Presentation "Auditing PPP- Lessons learned from the French experience" made during the SIGMA workshop on Auditing Public Private Partnerships and Concessions. Ankara, 2-3 May 2018. Presentation made by Frederic Angermann, SIGMA.

1. © OECD
AUDITING PPP
Lessons learned from the French
experience
Frederic Angermann, Conseiller maître
Cour des comptes, France]
Ankara, 2-3 May 2018

2. Proposed agenda
• Introduction: the French case
• The general framework
• The risk analysis
• The audit procedure
• The audit results
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3. © OECD
INTRODUCTION:
THE FRENCH CASE
(2004-2018)
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4. I – PPP: A recent creation (2004)
• I- A legal framework: the law (ordonnance n° 2004-559, 17 june 2004
• - A particular and non-conforming modality of public procurement
• - A broad object: the financing, the construction, the maintenance,
the maintenance, the exploitation or the management of works or
equipment necessary for the public service
• - The remuneration of the contracting party is the subject of a
payment by the public body throughout the duration of the contract
- Subject to special conditions: complexity and / or urgency
• II- The creation of an expert body, the PPP Support Mission (MAPPP)
• (Decree No 2004 - 1119 of 19 October 2004) responsible for:
• - giving an opinion on draft contracts (except local authorities)
• - assisting public persons in the development of projects
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5. III- A rise of critics:
• The development of PPPs has been accompanied by criticisms as to its
modalities and / or the motivations for its implementation, notably:
• From Parliament:
• - "Partnership contracts: time bombs? , Information Report,
(2013-2014) Senate, July 2014
• From the Court of Accounts and the regional audit chambers:
• - "Public-private partnerships of local authorities: risks to
master", RPA 2015
• - "PPPs of the hospital plan", RPA 2014
• - "Public-Private Prison Partnerships", RPP 2011 :
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6. IV-A new legal framework (2015-2016)
L’ Order No. 2015-899 of July 23, 2015 and Decree No. 2015-
360 of March 25, 2016 relating to public procurement
• -Objective: Reform of global contracts in compliance with the major balances
of the MOP law (Law No. 85-704 of July 12, 1985)
Partnership contracts:
(Articles 67 and following of the ordinance, articles 145 and following of the
decree)
• - "Fusion" CP and round-trip assemblies (BEA, AOT, BEH ...)
• - The public entity entrusts a single holder with a global mission for the
construction, and all or part of the financing
• - CP becomes a category of public contracts
• - Enhanced supervision of the procedures for the award and preliminary
evaluation of CPs
The transformation of the MAPPP into "FIN INFRA" (decree
n ° 2016-522 of April 27, 2016)
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7. IX- The awarding process
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6 mois 3 mois 4 à 8 mois 3 mois 1 à 4 mois1
Planning-type :

8. © OECD
THE GENERAL FRAMEWORK
OF THE AUDIT OF PPPS

9. THE MAIN CARACTERISTICS OF PPP (1/2)
 A PPP is a contract which must include at least 3
components:
• The financing (in whole or in part)
• The building or reconstruction of works / equipments / goods;
• The maintenance of of works / equipments / goods;
• The non-compliance with the global character of the the
PPP contract by the contracting authority may be
sanctioned in the litigation plan [CE, 29 avril 2015, Urbaser
Environnement, n°386748]
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10. THE MAIN CARACTERISTICS OF PPP (2/2)
 No minimum duration, but principle of a long duration.
generally linked to the depreciation period of the works.
Like concessions, the P.P.P implies the maintenance of a
long contractual relationship between the Partner and
the public entity;
 The project financing : the remuneration of the private
partner is in the form of a fee paid by the public body
 Organization of risk sharing fomalised in the contract and
with a financing structure and garantees .
 It is a contract without commercial risk on revenues
(difference with concessions)
 On the other hand, the remuneration could be (should
be?) linked to objectives (performance criteria,
efficiency). The contract must include clauses related to
the control by the public entity.
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11. I- the general framework
• The necessity of a global approach
 PPP as one modality of public procurement
• A long term contractual commitment
• Coherence with missions and competences of the public entity
 The relevance of the use of PPP
• Definition of the needs
• Analyse of the implementation modalities
 The the concrete conditions of its implementation
• Capacities of the public entity
• Financial conditions
• The need for a distinction
 The scope of the PPP
 The public and private partners
 The contract : call for tender, award, implementation and control
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12. © OECD
THE RISK ANALYSIS

