Could Fiscal Cliff Talks Provide Fuel for Public/Private Partnerships?

The Wall Street Journal reported today that, among the talking points for fiscal cliff avoidance, the government is considering removing the tax exempt status of municipal bonds, which would severely limit the borrowing power of local governments. If this happens, the cost of private capital to fund public facilities and infrastructure would not be so out of whack compared to the cost of public borrowing. This would encourage more public/private partnerships. Currently, when considering alternatives for financing public construction, public agencies compare the higher costs of private capital to the lower costs of issuing municipal bonds. That is one of the factors that could weigh in favor of traditional procurement techniques over public/private partnerships. However, if the tax exempt status of municipal bonds is removed, this would no longer be a factor in favor of traditional procurement.

Keep an eye on this. If in fact public financing becomes less attractive and the pending public/private partnership bill passes in Florida, P3s in Florida may become much more prevalent in future public construction.

P3 and Cybersecurity

Robert D. Rodriguez, founder of the Security Innovation Network, will open the Complex Adaptive Systems Conference, to be held November 14-16 in Washington, D.C., with a discussion on the application of public-private partnerships to online security.  The conference, which is sponsored by Lockheed Martin, Tata Consultancy, the Missouri University of Science and Technology and others, and features presentations on computational intelligence, big data analytics and the "Smart Grid" will include discussions by several leaders in the complex systems area.  On the conference site,  the abstract of Robert Rodriguez's presentation refers to both the Manhattan Project and Silicon Valley as examples of public-private partnerships.

The subject of Rodriguez's presentation seems especially timely as The Economic Times has just reported that Shivshankar Menon, the National Security Advisor to the Prime Minister of India, has recommended that a permanent mechanism be set up for the use of public-private partnerships in the development of online security in India.  The report, titled Recommendations of Joint Working Group on Engagement with Private Sector on Cyber Security states, "one of the primary challenges facing both government as well as industry is to ensure the security of their computer networks and systems.  Cyber security cannot be achieved in isolation by either government or industry alone.  It requires joint efforts and collaboration."

As cybersecurity has become a key component of both national and industrial security, it is critical that the public and private sectors work closely together in innovative ways to achieve the online infrastructure that is necessary to protect both national and business assets.  Based on the subject of the opening presentation at this year's Complex Adaptive Systems Conference and the recommendation of India's National Security Advisor, it appears this is an area ripe for public-private partnerships both nationally and globally.

P3 Could be a Competitive Advantage for US Manufacturing

Public-Private Partnerships help the public sector develop various projects and improve infrastructure in ways that benefit the public at large.  These projects and infrastructure improvements, which always raise economic and financing issues, can be particularly challenging during difficult economic times. While P3’s contribution to making capital improvements and similar initiatives a reality is well recognized, we might consider other areas of our nation’s economy that could also be assisted through the joint initiative of the public and private sectors.  One other area to consider is manufacturing.

Rebecca O. Bagley, CEO of Nortech, a regional nonprofit focused on technology based economic development in Northeast Ohio, recently wrote on Forbes.com that “collaborative public-private partnerships have emerged as an important component in this new era of American manufacturing.”  In support, Bagley describes her recent attendance at a Department of Energy/NIST roundtable, which focused on American manufacturing.  An assertion made at the roundtable was that P3 could play an important role as the US manufacturing sector transitions into what is now a highly innovative and globally driven manufacturing marketplace.  As an illustration, Bagley points to the recent announcement of a 30 million dollar federal grant made to the National Center for Defense Manufacturing and Machining in order to establish a National Additive Manufacturing Innovation Institute in the Techbelt (described as the Cleveland to Youngstown to Pittsburgh corridor).  In Bagley’s piece, Carnegie-Mellon President, Jared L. Cohon, says the “new manufacturing institute is about industry teaming with university partners…”.

