Dissecting PPP contracts #2: Preambulatory clauses

Pardon the fancy word. Preambulatory clauses is just another term for whereas clauses. Simply, it is the introduction or preliminary statement to the main contract. This columnist first encountered this term in his legal forms class sometime in 1987 while he was in law school.

Like the Preamble in the Constitution, this cluster of clauses in a public-private partnership (PPP) contract defines the rationale or context, sets the background and provides the why of the arrangement. Even if, by themselves, the clauses do not create rights and obligations, they are important and relevant when interpreting provisions of the contract.

PPP preambulatory clauses may cover the following matters:

 (1) Mandate of the agency. The preambulatory clauses follow the statement of the parties. However, this statement does not mention the authority or mandate of the government agency in pursuing PPP as a development strategy or in implementing a particular PPP engagement. Stakeholders reading the contract would better appreciate the project by knowing the agency.

(2) The need for the project. Part of the background of executing a PPP contract is why the parties entered into such a partnership for a specified project or activity. The need would typically be couched as a gap, inadequacy or failure, such as lack of access to water or power. An exhaustive discussion of this need is not embedded in the PPP contract but is contained in the study for the project.

(3) Applicable law or regulation. Another important contextual provision is the statement pertaining to the relevant PPP law. Depending on the PPP modality, it will either mention the build-operate-and-transfer law, the 2013 Joint Venture Guidelines, the Government Procurement Reform Act, Corporation Code, Civil Code, special laws or local ordinances. Each law has different modalities, requirements, obligations and procedures.

(4) Prior processes. The signing of the PPP contract between the government and private-sector proponent (PSP) did not happen overnight. The PPP contract is a culmination of a selection process and does not even end with the signing. The prior process-clause briefly sets out the manner by which the PSP-signatory was chosen. It is either competitive selection/bidding/solicitation, competitive challenge/unsolicited proposal or limited negotiations.

(5) Public consultation organized. Part of the prior processes, which can be highlighted in the preambulatory clauses, would be the conduct of consultations with stakeholders, civil-society organizations and affected sectors. The conduct of a willingness-to-accept-and-pay survey may also be mentioned.

(6) Approvals obtained. Regulatory approvals for a PPP arrangement are either secured before or after the PPP contract. Depending on the relevant law and modality, prior local council approval or authorization, board action and approval of the National Economic and Development Authority are some of the presigning requirements.

(7) Counsel’s opinion rendered. Having the agency’s lawyer —Department of Justice, Office of the Solicitor General, Office of the Government Corporate Counsel and local legal officers—pass upon the legality of all contractual provisions prior to the signing of the same is a legal prerequisite for most PPP modalities.

So what does the preambulatory or whereas clauses actually tell us? It tells us the story behind the contract. With these, we will appreciate more the terms and conditions of the PPP agreement.