Ⅱ．The Dualistic Thinking Pattern of Applying Either Public Law or Private Law Cannot Solve the Interest Conflict of PPP
The conflict of interests between the public and private sectors in PPP ought to be solved by legal norms．For China, which upholds the tradition of dividing laws into either the “public law”or the “private law”, it is important to clarify whether the PPP franchise agreement belongs to the public law or private law, for this classification directly relates to the overall value-orientation of the institutional design and the application of specific legal rules．In other words, the classification represents the legal foundation of PPP—public-interest oriented or private-interest oriented? If the PPP franchise agreement is identified as a public-law contract, public interests will be the focus, and the power of the administrative agency will be highlighted in the concrete institutional design．In contrast, if the PPP franchise agreement is identified as a private-law contract, the “equal status”and “autonomy of will”of both parties will be emphasized in the institutional design．Thus, to solve the conflict of interests between the public and private sectors, it is important to recognize the nature of the PPP franchise agreement．According to current research, some scholars consider the franchise agreement as a civil contract[1]some consider it as an administrative contract,[2]and some others even believe that the franchise agreement should be in the field of economic law.[3]However, is the classification of belonging either to the public law only or to the private law only really appropriate to the compound contract of a PPP project?
A．Partnership Reflects PPP's Compound Nature of Both Public Interests and Private Interests
Some scholars believe that PPP is a new type of partnership,[4]and it is true that all the successively implemented PPP projects are based on the partnership model．It can be concluded then that no partnership, no PPP.[5]The partnership lies in the following two aspects.
First, the partnership helps to correct the common stereotype that one behavior belongs either to the market only or to the government only．The reason that PPP has been rapidly developing recently and is widely applied by other countries is that PPP can not only make up for the shortage of public interests caused by marketization, solving problems for the government who lacks funds to provide public goods, but also improve the efficiency in the supply of public goods．Influenced by the dualistic thinking pattern of either “belonging to the market”or “belonging to the government”, the reform of the public sector in the western countries (which can be represented by Britain) is mainly aimed at the marketization and privatization model in the 1980s．However, because the market is characterized by being benefit-driven, the benefit-driven motive of the market subjects will unquestionably hinder the public-interest-driven motive of the public service．Here exists PPP, a new approach to correct the “market doctrine”．Unlike privatization, in which ownership of the enterprise is transferred to the private sector, the aim of PPP is to adopt the private sector's expertise, investment and efficiency, while at the same time the ownership is retained by the government．In nature, PPP corrects, modifies and compromises for the defects of privatization, and it is an alternative after the privatization approach encounters obstacles in certain fields.[6]
Meanwhile, the type of cooperation found in PPP also responds to the appeal from another dimension that it is urgent to adjust the government function, i.e．to change the all-round government into the power-limited government, and to change its function of controlling into the function of serving．Compared to the thinking pattern of belonging to either the market or the government only, PPP is a better approach for the government to change its function, especially the function of supplying public goods．Many governments have recently realized that to solve the public problems, one cannot rely on the government only; instead, the government needs to extensively rely on its cooperative relationships.[7]For the public goods of infrastructure and public utilities, even if there is a market failure in supply, this does not signify that public goods must be provided by the government．The Public Choice Theory says there is not any evidence proving that public service must be supplied by government agencies.[8]If the government, after carrying out various reforms, still cannot satisfy the public with its supply of public goods and public services, then it has to break its monopolistic position．Under some circumstances, if the private sector is allowed to participate in both the production and supply of public goods, or if the private sector is asked to supply the public goods directly to the public so as to break the supply monopoly, it will significantly relieve the government's financial pressure．Moreover, by means of harnessing the private sector's management skills and commercial expertise, together with bringing the mechanism of market competitive to the government, the management and service of the government will definitely be improved．Therefore, the government should cooperate with the market instead of replacing it, which is the best way to cope with a market failure.
In brief, with the market failure and government failure taking place successively, the development of PPP signifies the rational reflection of both the market failure and the government failure, fully affirming the private sector's unique advantages, the public sector's limited ability, and the new understanding of the country's responsibility.[9]At the moment, the public goods, as the social necessities, are supposed to be jointly supplied by the “visible hand”of the government and the “invisible hand”of the market.