As Bagley points out, solutions and innovation are to be found not only in the technology and processes we as a nation develop, but in the creativity we use in making these things happen (e.g. through P3), which in itself represents a competitive advantage.  Bagley’s piece, “Are Public-Private Partnerships The 'Secret Sauce' To A Resurgence In American Manufacturing?” can be found at
http://www.forbes.com/sites/rebeccabagley/2012/09/04/are-public-private-partnerships-the-secret-sauce-to-a-resurgence-in-american-manufacturing/

A Creative Solution for Non-Revenue Producing P3 Facilities?

Now that public/private partnerships are starting to proliferate, morphing from the traditional transportation-based programs to vertical construction for universities, municipalities and more, the next question is how to apply the P3 delivery method to non-revenue producing public facilities.  P3 projects are possible because private equity investors and lenders seek revenue-producing public facilities, such as toll roads, dormitories and stadiums, in which to invest or loan design and construction funds in return for an anticipated rate of return. Toll roads have been the benchmark for such construction, with vertical construction picking up steam.  However, thus far, private money has gravitated only to projects that would generate their own revenue, from which the rate of return can be repaid or supplemented. While this is understandable, such a philosophy has left vital non-revenue producing public facilities out in the cold. But perhaps that isn’t necessary. A little creative thought may be all that is needed to find a way to make P3 applicable to such projects.

Witness the state of Virginia, who recently augmented the revenue-producing capability of its turnpike rest areas with sponsorships. According to the Street Smart blog of the Daily Press on August 30, 2012 by Jon Cawley, GEICO is sponsoring “Safe Phone Zones” at Virginia’s rest areas as a means of generating more revenue to entice a Pennsylvania-based caterer to run the facilities’ concessions as part of a public/private partnership.  The Virginia governor claims Virginia as the first state in the country to secure a sponsor in a program of this sort.  Kudos to Virginia for its creative thinking. 

Why can’t sponsorships be part of a revenue-generation plan for non-traditional, non-revenue generating public facilities? Sponsorships could be joined with other creative techniques, such as land-swapping deals, tax concessions and reallocations, low-interest bond financing, and mixed-use office space rentals to cobble together a financial package that could make sense for otherwise non-revenue generating projects.  The beautiful thing about P3 is the sky is the limit. Parties are constrained by only their imagination (and politics).  So follow Virginia’s lead. Work sponsorships and other non-traditional revenue sources into your programs and let’s build America!

Is a Florida Public/Private Partnership Statute Imminent?

Seeing the potential of public/private partnerships (“P3”) as the preferred means for funding and building public projects now and in the future, Governor Rick Scott has pushed a P3 statute near the top of his agenda for the upcoming legislative session. Since the last session, he led a trip to Spain to court some of the biggest P3 financiers and builders in the world, espousing the vast potential for P3 jobs in Florida. Legislators have already been tapped to sponsor P3 bills in the House and Senate and bill drafting is currently underway. As a result of the current crisis in public university funding, the Florida Board of Governors appointed a task force on facilities funding that is looking into possible legislation, including P3 legislation, with a charge to report its findings by November 7, 2012, in time to seek a legislative cure.

P3 legislation is not just a pipe dream. A comprehensive bill (some would say too comprehensive) passed the Florida House in the last week of this past legislative session, but without enough time for the Senate to vote on it, especially in light of other legislative priorities such as budgets and reapportionment. However, that was the furthest a non-DOT P3 bill had traveled in the legislature, suggesting increased momentum for P3 legislation. This year, with gubernatorial support and a wellspring of concern about the need for public funds for construction, infrastructure and maintenance, we expect to see the much-needed statutory framework for P3 this year.

If any of you are interested or participating in the drafting or support of P3 legislation, please contact me so we can coordinate efforts. You can reach me at Lee Weintraub, phone number (954) 985-4147, email lweintraub@becker-poliakoff.com, fax (954) 985-4176.

Together we can kick start this new era of public construction and jobs growth in Florida.

