The Principal Contract Conditions with Construction Specificity
The heart of a public-private partnership for school construction is the contract. Under Article 21 of the Law on Public and Private Cooperation, the contract must contain the principal conditions: the object of the contract, the scope and characteristics of the work to be performed and other issues connected with the public infrastructure or the services to be rendered; the manner of distributing and transferring property rights between the parties; the term of operation; availability remuneration, result-based remuneration or other payments to the private partner; payments to be made by the public partner; and the grounds, manner and consequences of the termination of the contract.
In the construction context this list takes on a concrete technical language: the scope and characteristics of the work comprise the school design, the construction specification and the quality parameters, while the term of operation unites the construction and operation periods. The contract is concluded for a definite term, the principles of determining which are established by a legal act of the Government — which is why the time model of a school project requires an exact breakdown of both periods.
The Use of Public Infrastructure
Article 24 of the law regulates the regime of the built and existing infrastructure: public infrastructure must be used only for the purposes defined by the cooperation contract, unless otherwise provided by Georgian legislation. The private partner is obliged to duly observe the conditions defined by the contract and the standards established for the use of the public infrastructure.
For a school this means that the constructed building must be used only for its educational purpose and its maintenance must meet the established standards. A change of purpose — for instance, converting part of it to a commercial function — must occur in the manner provided for by the contract; otherwise it constitutes a breach.
The Types of Support and Remuneration
Article 28 regulates the responsive instruments of the public side. The public partner may provide for the private partner the following types of support: availability remuneration and/or result-based remuneration; guarantees on consumption, consumers or revenues; guarantees on the tariff or the cost of the public service; guarantees on the long-term purchase of certain kinds of goods and services at an agreed price; grants or subsidies directed at covering costs and the return of investments; the transfer of land or the issuance of permits and licences; the transfer of exclusive rights to intellectual property; and the granting of an exclusive right to create and operate the object of the contract or to render public services within a certain territory.
The contract may further provide for payments by the private partner to the public partner — a fixed sum, a share of the revenues from operation, or the transfer into the public partner’s ownership of property created under the contract — as well as a combination of any of the types of payment provided for by this article. For school construction the combination of these instruments is the foundation of the financial model.
Private Payments and the Financing Ceiling
Article 29 creates the fiscal safeguard of the law: within the framework of public-private cooperation the ceiling of the state obligation is established by the legislation regulating public finances, and the methodology for calculating that ceiling is approved by the Government of Georgia. This means that when planning a school construction programme the actions of the public side remain within the frame of budgetary discipline.
For the private partner this ceiling defines the reality of negotiations: the volume of state support cannot be unlimited, and part of the project’s profit must be financed by private resources or by user payments. The financial model of a school construction project therefore passes through two filters — commercial viability and the ceiling of the state obligation.
Frequently Asked Questions
What must a school construction contract contain?
Under Article 21 — the object, the scope and characteristics of the work, property rights, the term, the types of remuneration and the manner of termination.
How may the built school be used?
Under Article 24, only for the purposes defined by the contract, and the private partner is obliged to observe the established standards of use.
What support does the state provide?
Under Article 28 — availability or result-based remuneration, guarantees, grants, the transfer of land and exclusive rights.
Is there a ceiling on state financing?
Yes. Under Article 29, the ceiling of the state obligation is established by public-finance legislation, and the methodology is approved by the Government.
How We Help on Legal.ge
On Legal.ge we assist along the whole path of a school construction partnership: we will draft the construction conditions of the contract, balance the remuneration model with the types of support, assess compliance with the fiscal ceiling, and protect your interests in negotiations and in the administration of the contract. Contact our team when planning the project.