DELEGATED

MANAGEMENT OF LOCAL

PUBLIC SERVICES

Public thematic report

December 2024

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Executive Summary

In accordance with the principle of free administration enshrined in Article 72 of the

French Constitution, local authorities (cities, departments and regions) and their groupings

(intermunicipalities and syndicates) decide on the management method they consider most

appropriate for operating the public services within the jurisdiction.

The Court and the Regional and Territorial Chambers of Accounts have examined the

conditions under which local authorities and their groupings use one of the possible

management methods: a concession, more commonly referred to as a delegation, to a private

company selected after a competitive tendering procedure. To this end, they examined the

findings of 117 recent reports by Regional and Territorial Chambers of Accounts dealing with

delegated management of public services, and conducted a national survey of government

administrations and associations of local authorities.

Given the selective nature of the audits carried out by the Regional and Territorial

Chambers of Accounts, their reports do not provide a statistically representative picture of the

positive and negative aspects of the negotiation and performance of public service delegation

contracts. On the other hand, they highlight risks and situations to be avoided, as well as best

practices that more local authorities and groupings could learn from.

Greater choice of management method for local authorities

Local authorities delegate management in a wide range of areas: water production and

distribution, wastewater treatment, waste collection and treatment, district heating networks,

management of leisure facilities, airports, theatres, car parks, school catering, public

passenger transport, etc.

Subject to a few exceptions relating to public administrative services that must be

managed on a public-private basis, local authorities (mainly cities) and their groupings

(i

ntermunicipalities

and

syndicates

) have a wide choice of management methods. These local

bodies may manage the public services themselves on a self-governing basis (or in a public

agency attached to them) or delegate their management to a local public company (semi-public

company or local public company), or to a private company.

Delegating public services to a private company or a semi-public company reflects the

desire to outsource complex technical management, investment financing and operating risk.

Companies delegated to manage local public services are remunerated for the human

and material resources they use to provide the service delegated by the local authority through

the payment of a fee by users. However, delegations to third-party companies are often

accompanied by cross-subsidies with local authorities: payment by local authorities of

contributions for specific purposes (financing investments, particularly when the service is

leased to the company; compensation for public service costs, particularly in relation to pricing

policy), payment by the companies of a variable proportion of the delegation's financial surplus.

In addition, local authorities often come to the rescue of delegations when a financial deficit

threatens the continuity of the public service.

With the exception, to a certain extent, of the water, wastewater and waste management

sectors

1

, there is a lack of data on the role, value, duration and competitive environment of

1

Observatory for public service delegation procedures provided for by Law no. 93-122 of 29 January 1993 on the

fight against corruption and the transparency of economic life and public procedures ("Sapin Law"), known as the

“Sapin Law” Observatory, which r

eports to the French Biodiversity Agency, a public State body.

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public service delegations. The Court was only able to get a very partial picture during its

investigation.

Public service delegations must not be a "blind spot" in public management. It is therefore

important that the Economic Observatory for Public Procurement, which reports to the Ministry

of the Economy, identifies new delegations, as provided for in the texts from 2019 onwards,

which have not yet had any effect.

Freedom to choose the management method and operator for the

delegated service is exercised unequally by local authorities

Current legislation places few obligations on local authority executives prior to the award

of contracts delegating the management of public services. Indeed, although any delegation

project must give rise to an opinion from the consultative commission for local public services,

this is only consultative and the report on which it is based is often just a formality.

Local authorities vary in their ability to carry out in-depth preliminary studies, which

generally lead to the award of a contract. These preliminary studies should be carried out more

frequently and in greater depth to enable local authorities to choose the management method

best suited to their public services. To this end, the content of the report to be presented to the

deliberative assembly for the first delegation or renewal of a public service management

delegation should be specified in the texts.

The law requires competitive tendering when the deliberative assembly has decided that

a public service will be managed under a public service delegation contract awarded to a

person other than a local public company with exclusively public capital, i.e. a private company

or a semi-public company.

The oligopolistic structure of the markets in which public service delegations operate

(public passenger transport, water, sanitation, waste, car parks) limits the number of

companies likely to apply. The notices of concession awards published in the

Bulletin officiel

des annonces des marchés publics

(BOAMP) in 2022 and 2023 reveal relatively little

competition, whatever the sector of activity. On average, local authorities and their groupings

received just under two bids in response to their consultations. In more than a third of cases,

only a single bid was submitted; in only one in four to five cases were more than two bids

submitted.

Furthermore, the possibility for companies competing with the incumbent to submit

competitive bids may be affected by the asymmetry of information on the operation of the

delegation from which the incumbent benefits.