Florida Gets Its First Public-Private Partnership Trade Association

As the momentum for public-private partnerships (“P3”) continues to accelerate, both within Florida and elsewhere, the first Florida P3 trade association is preparing to launch. With an inaugural board already empaneled and setting its first meeting in August, the Florida Council for Public Private Partnerships (“FCP3”) will provide educational content, case studies, relationship development and networking, and other programs to stimulate P3s in Florida and help its members start to do business with each other. Educational programs will include studies of P3 projects from around the state, both successes and failures, to explore what went right and what went wrong. National consultants and advisors will provide educational components and, in the process, members will develop relationships with each other with a goal of working together on P3 jobs.

Membership in FCP3 will be open to anyone interested in P3s, with membership categories including public owners; equity financiers and lenders; contractors, lenders and developers; and associate members including lawyers, accountants, and members of the insurance and surety industries. The inaugural board consists of members from large and well-known governmental entities, investment firms, banks, contractors and engineers. The board membership will be announced after the inaugural meeting in August. The goal is to launch FCP3 this fall.

If you’re interested in more information about membership, please contact me. Otherwise, stay tuned to this blog in the fall for more details.

Continued Interview with Prominent P3 Investor

In my last post, I summarized the first half of my interview with Jane Garvey, the North American chair of Meridiam Infrastructure, one of the country’s leaders in public/private partnerships (“P3”). Here is the rest of the information she provided in that interview.

I asked her about the effect on P3 momentum caused by the Legislature’s failure to pass the P3 legislation during the last session. Most P3 participants, especially investors, would tell you comprehensive P3 legislation is critical to attract investments in P3 jobs because they create or advance the perception of stability in the P3 process. Many public owners are unsure of how to embark on P3 projects and, in the absence of comprehensive legislation to guide them, they tend to wallow around a bit, adding time, cost and anxiety to the process. Legislation tends to coalesce and educate public entities, prompting them to develop stable structure within their agencies to better anticipate and handle P3 opportunities. The failure of the Florida Legislature to pass P3 legislation during this past session disappoints, but Jane doesn’t believe it will stifle interest in Florida. Her perception is that the political and private will in support of P3 projects, already reflected in the substantial increase in the number of P3 jobs, will overcome the deficiency created by the lack of legislation. 

My last inquiry of Jane (we’ll be scheduling a follow-up interview shortly) involved her expectations about the use of P3’s in Florida in the near future. Jane pointed out that Florida was always among the national leaders in P3 on transportation projects (where a P3 statute has been in place for some time now). But she also pointed to the promise of P3 jobs in higher education. We’ve already seen significant higher education P3 jobs, from the University of Florida’s Innovation Village, to the dorms at the University of Central Florida, and the dorms and football stadium at Florida Atlantic University. I know of others currently being considered, but not yet ready for announcement. Jane knows of these too and feels this is the start of a new wave of P3’s in Florida that will take us far beyond the realm of transportation. It appears she’s right, so we’ll continue this series of interviews with P3 leaders in the future.

Prominent Investor in P3 Projects Speaks About Florida's Prospects

Jane Garvey, the North American Chair of Meridiam Infrastructure, knows a thing or two about public/private partnerships (“P3”). Meridiam is one of the country’s leaders in P3 projects, from compiling the P3 team and fertilizing it with ideas and experience to investing in the enterprise as a shareholder or lender. Jane is their top person in North America and shared her thoughts with me about Florida’s potential for P3 development. In this blog post and some that will follow, I will share her thoughts with you.

P3s are not ideal for every job. They’re more appropriate for large, complex, innovative projects not neatly fitting into traditional capital programs. The project must be critical to the public owner, as criticality will ensure the facility will be operated for the long-term, thus generating the necessary operational revenue to repay private investors and contractors for their risks. Criticality also ensures strong public sector buy-in, as lack of public commitment to the job may dilute the prospects of success. Historically, critical projects have included transportation as well as social infrastructure, such as schools, courthouses, and teaching hospitals.