Second, the partnership helps to achieve “value for money”．PPP offers the private sector the opportunity to participate in the public projects, which will bring economic benefits to the private sector and, at the same time, implement the government function．The above is the core of “value for money”, i.e．both parties to the partnership will attain the largest gain from the goods and services of public projects by cutting costs．With the institutional design of “value for money”, we can compare the overall operating costs of the conventional procurement (i.e., government investment and construction management) with the lifecycle costs of PPP, and it is clearly seen that under PPP the capital value is best increased and the resources are ultimately used.“Value for money”pursued by PPP has been extensively accepted overseas．In line with the 1993 Act of the Performance and Results of the American Federal Government, the government agencies must carry out a cost-effectiveness analysis on the aspect of a performance evaluation before they make the final decision on whether a specific government function is appropriate to be outsourced or not．According to the Operational Guide for Public-Private Partnership Mode (Trial) issued by the Chinese Treasury in 2014 (hereinafter referred to as Operational Guide), “the financial department (Government and Social Capital Cooperation Center), together with the administrative department of the industries, should conduct the evaluation of ‘value for money’ on the basis of both qualitative and quantitative analysis．The qualitative assessment emphasizes whether, in contrast to the conventional procurement, the PPP projects will increase the supply, optimize the risk allocation, improve the operating efficiency, and promote the innovation and fair competition”.[10]
B．Partnership Does Not Fit the Dualistic Thinking Pattern of Applying Either the Public Law or the Private Law
Since PPP itself breaks the stereotype of either belonging to the market or the government—having been created for the common goal of both the public and private sectors, to realize their complementary advantages and, in the end, to achieve “Pareto Optimality”between the two parties in infrastructure construction—then it is difficult to have a clear-cut answer on whether PPP falls within “the public”or “the private”．It has to be admitted that the construction and operation of infrastructure projects under PPP always face the contradiction of being either public-interest oriented or commercial-interest oriented．As the carrier of a public service, the infrastructure operation bears the obligation of providing a sustainable public service, affordable and high quality．The public sector is obliged to maintain the public interest．For the private sector, however, when it invests a huge amount of capital into a decade-long public project, and the ownership of that project has to be handed over to the public sector in the end, it is reasonable that the private sector strives for high investment returns．Thus, an infrastructure project carried out by PPP must maintain a balance between the public and private interests.
To review the various existing doctrines, it is found that, in fact, no one denies that in the PPP franchise agreement, the public sector holds the administrative power, and the administrative power exceeds the limit of the general contractual rights．When drafting the PPP franchise agreement, inconsideration of the public interest, the government is bound to have certain “privileges”．Even the scholars who think that the PPP agreement falls in the realm of civil contracts also admit the existence of the government's administrative power (although they argue this power is derived from the contract itself)．In the US, where there is no definite concept of the private law or the public law, when the government concludes a contract with the private sector for purchasing a service, though it adopts some principles of civil contracts, it is progressively granted an administrative privilege of “termination at the government's discretion”．The law does not specify any particular requirement for the government to prove that a termination is out of the “government interest”; what it requires is that the decision is made based on good faith．Thus, the government is actually granted with an extensive discretionary power.[11]Despite this, however, the private-law feature of the PPP franchise agreement cannot be denied, either．The administrative privilege of the PPP franchise agreement is more and more inhibited by the principles of the private law．When the government needs to modify or terminate the contract based on the public interest, the private sector has the right to claim compensation or to adjust the other clauses so as to balance the rights and obligations of the two parties.
Therefore, either attributing the PPP franchise agreement to the public law in which the public interest is highlighted or attributing the PPP franchise agreement to the private law in which the private interest is emphasized deviates from the original aim of the institutional design．Although there is one among the various doctrines that attributes the PPP franchise agreement to the field of economic law, and this advocacy is centered on the overall social interest—which seems to cover both the public and private interests—this perspective, nonetheless, is no more than a macro-conceptual guidance or doctrinal understanding．In practice, when the two parties to the PPP franchise agreement negotiate for a specific project, design the clauses setting forth their rights, obligations and liabilities, or seek a remedy in the presence of disputes, they will still be confused about how to choose and apply the laws.
