Tribunal administered by an organization with recognized expertise in the field, either national or international, or, failing that, the establishment of an “ad hoc” Arbitral Tribunal (Article 37, Annex II).
c) Private Initiative Regime (ANNEX III)
Through Annex III of Decree 713/24, the regulations for the Private Initiative Regime are approved. Among the main issues, the following should be highlighted:
Scope of Application: The Private Initiative Regime will apply to contracts governed by Laws Nos. 13,064 (Public Works), 17,520 (Public Works Concessions), 23,696 (State Reform and Privatizations), and 27,328 (Public-Private Partnership Contracts) (art. 1, ANNEX III).
Authority of Application: The Ministry of Economy or its future successor will issue the supplementary and/or clarifying regulations necessary for the application of this Regime (art. 2, ANNEX III).
Submission: Private initiatives can be submitted either through a call by the competent authority or without a call. In the latter case, the initiator must state and justify the reasons of public interest that warrant the project’s execution. Along with the submission, the following must be provided, among other things: data and technical background of the initiator; general project description; demand estimation and annual growth rate; analysis of relevant legal aspects; description of the planned works and/or services to be provided; technical, economic, and financial pre-feasibility analysis; estimated investment amount; analysis of the economic conditions associated with the contract, financing structure, and repayment; general environmental analysis; and a presentation guarantee of zero point five percent (0.5%) of the estimated investment (arts. 3 to 4, ANNEX III).
Evaluation Stage of the Private Initiative: Within sixty (60) days, extendable by another sixty (60) days, the competent authority will prepare a non-binding report on public interest and the eligibility of the proposal. If the competent authority deems the project to be of public interest, it will forward the project to the National Executive Power, which will have ninety (90) days, extendable by another ninety (90) days, to decide whether to grant such qualification (arts. 5 to 6, ANNEX III).
Project Assignment: The initiator of the Private Initiative may transfer, to any legal or natural person, national or foreign, the rights and obligations arising from the project declared of public interest, prior to the public tender call. The assignee must not be prohibited from contracting with the National State and must meet, at a minimum, similar requirements to those of the initiator of the Private Initiative (art. 8, ANNEX III).
Tender Call: Within sixty (60) days of declaring public interest, the competent authority must call for a public tender (art. 9, ANNEX III).
Offers: The initiator of the private initiative may participate in the tender. In case of equivalent offers, if there is no difference greater than ten percent (10%) between the initiator’s offer and the best offer, the former will be preferred. If the difference is between ten percent (10%) and fifteen percent (15%), both offerors will be invited to improve their offers (arts. 10 to 13, ANNEX III).
Fees: If the initiator of the Private Initiative declared of public interest is not awarded the contract, they are entitled to receive, from the successful bidder, as fees and reimbursable expenses, one percent (1%) of the awarded offer amount (art. 14, ANNEX III).
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