Law 40/2015 of 1 October on Spanish Public Law Legal System: a new regulation for Patrimonial Responsibility of Public Administrations ("PRPA") applicable on concessions and PRPA's pledge of future receivables

On 2 October 2016, Law nº 40/2015 of 1 October on Spanish Public Law Legal System (from now on, “Law 40/2015”) has been published on the Official Gazette.

Law 40/2015 establishes a PRPA´s modification within the framework of concession’s contracts resolution, as well as pledges of future receivables rights treatment about PRPA in these contracts.

The Ninth Final Provision of the Law 40/2015 amends various provisions of the Royal Decree Law 3/2011 of 14 November, for which was adopted the revised text of the Spanish Public Procurement Law among which it is noted that Articles 261 and 271, and the ex novo introduction of Article 271 bis and ter. Further, the Fifth Final Provision modifies article 90.1.6 of Bankruptcy Law 22/2003 of the 9 July.

The new amendments brought forth by the Law on Public Sector Contracts and the Insolvency Law will enter into force on the 22 October 2015.

This will apply to those contract files started after the entry into force of the regulation (Fourth Transitional Provision).

What is new about PRPA´s concession’s system?

Law 40/2015 provides for a deep reform of the PRPA regarding the termination of the concessions contracts, as it drastically limits the maximum amount of the RPA, so that the concessionaire does not guarantee recovery the investment under the previous regulation.

PRPA´s system differs, as it has done so far, whether the resolution’s cause is imputable to Administration or not. This new Regulation introduces the following main modifications:

A) Effects of termination of the Concession Contract when it’s attributable to the Administration fault.

Law 40/2015 adjusts and/or fixes the concepts of lost profits and damages which emerge in the compensation assessment. In this regard:

• It maintains the obligation for the Administration of paying the concessionaire´s investment made by expropriation of lands, project construction (that revert to the Administration), considering the straight-line depreciation of the properties. 
• In addition, if the concessionaire decides to sort out the concessions contract, the Administration will have to compensate him damages and loss of earnings, as follows:
  • Loss of earnings: shall be quantified based upon the average of pre-tax profits obtained during the period equivalent to the remaining years until the completion of the concession period. Likewise, it also envisages the application of a discount rate based upon the average weighted cost of capital which corresponds to the latest annual accounts of the concessionaire.
  • Costs incurred: are defined as the loss of value of the buildings and installations that should not be submitted to the Administration, given the degree of depreciation.

B) Effects of the termination of the Concession Contract when attributable to the concessionaire.

The new article 271 of the Spanish Public Procurement Law, establishes what causes for contract termination, in any case, shall be attributable to the concessionaire. These include the declaration of bankruptcy or insolvency of the concessionaire.

In such cases, although the Law 40/2015 keeps intact the requirement that the Administration pays the dealer the amount of their investment due to the expropriation of land, execution of works and acquisition of lands that must revert back to the Administration, it establishes that said values will be determined according to the value of the concession.

The value of the concession: is based on the amount paid by the highest bidder in the Administration’s public auction.

Additionally, it is establishes the necessity of opening a new tendering process though public auction. Price will be the only award criterion. That price will be determined according to the type of tendering process, which is calculated using the criteria stated in article 271 ter. It is expected that the new tenderer shall be subrogated to the last dealer’s position during the remaining execution period. In this regard, he will respond for any infringement relating to capital subsidies.

What is new about PRPA´s pledge on future credit rights?

Law 40/2015 modifies the regulation of pledge on future credits:

Modifies the Article 261 of the Spanish Public Procurement Law in order to limit the right’s pledge that have raised by the termination of a concession contract and public service management concession contract: (i) when it is made as a debt guarantee in the context of the concession or the contract; (ii) and requiring prior authorization from the contracting authority. It will have to be published by the corresponding official gazette.

It also modifies the Paragraph 1.6º article 90 of Spanish Bankruptcy Law, attempting to give the privilege of special credit character to those credits secured by a pledge, resulting from a public or concession’s contract resolution when:

• The future receivables arise from contracts concluded preceding declaration of bankruptcy. 
• Pledge established in public document, or registered in the competent public registry in case of being a pledge without transfer of possession. 
• Granting debts in regard to the concession or the contract, under the same conditions as the ones established in article 261 TRLCSP.