Module 13- Introduction Public-Private Partnerships

PPP

 Brings together two major areas

o Public works financing
o Innovative contracting techniques
o Joint collaborative between public agency and private entity = P3

PPP Example

 An example of PPP is tolling

Some Terminology

 In terms of public works projects, what are the following two types?
o Brownfield vs.
o Greenfield

Some Terminology

 Brownfield =
o Operation and maintenance of existing infrastructure
 Greenfield =
o Construction of new Infrastructure

Federal P3 Laws

 What is the current state of federal legislation towards P3s?

o Keep in mind that state law also might apply

Example: Federal Toll Road Laws

 General prohibition on using federal-aid highway money for toll roads

 Law permits:
o construction or reconstruction of toll highway that’s NOT part of the Interstate System
o reconstruction of toll highway that is part of the Interstate System
o conversion of a bridge or tunnel to a toll facility
o conversion of a toll-free federal-aid highway NOT PART of the Interstate System into toll
facility
Other federal constraints on toll facilities?

 Public authority remains responsible for complying with all federal requirements that apply to
the facility
 e.g. Buy America – all steel and iron used be produced in US unless waiver
 All toll revenues from operations be used first for debt service for ROR (rate of return), to meet
operating and maintenance costs

What types of contracting techniques for P3s?

 Build-Operate-Transfer
o contractor retains ownership of facility after construction and during operation and
maintenance
o obligation to transfer facilitate back to public upon expiration of useful life of asset
o revenue risk assumed by contractor
 This is similar to what type of contracting?

PPP Specific Contracting Techniques

 Build-Operate-Transfer
o This is similar to what type of contracting?
o DBFO (Design, Build, Finance, Operate)

PPP Specific Contracting Techniques

 Build-Own-Operate
 How does this differ from BOT?
o Similar to BOT but contractor does not transfer facility BACK to public

What would a noncompete clause look like in the context of a PPP facility?

Noncompete Clause

 What would a noncompete clause look like in the context of a P3 facility?

 Not opening a parallel facility that would affect the long-term viability of the P3
o EX: SR-91 Project in Orange County
o absolute protection zone, no parallel non-toll road
o later eliminated by the legislature in California
So, what types of variations can we have with noncompete clauses?

1. YES noncompete

2. NO noncompete

3. LIMITED noncompete

 Narrowly structure the clauses to protect predominant risk

 EX: Pocahontas Parkway in VA

4. Public sectors retain P3, and structure transaction based on

 availability-payment mechanism- payment, incentive reduce disruptions for maintenance

5. Require public sector maintain comparable non-P3 facilities

 Sits in the middle of public and private

 EX: North Carolina Turnpike Authority
 Does this help or hurt the P3?
o P3 structed to have public option
o Creates political issues
 Are we able to sell to the public?
 Will the public be upset using P3?
 Module 13.2 Public-Private Partnerships (P3)

PPP Legal Issues:

What types of legal issues do you forsee with PPPs?

 Recall, our coverage this semester of the major legal topics related to public works

What are tort liability issues related to PPP? What are some tort protections for states?

What are some tort protections for states?

 Sovereign immunity
o Recall, MO has a waiver under certain circumstances (dangerous conditions)
 Prohibition on punitive damages
 Caps on damage amounts
 P3 vs traditional public

Land Use/Eminent Domain

 Considering Kelo v. New London, how would the public perceive PPPs?
o Favorably or unfavorably and why?
 A lot of unfavorably reaction in this case

Land Use/Eminent Domain

 In light of Kelo v. New London, how would the public perceive PPPs?
o Favorably or unfavorably and why?
 Backlash from Kelo v. New London
o Many states passed or are considering laws restricting eminent domain to benefit
private parties
o e.g. law not allow MHTC to delegate condemnation power to private partner for new
Mississippi River Bridge

What can be done regarding land use in PPP?

Land Use/Eminent Domain:

 Have public sponsor retain risk of land acquisition and related permits and approval
 EX: VA PPP Transp. Act 1995 – only states may condemn property, but just compensation may
be paid by private partners
o Asking private partners to finance in land acquisition
Financing

 Basis – private financing can be repaid with revenue generated from operation of the civil
infrastructure
 Concept of using cash flow to repay investors

Do you think it is problematic that the private sector gets to set user fees?

 Or put in another way, how much discretion should private entities have in setting fees for
public infrastructure?

Do you think it is problematic that the private sector gets to set user fees?

 EX: The Chicago Skyway, Indiana Toll Road

 viewed as a windfall for private concessionaires
 Balancing a reasonable Rate of Return (ROR) and revenue sharing with the public sector

Conclusion: Considering our discussions on financing and now on P3…

 Do you foresee our nation/state going for public works financing (using P3 option)?
o Increasing taxes is not working
o Will this help in the maintenance of roads, bridges, transportation issues?
 Will civil engineering increasingly turn to P3s?
o They could