Lastly, some local authorities do not always stimulate competition sufficiently, or even

restrict it: failure to allocate services that could be split geographically or functionally,

inadequate period and duration of competitive tendering, conditions accepted during

negotiations with the successful company that substantially alter the terms of the initial

competitive tendering, etc. Although competitive tendering is compulsory in this case, the

presence of semi-public companies limits its scope, particularly when major national operators

have a stake in their capital.

In addition, in the course of their audits, the Regional and Territorial Chambers of

Accounts detect irregularities in the tendering procedures implemented by local authorities.

These irregularities undermine both the quality of the public service and the legal certainty of

local authorities and their elected representatives. Because of their severity, some of them

may lead the Regional and Territorial Chambers of Accounts to initiate legal proceedings

before the criminal courts or the Court of Accounts, in its capacity as financial judge.

Local authorities frequently call on consultancy firms to draw up invitations to tender,

analyse the responses and conduct the final negotiations with the company or companies

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selected. This is justified by the technical nature of the fields concerned and the informational

asymmetry which they often encounter in relation to companies. In order to protect their

interests, local authorities must ensure that there is no conflict of interest between their councils

and the companies in the sector concerned.

Relations with delegated companies can be unbalanced, to the detriment

of local authorities

Although the legal definition of a public service delegation contract stipulates that the

delegated company must be genuinely exposed to the vagaries of the market and the risk of

losses, some contracts do not involve any significant risk for the delegated company. In

addition, riders to the contract may change the initial economic balance in favour of the

operator.

In this context, the excessive duration of certain delegations, which can reach thirty, forty

or fifty years after extension by rider, alters the normal play of competition, guaranteeing the

delegating company an advantage.

Under current law, the maximum duration of public passenger transport contracts is

capped at ten or fifteen years, and that of delegations in the water, wastewater and waste

management sectors at twenty years. The executive of a local authority may derogate from

the latter ceiling but must justify this to the departmental director of public finance and then to

the local authority's decision-making body. This framework has helped to clean up practices

relating to the duration of delegations in the above-mentioned sectors. On the other hand, no

maximum duration for public service management delegation contracts has been set for other

sectors, which leaves open the possibility of excessively long contracts.

Local authorities often agree to help delegated companies cope with foreseeable

economic contingencies by means of riders. During the Covid crisis, compensation to limit the

losses of delegatees faced with an unpredictable situation and public service compensation

maintained despite the interruption of certain services enabled some delegatees to make

substantial profits.

On the other hand, local authorities often do not benefit sufficiently from unforeseen

gains made by delegated operators because they are not entitled to share in profits above a

certain threshold. They must therefore ensure that public service delegation contracts include

clauses guaranteeing a financial return in their favour when the outcome of the delegation

significantly exceeds the initial or updated forecasts.

Public service delegation contracts often, but not always, provide for penalties for failure

to meet service quality targets or submit documents to enable them to monitor the operation

of the delegation. Where contracts provide for them, local authorities do not systematically

apply them, even in the event of misconduct on the part of the delegated company. Local

authorities should make contractual clauses providing for penalties proportionate to the

inconvenience caused by failure to meet targets the norm, and apply them rigorously to ensure

that contracts are properly executed.

Some contracts provide for abnormally high profitability for the delegated companies. In

addition, the true level of profitability of delegations is often not easily identifiable. The amounts

of head office expenses invoiced by the parent company or purchases of goods or services by

companies in the same group are unequally justified by the level of the actual costs of the

aforementioned company or companies.

The absence of a provisional operating account reduces the transparency of contracts

and makes it easier to build up margins that are difficult to see. Positive law should stipulate

that bids from companies applying for a public service delegation contract and the contracts

signed must include, for their entire term of performance, a provisional operating account and

a detailed list of planned investments, and that these documents must be updated each time

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the contract is amended. In addition, local authorities must negotiate closely the level of

margins, both hidden and visible.

Encouraging greater control of public service delegations by local

authorities

Delegating the management of public services must not be synonymous with taking

responsibility away from local authorities and their groupings. On the contrary, local bodies

must exercise full operational and financial control over their delegatees. To achieve this, they

often need to structure their internal organisation more effectively and increase the expertise

of their departments.

In addition to the delegatee's annual report, as required by the regulations, local bodies

must be able to access the management data collected or produced by the delegated

company. Although positive law now provides for access to data during the operation of the

delegation, restrictive provisions still prevent local authorities from gaining access on first

request to data that is important for monitoring the operation and economic situation of

delegations. A change in positive law is needed to remove them.