13. II- the risk analysis
• I- the risks determination
 technological/technical
 legal
 Financial / budget
•
• II- lthe risks evaluation at each step
 Project preparation and launching
 Award and financing
 Implementation, monitoring and follow-up
•  The elaboration of a risk matrix
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14. II- The risk analysis : financial aspects
1. The pre-assessment (at the financial level);
2. Understand the contractual financing plan and know how
to control the calculation of royalties paid by the public
corporation;
3. Know the legal-financial arrangements associated with
partnership contracts;
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15. II- the risk analysis : the pre-assessment
 The pre-assessment :
 Methodology (Plan type) :
1/ Introduction : the context
2/ General presentation of the operation
3/ Legal analysis
• Step 1 : Justification of PPP
• Step 2 : Analysis of possible contractual arrangements
4/ A/ Comparative Financial Analysis
• Step 1: Costing of each risk-free scenario
• Step 2: Risk analysis or sensitivities
• Step 3: Comparison of the Net Discounted Values (NPV) of each solution
after taking into account the risks
5/ Summary and conclusion
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16. II- the risk analysis: the fees
 The various fees paid by the public corporation are
generally :
 - R1: Financial charge (depreciation and financing
of investments made)
 - R2: Major maintenance renewal works (GER)
 - R3: Routine maintenance and technical operation
of structures
 - R4: Management fees and insurance
 Generally, the public corporation begins to pay
royalties from the provision of the works (end of
work). This principle knows exceptions.
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R1 : Redevance financière (amortissement
et financement des investissement
réalisés)

17. II- Risk analysis: contractual
arrangements
 Different financial packages can be set up in
PPP:
 Assembly in SPV (special purpose vehicle), which is
the most common mounting.
 Corporate editing
 Investor bank setup
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18. II- the risk analysis: the spv scheme
Cocontractant
Public
Société projet
SAS
K = x M€
Dette mezz = y M€
X%
Y %
actionnaires
banques
mainteneur
Contrat de
Construction /
promotion immobilière
Contrat de prêt
Apport en capital
PPP
Apport de quasi
fonds propres
constructeur
Contratde
Maintenance
Cession de créance
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19. © OECD
THE AUDIT PROCESS

20. III- The audit process
• The choice of objectives
 Efficiency, economy, efficiency, performance?
 Relevance of choice / adequacy tool - objectives
 Ability to manage a PPP procedure
• The declination of objectives
 depending on the time of the audit in the life of the contract:
award / execution
 depending on the purpose of the audit: the PPP and / or the
public body
 depending on the nature of the audit: financial / legal /
organization
• The identification of necessary skills
 public management and business management
 in public and private law
 in public finance and financial engineering 20

21. III- the audit process: financial
parameters
• Contract length :
 Fixed or variable duration contract?
• Volatility of investment costs:
 How to calculate pre-financing costs
 Formula for updating the amount to be financed
• Financing plan and financial conditions:
 Part of own funds (equity)
 Indebtedness and external financing
 Bank margins (amount, absence of market flex clauses)
 ROI objective :
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22. III- the audit process: the financial
model
 Introductory remarks
 Excel file attached to the partnership agreement
 Relationship: model / contract: opacity or transparency?
 Opacity:
 You have to be a specialist in the subject to understand and analyze
the "model"
 This model is nevertheless used as a basis for calculating rents/fees
that will be due by the public body
 Transparency:
 Only a financial model allows us to retrace with completeness and
accuracy all the assumptions that make it possible to determine the
price to be paid.
 At the time of negotiations, the model makes it possible to quickly
and easily understand the logic of the financial offer, its construction,
its assumptions ... 22

23. © OECD
Specific issues
of monitoring the partnership contract
implementation

24. Specific issues of monitoring the
implementation of the contract
1. To know the important milestones along the entire
duration of the partnership contract and evaluate their
financial issues and stakes.
2. The final fixing of the rates (“Crystallization”)
3. Refinancing
4. On-going follow-up
5. To know how to anticipate the risks weighing on the public
person in case of early termination of the contract 24

25. © OECD
THE AUDIT RESULTS
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26. IV- the audit results
I- Depending on the initial objectives of the audit, the aim is
to present the findings and recommendations that may
relate to:
- The initial phase and the choice of the PPP
- The drawing up and the signing of the contract
- Execution of the contract (execution, monitoring and control)
- Present and future risks
- And ... The relevance of using PPP: results / performance / impacts:
II- Within the framework of the procedures and missions of
the audit body:
- Contradictory procedure
- Framed communication of the results
- Possible outcomes: Proposed procedural and legal changes…
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27. © OECD
THANK YOU FOR YOUR
ATTENTION!
ANY QUESTIONS?
Frédéric Angermann
Conseiller maître
frederic.angermann@ccomptes.fr
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