The proposed P3 project must have a good revenue stream or it won’t attract investors or lenders. Stable revenue tied to the job, such as shares of federal funds, sales taxes or impact fees, will lure investors. Riskier prospects may deter investors. Without private funding, the P3 delivery method will fail, so it is important for funding to be attracted through assurances of stable revenue sources from which investors may earn an appropriate return on their investment.   

Jane echoes the sentiment of everyone who has been through a successful P3 project that one of the most critical components is someone to champion the project or at least champion the notion of an alternative delivery method. Someone from the business community or a public official must advance the cause through the political channels and in the arena of public perception to avoid the project’s defeat at the hands of questionable, controversial or adverse concerns about the project’s viability, feasibility or appropriateness. 

Finally, a successful P3 project must be a good fit with the public. The affected public entity must have institutional capability, meaning its various departments and operational structure must be able to seamlessly implement and monitor the job without disruption, delays or excessive red tape. Because disruptions are common when a public agency unfamiliar with P3 exercises its new set of P3 skills, delays can be reduced if the public agency’s decision-makers are well structured and the agency hires a financial advisor and outside legal counsel possessing the required P3 skill set.

Keep an eye on this blog for future posts, including more from my interviews with Jane Garvey, as well as other P3 experts, as we continue picking their brains for nuggets of wisdom we can all use to begin or continue to implement the P3 delivery system in Florida.

Public-Private Partnership Legislation Died Without Senate Approval

House Bill 337, codifying public-private partnerships (“P3”) in Florida, was approved by the House last week and sent to the Senate, but it died in the Senate without action before the end of the legislative session last Friday. Although this is a minor loss of momentum for P3s in Florida, it doesn’t change anything as there is still authority for public-private partnerships in Florida public construction. As one attendee asked me at one of our recent P3 workshops, “why do we need this legislation anyways since we can do public-private partnerships regardless of the bill?” He was right and I responded that the legislation had drastically increased statewide awareness of the P3 solution to the public construction budget crunch, which was really the best argument in favor of the bill. So although the bill didn’t pass, it won’t change much and P3s continue to be the hot thing in Florida construction. Stay tuned to this blog for further news, ideas and suggestions about P3s as the process continues gathering momentum even without Tallahassee’s help.

Legislation Would Encourage Public-Private Partnerships

February 29, 2012, Daily Business Review, An ALM Publication
Reprinted with permission.

Board of Contributors: A win-win for public-sector projects

The Florida construction industry continues to limp along but relief may be on the way from the Florida Legislature. House Bill 337 and its companion, Senate Bill 576, have become the springboard for educating public agencies and contractors about the availability of public-private partnerships (P3) as the new means for delivering public construction projects in Florida.

Although P3 projects have already been available in some form in Florida, they have been infrequently used and familiarity with these types of projects among public entities and contractors has been scant. The legislation has increased awareness of the opportunities for P3 projects. But the bills, in their current form, may inadvertently burden the process with well-intentioned, but impractical, requirements.

P3 projects take many forms, but at their most fundamental level they are projects in which private entities finance, in whole or part, construction of public facilities in exchange for the opportunity to operate the facilities for decades thereafter. The private entities recoup their investment by retaining a portion of the fees generated by the facility.

The most prevalent examples thus far of P3 projects have been toll roads. Recent examples also include the Port of Miami Tunnel, sports arenas for the Florida Panthers and the Miami Marlins, the Florida Atlantic University football stadium and dorm construction, as well as dormitories at the University of Central Florida. The University of Florida is currently engaged in a significant P3 project combining private business enterprises and university educational facilities within a new mixed use complex approximately a half-mile away from campus.

With the current public budget crisis, combined with Gov. Rick Scott’s recent request that $250 million of Public Education Capital Outlay funds be returned to the state, public agencies are at a loss about how to fund new facilities, let alone maintain old and aging facilities. Private enterprise could come to the rescue by offering a P3 arrangement.