Similarly, positive law should extend from six to eighteen months before the end of the

delegation contract, the minimum deadline for the delegated company to send the delegating

authority a file of subscribers, meter characteristics and plans of the water and sewerage

networks. The current minimum period of six months seems too short in practice.

Consideration should be given to extending this obligation to all network concessions.

Whether or not the regulations change, local authorities and their groupings must ensure

that the contract with the delegated company contains an exhaustive list of the financial and

management data required to exercise their control over the conditions and results of the

delegation. They must also endeavour to obtain this information when it is not provided

spontaneously.

In addition, the contract should include a list of the various categories of intangible assets

(such as software) and tangible assets associated with the delegated activity, and the

procedures for maintaining a precise inventory of them: returnable assets, which belong to the

public entity, unless otherwise stipulated, and which always revert to it at the end of the

contract; trade-in assets, which belong to the delegated company, unless otherwise stipulated,

and which can be bought back by the public entity at the end of the contract; own assets, which

are and remain the property of the delegated company. It is no less important for the delegating

authority to carry out detailed monitoring of the assets throughout the life of the contract in

order to protect its financial interests.

The quality of the service produced by the delegated company would often benefit from

better evaluation. To this end, indicators should be contractually agreed upon to enable precise

monitoring - some of which may trigger penalties or, on the contrary, a profit-sharing

arrangement for the delegatee or the local authority. In addition, service users are often involved

in monitoring delegations, through satisfaction surveys and even participation in governance

bodies (user committees, residents' representatives). However, a broader definition of service

quality, extending to the safety of users and the impact of the service on the environment, seems

necessary.

Finally, local authorities need to anticipate the end of the contract period and the

possibility of a change of contract holder, or even of management method (return to self-

management or award without competition to a local public company).

To this end, the delegating authorities should make a provision in the initial contract for

the financial and material consequences of early termination for reasons of general interest at

their initiative, at a time when they are in a more favourable relationship with the delegated

companies they have chosen.

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It would also seem useful for the delegating authorities to agree on an end-of-contract

protocol with the delegated companies, one or two years before the end of the delegation

contract. The purpose of this document would be to ensure that the delegated public service

operates smoothly until the end of the delegation period, and that the information required for its

continuity is passed on, even if the incumbent delegatee is not renewed due to a change in the

delegation holder or in the way the service is managed.



In the context of this report, which is addressed primarily to local authorities, the Court

and the Regional and Territorial Chambers of Accounts do not express a preference in principle

for the management of a public service by the local authorities and their groupings themselves

(through self-management, a public establishment or a local public company) or by a private

company or a semi-public company within the framework of a public service delegation.

On the other hand, it is important that the choice of management method is properly

informed, that in the case of delegated management there is an effective call for competition,

that there are thorough negotiations with the companies selected and that the relationship

between the delegating public entity and the delegated company is balanced from the

beginning to the end of the contract.

In order to contribute to this objective, the financial jurisdictions, on the one hand, make

recommendations to the ministries in charge of the economy and local authorities and, on the

other hand, propose levers for action to local authorities and their groupings. These

recommendations and levers for action are detailed below.

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Recommendations

1.

Compile and publish summary data on public service concessions as part of the Economic

Observatory for Public Procurement (

Ministry of the Economy

).

2.

In the regulatory part of the French General Local Authorities Code, specify the content of the

report to be presented to the deliberative assembly in application of Article L. 1411-4 of the

same code for a first management delegation, the renewal of an existing delegation or the

takeover of a public service; to this end, provide for a comparative analysis of the different

management methods that could be envisaged (

ministries responsible for the economy and

local authorities

).

3.

The French Public Procurement Code must stipulate that bids from candidate companies and

public service delegation contracts must include, for the entire duration of the contract, a

provisional operating account and a detailed list of planned investments, as well as the

definitions and assumptions used to estimate the corresponding financial flows; it must also

be stipulated that these documents are updated with each amendment (

Ministry of the

Economy

).

4.

Amend Article L. 3131-2 of the French Public Procurement Code in order to enable the

concession-granting authorities to obtain on first request all the data and databases collected

or produced in connection with the operation of the public service covered by the delegation

contract, regardless of the date of the consultation or publication of the concession notice

(

Ministry of the Economy

).

5.

Increase from six to eighteen months before the expiry of the delegation contract the minimum

period fixed by Article L. 2224-11-4 of the French General Local Authorities Code for the

transmission by the delegated company to the delegating authority of the subscriber file, the

characteristics of the meters and the plans of the water and sewerage networks (

Ministries in

charge of the economy and local authorities

)