Sec 17 Basic Services and Facilities.

– Local government units shall likewise

exercise such other powers and discharge such other functions and
responsibilities as are necessary, appropriate, or incidental to efficient and
effective provision of the basic services and facilities enumerated herein.

(viii) Infrastructure facilities intended primarily to service the needs of the

residents of the municipality and which are funded out of municipal funds
including, but not limited to, municipal roads and bridges; school buildings and
other facilities for public elementary and secondary schools; clinics, health
centers and other health facilities necessary to carry out health services;
communal irrigation, small water impounding projects and other similar projects;
fish ports; artesian wells, spring development, rainwater collectors and water
supply systems; seawalls, dikes, drainage and sewerage, and flood control;
traffic signals and road signs; and similar facilities;

SECTION 18. Power to Generate and Apply Resources. – Local government units
shall have the power and authority to acquire, develop, lease, encumber,
alienate, or otherwise dispose of real or personal property held by them in their
proprietary capacity and to apply their resources and assets for productive,
developmental, or welfare purposes, in the exercise or furtherance of their
governmental or proprietary powers and functions and thereby ensure their
development into self-reliant communities and active participants in the
attainment of national goals.

What are PPPs?

Public-Private Partnerships (PPPs) are contractual arrangements entered into by
the government with the private sector. Under a PPP scheme, the private sector
can build, operate and maintain public infrastructure facilities and provide
services traditionally delivered by government. Examples of these are roads,
airports, bridges, hospitals, schools, prisons, railways, and water and sanitation
projects.

Who may qualify as bidders of these PPP projects?

According to Section 5.1 of the BOT Law IRR , any individual, partnership,
corporation, firm, whether local or foreign, including consortia of foreign or local
and foreign firms can participate or apply for pre-qualification or simultaneous
qualification for ppp projects. However, if the project involves the operation of a
public utility, the operator must be at least 60% Filipino owned.

General Forms of PPP

Generally, there are two common forms of PPP structure: availability and
concession-based PPPs. The two forms could be distinguished from each other
based on what the public or private parties assume within the partnership, e.g.
rights, obligations, and risks.

1. Availability PPP
A form of PPP wherein the public authority contracts with a private sector
entity to provide a public good, service or product at a constant capacity
to the implementing agency (IA) for a given fee (capacity fee) and a
separate charge for usage of the public good, product or service (usage
fee). Fees or tariffs are regulated by contract to provide for recovery of
debt service, fixed costs of operation and a return on equity.
2. Concession PPP
A form of PPP wherein the government grants the private sector the right
to build, operate and charge public users of the public good, infrastructure
or service, a fee or tariff which is regulated by public regulators and the
concession contract. Tariffs are structured to provide for recovery of debt
service, fixed costs of operation, and return on equity.

PPP Contractual Arrangements

There are various PPP contractual arrangements reflecting how risks are shared
and the roles between the government and the private proponent. Build-operate-
and-transfer (BOT) projects and its other variants can be structured as either a
concession or availability agreement.

Partnership between the government and private sector for infrastructure and
development projects can be made possible through a broad spectrum of
modalities. The following are the contractual arrangements which may be
undertaken under the amended Philippine BOT Law and its Revised
Implementing Rules and Regulation:

 Build-and-transfer (BT)
 Build-lease-and-transfer (BLT)
 Build-operate-and-transfer (BOT)
 Build-own-and-operate (BOO)
 Build-transfer-and-operate (BTO)
 Contract-add-and-operate (CAO)
 Develop-operate-and-transfer (DOT)
 Rehabilitate-operate-and-transfer (ROT)
 Rehabilitate-own-and-operate (ROO)

The enumeration of contractual arrangements in the BOT Law is not exhaustive.

Other forms of contractual arrangements may qualify as a PPP under the BOT
Law, provided that such arrangement is approved by the President. Other
contractual modes recognized as PPPs are concession and management
contracts.

Solicited vs Unsolicited Proposals

Solicited proposal
A solicited proposal refers to projects identified by the implementing agency (IA)
from the list of their priority projects.

In a solicited proposal, the IA formally solicits the submission of bids from the
public. The solicitation is done through the publication of an invitation for
interested bidders to submit bids, and selection of the private proponent is done
through a public competitive process.

Unsolicited proposal
In an unsolicited proposal, the private sector project proponent submits a project
proposal to an IA without a formal solicitation from the government. An
unsolicited proposal may be accepted for consideration and evaluation by the IA,
provided it complies with the following conditions:

1. It involves a new concept or technology and/or it is not part of the list of

priority projects in the Philippine Investment Program (PIP) [Medium Term
Public Investment Program, Comprehensive and Integrated Infrastructure
Program (CIIP)] and the Provincial/Local Investment Plans;
2. It does not include a Direct Government Guarantee, Equity or Subsidy;
3. It has to go to ICC for the determination of reasonable Financial Internal
Rate of Return (FIRR) and approval to negotiate with the Original
Proponent; and
4. After successful negotiation, proceed to publication and request for
competitive proposals according to Swiss Challenge Rules.

Swiss Challenge Rules

Swiss challenge is procurement system accepted in several jurisdictions,
including the Philippines. Authors and experts say that the term “Swiss
Challenge” was coined to compare a government’s impartiality in awarding
contracts to the private sector to Switzerland’s neutrality during the World Wars
1 and 2.

The term Swiss Challenge is described in Republic Act No. 6957, otherwise
known as the Build Operate Transfer (BOT) law, as the system to be followed
when projects are procured through unsolicited proposals from private sector.
Section 4-A of the BOT law allows acceptance of unsolicited proposals for
projects which do not require direct government guarantee, subsidy, or equity
and more importantly, which involves a new concept or technology. Notably,
Section 10.3 of the implementing rules allows it as long as the proposal involves
a new concept or technology.

A project is considered to involve new concept or technology under Rule 10,

Section 10.2 of the BOT law IRR if it possesses at least one (1) of the following
attributes: (a) a process which significantly reduces construction costs,
accelerates project execution, improves safety, enhances project performance,
extends economic life, reduces costs of facility maintenance and operations or
reduces negative environmental impact or social/economic disturbances or
disruptions either during the construction or operation phase or (b) a process for
which the proponent possesses exclusive rights, either world-wide or regionally
or intellectual property rights.

Once the unsolicited proposal is shown to possess the foregoing, it will be

subject to the Swiss Challenge before the project is awarded to the proponent.

Section 4-A of the BOT law describes Swiss Challenge procedure as follows:

Original proponent submits an unsolicited proposal for a qualified project;

Government will publish for three (3) consecutive weeks, an invitation for
comparative or competitive proposals;

The qualified project shall be awarded to the original proponent if no proposal is

received for a period of sixty (60) working days;

In the event another proponent submits a lower price proposal, the original
proponent shall have the right to match that price within thirty (30) working
days.

The foregoing process was summarized by the Supreme Court in the case of SM
Land, Inc., v. Bases Conversion and Development Authority (G.R. No. 203655, 13
August 2014) where it defined Swiss Challenge as a system where “[a] third
party can bid on a project during a designated period but the original proponent
can counter match any superior offer.”

The government in advocating the Swiss Challenge also promotes modernization

of infrastructure through intense private sector participation. Relevantly, the
Supreme Court in SM Land, Inc., v. Bases Conversion and Development Authority
explained that “the development and adoption by several countries of the Swiss
Challenge scheme is attributed to the recognition that the private sector can be
an important source of technical and managerial expertise, as well as financing,
as evidenced by private companies’ practice of directly approaching governments
with new and innovative project ideas through unsolicited proposals.”