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.