The Expert

Mexico’s Public-private associations law

Mexico’s Public-Private Associations Law (the “Law”) allows the public and private sectors to associate by means of agreements to carry out two types of projects: the rendering of services to the public sector or end user, in which infrastructure provided by the private sector is used to increase social well-being and investment in the country; […]

Jones Day
Mexico’s Public-Private Associations Law (the “Law”) allows the public and private sectors to associate by means of agreements to carry out two types of projects: the rendering of services to the public sector or end user, in which infrastructure provided by the private sector is used to increase social well-being and investment in the country; or the development of productive investments, applied research, or technological innovation.

Although there are aspects of the Law that should be clarified in the Regulations and Guidelines, it has the advantage of greater flexibility compared to the preexisting legal framework, which was limited to the transactions contemplated in the Law of Public Works (the “Public Works Law”) and the Law of Acquisitions, Leases, and Services of the Public Sector (the “Procurement Law”). This Law broadens the scope of projects in which the private sector may participate. The awarding of a contest (as described below) entitles the winner to the required concessions for the use of public goods or the rendering of public services.

Public-private associations are not permitted with respect to productive activities reserved to the public sector in accordance with the Regulatory Law of Constitutional Article 27 Regarding Petroleum, other strategic areas, and projects in which less than half of the resources contributed by the public sector are federal resources.

Before the call to a contest is issued, the agency or body interested in calling for a project (the “Calling Agency”) will carry out a feasibility study (the “Feasibility Study”) regarding the project’s viability and social profitability. Based on that study, it will submit the project to the approval of the Intersecretarial Commission of Public Expenses, Financing and Disincorporation, for its annual inclusion in each federal expense budget, and advocate for the project’s viability.

The Law provides tacit approval with respect to the prior authorizations required for the project, from the bodies and agencies of the federal government.

Any private person interested in carrying out a project may propose it to the appropriate public agency or body (the “Agency”) by preparing the corresponding Feasibility Study and filing a proposal (an “Unsolicited Proposal”). The Agency may periodically indicate the projects for which it will receive Unsolicited Proposals.

Projects will be awarded, as a general rule, either by contest, by invitation to at least three persons, or, occasionally, by direct award.

The operation rules for contests are similar to those provided under the Public Works Law and the Procurement Law, except for the following particulars:

  • The Calling Agency may hold the contest either by itself or by means of an agent acting on its name and behalf.
  • In the event of a tie, the contest will be awarded (in the following order) to: the proposal offering the best economic conditions (from the government’s perspective) and then to the proposal that offers both more employment generation and the use of more goods and services of national origin.

Goods belonging to third parties required for the performance of the projects may be acquired in three ways: through negotiation with the Calling Agency, when so provided in the Rules; through negotiation with the Awarded Party; or by means of expropriation.

The rights granted under the respective concessions or permits may be assigned, granted as guaranties, or encumbered, provided that the governmental body or agency issuing the permits issues prior written approval, and the rights under the relevant public-private association agreement are also assigned, granted as guaranty, or encumbered.

The Ministry of Civil Service will supervise project development and may impose sanctions that include disqualification, for a period ranging from three months up to five years, from participation in both contests under this law, as well as public bids under the Public Works Law and the Procurement Law.

Regarding dispute resolution, the Law distinguishes between technical or economic disputes and legal disputes.

For technical or economic disputes, it permits the parties to agree to a previous good-faith negotiation stage. In the event they do not agree to negotiation or it fails to resolve the dispute, they may submit it to a three-expert panel (one expert designated by each party, and the third by both of the party-designee experts).

For legal disputes, the Law permits agreeing to conciliation before the Ministry of Civil Service, and/or submission to final, binding arbitration, subject to Mexican law (barring ex aequo et bono), according to the terms of the Code of Commerce.

Lacking an agreement with respect to dispute resolution, the competent courts will be federal courts of Mexico. Regardless of any provision to the contrary, only federal courts may resolve administrative matters with respect to acts of authority (such as the granting or revocation of concessions and permits and the imposition of sanctions).

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Escrito por: Jones Day

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