A group of industry leaders recently met as a panel to discuss “Public-Private Partnerships: Opportunities and Challenges for the Construction Industry”. Presented by the Construction Litigation Committee of the ABA Section of Litigation, this event looked at public-private partnerships, the distinction between public and private construction projects, the risks associated with the procurement process, and general contractual requirements for performance guarantees, requirements for the workforce and the public on record and reporting and auditing rights. Panelists included Brian Gaudet, a partner at Kilpatrick Townsend in Houston; Felix Rodriguez, a partner at Bilzin Sumberg in Miami; Adrian Felix, a Bilzin Sumberg partner in Miami; and Brian Kirby, General Counsel (US and Canada) for Sacyr in Washington, DC.
The key takeaways from the discussion include:
- P3s are used to provide private sources of funding to public institutions and to realize projects that normally cannot be carried out because they are either too large or economically unattractive without private and state participation.
- Toll road projects are what many people think of when they think of a P3 project, but P3 are not limited to toll road projects. You may find other public-purpose projects that come with the P3 model, such as: B. Passenger rail, seaport, courthouse and mixed-use projects.
- For the private participants, P3 projects are usually riskier, but offer a potentially greater financial advantage. The private participants in P3 usually take a higher risk than with other types of public projects (ie expect less relief from weather, environmental impact, etc.).
- For the public participants, the P3 process can not only draw on different financial resources, it can also enable more innovation and a holistic long-term balancing of construction costs with costs that need to be sustained over the expected life of the asset.
- Expect additional layers and sources of financial security like irrevocable letters of credit, parental guarantees, payment and performance guarantees, and delivery bonds. These financial collateral instruments need to be carefully crafted to be of adequate size.
- Due to the length of time it takes to get a proposed P3 from concept to approval, it is important that private participants understand that there may be limited opportunities to pass on price increases during this period. Therefore, private participants should include the risk of price increases in their financial model.
- Expect P3 projects to be the source for developing case law, including whether private entities working on the direction of a public entity enjoy the benefits of the sovereign immunity of public entities. Expect the nature of a P3 project to add additional layers of complexity to the analysis than that of a public project.
- P3 projects are different from other public projects, which are either construction projects or design projects. P3 projects can include financing, planning, construction, as well as operation and maintenance after construction. Depending on the structure of the P3 project, these roles can be shared in different ways between different project participants.