The Legislation
Under the pending legislation, private entities may approach a public agency at any level of government with ideas for P3 projects. Under the current version of the bills, the public entities would already have policies in place for receiving such ideas from the private sector, addressing issues such as opportunities for competition through public notice (but not traditional bidding or procurement procedures), criteria for choosing among competing proposals, financial analyses of the proposals, etc. The public agency would not be required to select the proposal with the lowest bid amount, but rather may consider price as only one of many factors in evaluating competing P3 proposals.

The bills also permit private entities, who have determined the unmet need for specific public facilities or infrastructure, to submit unsolicited bids pursuant to which the private companies would build and operate the facilities or infrastructure using private funds, rather than wait for public agencies to put P3 projects out for bid. Customarily public agencies request bids from private contractors, but under the pending legislation private contractors may solicit the opportunity to build those facilities before the public agency ever issues a request for bids or proposals. In fact, the private entities could propose P3 projects even before the public agency ever realized there was a need for the facility in the first place. Giving private construction consortia the opportunity to generate their own work could provide a much needed economic stimulus in Florida public construction.

Business Opportunities
The construction industry has noticed the business opportunities P3 projects may provide. People are getting excited about the prospect of builders creating their own business by approaching public agencies with unsolicited ideas for P3 opportunities.

This is a win–win situation: It could put many contractors back to work on lucrative deals as long as the builders can carry the construction costs for a little while. It can also provide public agencies with the much-needed facilities, infrastructure and maintenance they seek, but for which public funding is not available.

Concerns
The trade association Construction Owners Association of America presented a very successful seminar on the pending legislation and P3 projects in general, generating high attendance from public agencies, contractors, lenders, insurers and other industry participants. But as momentum for P3 projects increases, concern grows over whether the pending legislation may contain too many rigid requirements to induce free enterprise to jump on the bandwagon.

For instance, the legislation mandates onerous guidelines be implemented by private agencies before they can consider any P3 project. It also provides that, after the private entity invested significant time and money in developing an unsolicited proposal, it would be put out for competition to other contractors who could submit competing bids without having incurred the costs of developing the initial idea. The legislation would require legislative approval for every P3 proposal at the state government level although the approval procedure is much simpler at every other level of government.

Issues such as these could stifle private interest in P3 projects unless they are addressed before the bill becomes law. Otherwise many industry participants anticipate they will have to work together to fix some of these glitches in a glitch bill to be presented next year. Despite these misgivings, indications are that visionary private entities and public agencies will plan on working together on P3 projects, regardless of what Tallahassee does. The pending legislation does not appear to hurt momentum, but a well-drafted bill could stimulate this process more than anyone initially envisioned.

If passed, the new legislation would take effect July 1, 2012. It will usher in a new era of public construction in Florida, fueled by creative public-private partnerships. The bill presents fascinating and promising opportunities and potential as long as it is not weighed down by bureaucratic requirements and impractical procedures. Many interested and affected parties are working with legislators to try to streamline the bill. In the meantime, you can follow the bill’s status by visiting www.flsenate.gov and typing in SB 576.

Lee Weintraub, a shareholder at Becker & Poliakoff in Fort Lauderdale, is board certified in construction law by The Florida Bar. He represents clients in litigation, arbitration and transactions.

Momentum Continues for Pending Public-Private Partnership Legislation

House Bill 337 and Senate Bill 576, similar companion bills expanding the use of public-private partnerships (“P3”) as the new public construction delivery method of the future, continue to progress through legislative committees. Other than a few amendments, they remain largely intact and appear likely to be passed. Although the statutes would likely need some glitches corrected, they have definitely caught the attention of industry participants. Recent seminars I have held or participated in on P3 projects have generated significant attendance and interest and there is quite a buzz about the prospects of P3. I have been interviewed by a few reporters, indicating that even the media is getting excited about this.

