I commend to your reading the current issue of NC Construction News, which includes this feature article on public-private partnerships (“PPPs” or “P3s”). As those who regularly follow this blog know, I’ve dedicated a fair amount of cyber-ink recently to the utilization of P3s in the construction of public facilities (particularly highways); after reading the linked article, my thinking on the subject has coalesced around this admittedly simplistic notion: P3s have enormous potential for good, for bad and for ugly, and it likely will be up to the General Assembly to determine which of those adjectives ultimately will apply to this unique project financing and delivery system.
Tag Archives: PPP’s
A couple of my blog posts have mentioned the use of public-private partnerships (“PPPs”) as an alternative source of highway construction financing, including my February 6, 2012 story about NCDOT’s plans to widen I-95 (by the way, last Friday, the Federal Highway Administration gave tentative approval to tolling on I-95).
It remains unclear whether any private money might be utilized to finance the I-95 widening project. What is clear is that PPPs present a host of legal issues that all project participants (and their attorneys) would need to wrestle with should the NCDOT seek private money for I-95, or any other state highway project.
The purpose of this blawg post is to supply three resources for enhancing our collective understanding of the practical implications of PPP financing. A good place to start is this blog post from the blawg “Best Practices Construction Law,” authored by attorney Matthew J. DeVries, who practices in Virginia and Tennessee. Mr. DeVries links to the second resource you should consider, and that’s the AGC’s White Paper on Public-Private Partnerships. Contractors may want to jump to page 13 of the White Paper, which includes a chart summarizing how a PPP could shift typical risk allocations:
For additional depth, consult the National Cooperative Highway Research Program’s Major Legal Issues for Highway Public-Private Partnerships. It presents several representative case studies and concludes that several successful projects have given PPP participants the flexibility to select the optimal project delivery system for their particular project. Such flexibility, of course, could mean procurement outside the sealed bid process.
I’ll be keeping an eye on subsequent I-95 developments. Should the NCDOT begin exploring PPPs, it is hoped that these three resources will provide the contracting community with a foundation for understanding the legal ramifications of this alternative highway financing framework.
As reported in the Fayetteville Observer over the weekend, the N.C. Department of Transportation (“NCDOT”) is moving forward with its $4.4 billion (yep, that’s “billion” with a “b”) plan to widen I-95 from four to six lanes through implementation of tolling on this critical 182-mile transportation corridor.
Why tolls? To quote the story:
The reason is money. [NCDOT] figures show the state has roughly $45 billion in projects to complete by 2020. But the state expects to have only about $9 billion to spend on those projects. The funding gap would mean many key projects would have to be postponed for years.
To the extent current conditions, anticipated usage and a comparison of the available alternatives dictate that lane expansion is necessary — issues I have not researched thoroughly and therefore cannot opine upon — I can understand why NCDOT officials are seeking federal approval for converting I-95 to a toll road. The divisive political environment pervading our nation’s capital virtually guarantees that no new federal infrastructure investment, beyond what the state is already receiving year-in and year-out on average, can be expected anytime soon. That means end-users, and not taxpayers, are going to have to foot the bill if this ambitious widening project is to move forward now.
However, with the price of 87-octane currently hovering around $3.70 per gallon, I suspect the public’s reaction to the tolling plan could be vocally negative. We’ll know shortly whether these suspicions are confirmed, as the NCDOT is conducting informal hearings up and down the corridor between tomorrow and February 27. If you’re interested in attending, a complete calendar of the hearings can be found here. And for more information, including a chance to review the “I-95 Corridor Planning & Finance Study Environmental Assessment” recently authored by NCDOT’s consultants, head on over to www.driving95.com.
What’s my view on this as a construction law matter, as opposed to a public policy and/or political matter? Well, I’ve spent a bit of time perusing those portions of the Study related to the financing of the project, keeping in mind that other states have utilized public-private partnerships (“PPPs”) in the design and construction of new toll facilities. Under a PPP, one or more private partners invests up-front in the design and construction of the infrastructure in question, and is subsequently reimbursed though (and profits by) tolling. As best as I can tell, however, the Study does not indicate whether NCDOT is still considering the PPP option.
I’m curious about this angle to the story, since PPP’s introduce a host of issues of interest to construction law attorneys: Would the construction contract(s) be awarded to the “lowest responsible bidder” within the statutory sealed bid framework, or by some other competitive or negotiated process? How transparent would the procurement process be? Would statutory bonding requirements for public projects apply? What project-level communications challenges might be created through the involvement of a private partner? Would the government, its private partner or both have authority to terminate a contractor for cause? How might typical contractual risk allocations be shifted? I’m sure my fellow construction law practitioners could suggest a score of others.
I’ll be keeping my eyes on both the PPP-angle to this story and other developments, so please stay tuned.