Last week, the construction law section of the American Bar Association held its annual Fall Meeting. The program, held in Washington, DC, was entitled “Capital Projects: P3s, Design-Build, and Beyond.” The ABA Forum on the Construction Industry presented a well-run, compelling program that addressed many of the complex issues involving public-private partnerships (P3s).
Speakers explored various aspects of P3s at the state and federal level. They addressed the basics of P3s, including the variety of alternative project delivery systems (including design-build, design-build-operate-maintain, design-build-finance-operate, design-build-own-operate), the mechanics of how P3s work, and the perspectives and roles of general contractors, subcontractors, and design professionals. The speakers also addressed more complicated matters such as financing opportunities and challenges, payment security, federal “flow down” requirements and implications (such as Buy America, Davis-Bacon, etc.), and LEED/green issues for contractors and design professionals.
Some of the many takeaways from the day and a half program included:
• P3s not only generally shift risk from public owners to the private entities involved – the concessionaire and the design build contractor, but also shift control to these private parties for the design, and potentially, the operation and maintenance of the public asset.
• Early collaborative efforts in P3s involving design professionals, the design builder, and end users can result in a shorter construction schedule and other cost savings.
• Subcontractors and suppliers continue to have concerns regarding payment security:
• Although Maryland’s recently revised P3 statute includes a requirement for payment and performance bonds under the state’s Little Miller Act, not all P3 enabling statutes provide such security.
• Moreover, because the typical structure of P3s involves a public owner, a concessionaire, a design-build contractor, and trade subcontractors and suppliers, a concessionaire is often in the position of “contractor” and the design-build contractor as a “subcontractor” under the applicable mechanic’s lien and bond statutes. This effectively eliminates an entire tier of subcontractors/suppliers from protection under such statutes.
• Design professionals are working more frequently with or for contractors as part of design-build teams. This creates more opportunities to work hand-in-hand with the people who will build (and potentially, operate and maintain) the project, and also creates challenges involving the design professional’s liability – in particular, insurance coverage.
The potential benefits of utilizing P3s are undeniable:
• Access to private funding for public projects that could not otherwise proceed without additional sources of funding;
• Application of the strength of the private sector throughout the entire course of the project, including more flexible financing, advanced construction techniques, and project development and operational efficiencies that are not normally available on purely public projects; and
• Focus on energy efficient design and life-cycle costs because the entity responsible for designing and building the project is often also responsible for operating and maintaining the project for 20-30 years after construction.
While there has been increasing publicity involving P3s and the opportunities they present to address infrastructure and other public needs, enthusiasm must be tempered by obstacles that remain, including:
• P3 legislation differs from state to state. In some cases, the legislation must be amended to provide further flexibility for public entities to address their needs.
• For P3s to become reality, political support is critical. Further education of public officials and the local population on P3s is essential to obtain approval and support.
• There are significant transaction costs, which creates challenges for, and potentially prevents, the use of P3s on all but the largest projects. One solution is for the public entity to “bundle” a number of similar projects together as one P3.
• The absence of standard form agreements for P3s results in higher transaction costs for negotiating the various contract agreements.
We continue to track these exciting developments involving the use of public-private partnerships, and are available to assist organizations interested in P3s.
Jason C. Tomasulo is Senior Counsel at Cohen Seglias Pallas Greenhall & Furman PC. He focuses his practice on construction law and represents owners, general contractors, subcontractors, suppliers and sureties.