Stay tuned for further updates and start planning now for how you can catch this wave of the future of public construction in Florida. Watch this blog for more updates on the status of the pending legislation and other items of interest.

Public-Private Partnership Bill Gets Facelift, But Still Has Momentum

Senate Bill 576 on public-private partnership construction was drastically revised, but the core facets of the legislation, opening the door to great public construction opportunities, remains unimpaired. And the bill is gaining momentum as it continues to pass through legislative committees.

The changes in the new bill from the original version include:

1. public entities may contract for P3 projects only with legislative approval or if consistent with local government appropriation process as evidenced by approval of the project in the public entity’s work program;
2. detailed instructions on public notice, opportunity for competing proposals to be submitted on any P3 project, and the manner of selecting among competing proposals (traditional procurement requirements and bid protests don’t apply here);
3. prohibition against the use of state funds unless the project is for a facility owned by the public entity or a facility whose ownership will be conveyed to the public entity;
4. the private entity must provide an investment-grade technical study prepared by a nationally recognized expert detailing the finance plan, including required payment & performance bonds plus, in appropriate circumstances, letters of credit and guarantees from parent companies, lenders and equity partners;
5. the requirement that the P3 agreement ensure a negotiated portion of revenues from fee-generating projects are returned to the public entity over the life of the agreement; and
6. specific provisions addressing the financing of the job, such as the conditions for loans from the public entity for construction, suggestions for innovative finance techniques, and the prohibition against indemnity agreements from the public entity or pledging of security interests in the public entity’s assets.

Although I’m still digesting the comprehensive changes to this statute, they appear to make the process more onerous and limiting than the original version. The revised bill seems to favor large, sophisticated private entities and consortia over smaller ones because of the burdensome financing and solicitation requirements coupled with the limitations on the use of public funds. On the other hand, the increased opportunity to submit competing bids will provide access to P3 jobs to those who lack the creativity and vision to identify potential P3 jobs themselves. The bill is still a much needed boost to the Florida construction industry, as it will increase opportunities for smaller contractors to participate as subcontractors on these jobs. Without a P3 bill, public construction will likely slow down due to a severe lack of funding. Although my preliminary thought about this bill, which I’m still analyzing, is that is it more restrictive and burdensome than the original bill, it nevertheless is a necessary and welcome response to the reduction in available public construction funds.

Construction Owners Trade Association Takes Note of Public-Private Partnerships

The movement towards public-private partnerships (“P3”) as the wave of the immediate future in public construction continues to gain momentum. Construction Owners Association of America (“COAA”) is presenting a workshop on this topic on February 10, 2012 at 10:00 am in Orlando. The site appears to be the Hilton Hotel on International Drive, but I’ll forward definitive details as soon as they are available.

The program will begin with a presentation from the University of Florida about a sizeable P3 project they are undertaking just east of campus on the site formerly occupied by Alachua General Hospital. Next will be a presentation from a private developer out of San Diego with extensive experience with P3 projects around the country to discuss how they have selected, funded and administered P3 jobs. These two presentations alone, while not constituting the entire program, will give great insight into the P3 opportunities we will soon face in Florida, from both the owner’s and contractor’s perspective.

The program will then continue with a short lunch presentation by me on the status of the pending P3 legislation, about which I have previously blogged, as well as a summary of what that legislation would provide. Next (subject to final confirmation) will be a presentation by George Burgess, former Miami-Dade County Manager and current COO of Becker & Poliakoff, on funding options for P3 jobs – where to find funds and creative ways to come up with them. George was very involved in putting together P3 jobs for Miami-Dade County, such as the current tunnel construction and the various Metrorail stations. He sits with me on Becker & Poliakoff’s P3 team. 

The workshop will close with a question and answer session. Watch this blog for a copy of the agenda and registration form in the near future. Catch the wave – P3s are the wave of the immediate future, providing great opportunities for public owners, as well as private contractors, subcontractors and developers. Learn about them now and start positioning yourself to capitalize on them.