C．Partnership Breaks the Thinking Pattern of Applying Either the Public Law or the Private Law
In line with the above analysis, it is meaningless to explore whether the PPP franchise agreement should be attributed to the public law or the private law, for either one is incomplete．Take the dispute settlement for example: although the franchise agreement falls within the jurisdiction of “administrative litigation”in the amendment to the Administrative Procedure Law, the current administrative litigation rules are unable to provide sufficient remedies for all of the different disputes which arise from the PPP franchise agreement．On the one hand, the one-way rights and obligations between plaintiffs and defendants in administrative litigation contradict the two-way relationships in the PPP franchise agreement．On the other hand, the lack of a mediation mechanism in administrative litigation prevents the two parties, to a certain extent, from settling their disputes, which is harmful to the maintenance and repair of the cooperation．Thus, the method of attributing all disputes caused by the PPP franchise agreement to the scope of administrative litigation is too simple and arbitrary．The reasonable approach is to take account of the features of both public law and private law in the PPP franchise agreement, and to adopt different remedies according to the different reasons for the disputes．If the dispute arises out of one-way behavior, such as government regulation, administrative procedure law should be applied; if the dispute arises out of the risk allocation or the government's breach of contract, the mediation mechanism of the civil law should be applied．The PPP franchise agreements include a great deal of consideration for the economic interests, whether they are original contracts or contracts that are amended．Where there are disputes between the parties in such interests, the arbitration organizations which are skilled at settling commercial disputes are wholly eligible for the task．Therefore, arbitration should also be applied in the PPP dispute settlement, which indicates the basic need for respecting the parties' autonomy of will．In the US, “a contract between the government and the private sector for the provision of a service is a public contract．The dispute settlement for public contracts adopts many principles of the civil law, such as that the two parties are entitled to decide the methods of settling disputes”.[12]Some scholars have discovered that in the US, there are standard terms in the PPP project contracts, stipulating that any behaviors depriving the project companies of their substantial rights will result in torts lawsuits.[13]The mechanisms of settling civil disputes are also accepted in the PPP projects in other countries．Article 28 of the Operational Guide issued by the Chinese Treasury says, “When the project is under operation, in accordance with the contract, the project-operating organization, the private sector, or the project company shall by law apply for arbitration or bring a civil suit if there are unnegotiable disputes.”But what is pitiable is that the NDRC (National Development and Reform Commission of China), which plays an equally important role in the PPP practice like the Chinese Treasury, holds a different perspective on this issue．Before the Administrative Measures for Infrastructure and Public Utility Concession were officially issued, the NDRC provided in the draft of the above Administrative Measures, “franchisees and the operating authority shall bring a civil suit or apply for arbitration in accordance with the law if there are disputes on the franchise agreement and no solution is reached”．But the officially issued document deleted this expression．This illustrates that there are still differences and deviations in the understanding of this issue．Comparatively, the rules made by the Treasury are more acceptable.
In brief, the cooperative nature of the PPP franchise agreement reflects the interest of both the public and private sectors, which explains why both the public law and private law should jointly be applied to it．For these types of hybrids, it is undesirable to keep the hope of employing one single legal system of either the public law or the private law to solve all disputes．Unduly emphasizing the private law will weaken the public interest, while unduly emphasizing the public law will neglect the private interest and demotivate the private sector to participate in PPP projects．Therefore, the better legal system of PPP has to break the dualistic thinking pattern of applying either the public law only or the private law only, and has to seek a balance between the government power and the contractual spirit, so as to realize the win-win expectations that both the public-interest goals of the public sector and the economic profit of the private sector can be achieved．It is true that the choice of applying either the public law or the private law does not conform to the construction of the PPP legal system, and the distinction of either “the public”or “the private”contradicts the cooperative nature of PPP．Just as a scholar says, “the public sector and the private sector cooperate under the complicated background where they interact with each other and reach an agreement by law; to classify the role of PPP as being purely ‘public’ or ‘private’ cannot work”．The PPP franchise agreement should not be attributed by legislators to either the public law or the private law—it lies in between．Designing various mechanisms to balance the interests of both parties in accordance with the specific project and the particular situation is the essential requirement of the partnership.
[1] See Xin Baichun, Legal Nature of BOT Agreements, Administration and Law, Issue 5, 2005; Yang Ming, Cao Mingxing, Franchise: An Independent Property Right, Journal of Huazhong University of Science and Technology (Social Science Edition), Issue 5, 2003.
[2] See Wang Kewen, Understanding Administrative Law in the Outsourced Government Businesses, China Legal Science, Issue 4, 2011.
[3] See Deng Minzhen, Legal Nature and Regulatory Rules of PPP Contracts in Public Utilities: From the Perspective of Economic Law, Modern Law Science, Issue 3, 2012; Song Zongyu, Liu Jing, Analysis on the Legal Nature of Government's Franchise Agreements, Administration and Law, Issue 6, 2006.
[4] See Tony Bovaird, Public-private Partnerships: From Contested Concepts to Prevalent Practice, International Review of Administrational Science, Issue 7, 2004, p.2.
[5] See Jia Kang, Sun Jie, Concept, Origin and Function of PPP, China Government Procurement, Issue 6, 2014.
[6] See Li Yanjun, Contractual Governance of PPP in Public Service, Journal of Socialist Theory Guide, Issue 1, 2010.
[7] See Lester M.Salamon, The New Governance and the Tools of Public Action: Implications for China, trans．by Li Jing, Chinese Public Administration, Issue 11, 2009.
[8] See Yan Yan, Peng Mei, Buchanan's Public Choice Theory and Decision-making Acts of China, Tribune of Social Science, Issue 4, 2007.
[9] See Li Xia, Legal Nature and Right-obligation Allocation of PPP Contracts—Focusing on Infrastructure and Public Utilities, ECUPL Journal, Issue 3, 2015.
[10] The Operational Guidance of PPP (Provisional), Article 8.
[11] See Chang Jiang, Institutions of American Government's Purchasing Service and Its Enlightenment, Politics and Law, Issue 1, 2014.
[12] See Chang Jiang, Institutions of American Government's Purchasing Service and Its Enlightenment, Politics and Law, Issue 1, 2014.
[13] See Wang Dong, Government in PPP: Role and Behavior Framework, China Government Procurement, Issue 3, 2015.