As cities have become increasingly strapped for cash—having lost tax revenue from the economic downturn—more and more have turned to public private partnerships (P3s) to achieve their goals and better serve their constituencies. P3s are agreements between a public entity and a private company wherein the company agrees to design, build, finance, operate, and maintain a public facility in exchange for a series of payments over a long term. This has most frequently been seen in Florida in the form of toll roads, but public entities are increasingly choosing the P3 model to better fulfill their other needs, too. Prime candidates for the P3 structure are medical office buildings, parking garages, bus or train depots, mixed use zoning to encourage high density land use, and higher education buildings. Locations with high credit rating and unused real estate benefit are best able to utilize the P3 structure. This article will summarize Florida’s very broad P3 statute and provide a framework to understand this unique and valuable construction scheme.
Florida Statutes Section 287.05712 is very broad in its scope because it allows for the public utility to be flexible so that P3s can be encouraged. A big benefit of P3s is that much of the red tape and bureaucracy involved with building directly by the public entity can be avoided. To that end, the statute allows for unsolicited proposals from private companies and does not even require public entities to have their own guidelines for evaluating the proposals as long as they evaluate the proposals in accordance with the statute. If, however, the public entity does adopt guidelines for the review of proposals, the public entity must follow them and the guidelines must comply with the statute.
The statutory guidelines are as follows: (1) the project must be in the best interests of the public, (2) the facility must be owned by the public entity or conveyed to the public entity at the end of the operating period, (3) the proposal must contain safeguards against additional costs or service interruptions if the private company defaults or cancels the contract, (4) the proposal must have safeguards to allow for increased capacity at a later date, and (5) the project must have a reasonable cost with respect to the expected useful life of the facility.
After the public entity reviews any unsolicited proposals it receives based on the above statutory parameters or based on its own guidelines, it must post the project in a newspaper of general circulation in order to receive competing bids. In this way, private companies can receive short term approval while the public entity receives bids to increase the competition for the project and reduce costs. The process becomes a sort of hybrid unsolicited/solicited competitive bid procedure. While the public entity is receiving bids, the private company can be working on its due diligence for the project under an interim contract.
The unsolicited proposal must have four basic things before it can be considered by the public entity and before the notice can be posted to continue the process. The proposal must have a conceptual design and a schedule for completion, a method by which the various property interests required for completion of the project will be obtained, general plans for how the project will be financed, and a schedule of user fees/lease payments/service fees and how the public entity may change them. At this stage of the process, these provisions are expected to be very general and approximate. The private company is allowed to wait until it has some form of contract with the public entity before it actually crunches the numbers and sets its plan in stone. A contract for this purpose would be called an interim contract and can be something less than a comprehensive contract, which governs the entire project.
Before the private company can receive a comprehensive contract with the public entity, the proposal must be fully fleshed out and contain the following eight things: (1) provisions for payment and performance bonds, (2) procedures for the public entity’s review and approval of the project, (3) guidelines covering the public entity’s inspection of construction activities, (4) clearly stated insurance requirements, (5) provisions for the public entity’s monitoring of maintenance practices, (6) periodic financing reporting requirements, (7) clear and definite statements of any fees, lease payments, or service payments over the course of the project’s lifespan, and (8) clear explanations of the parties rights and responsibilities during construction and operation of the facility. The comprehensive contract may also include provisions for grants or loans from the public entity out of monies it receives from various sources for the project, provisions covering notice requirements and parties’ right to cure defaults, and procedures for the receipt of the private company of revenues generated by the project.
The public private partnership can be an excellent way for both public entities and private companies to achieve their goals. As long as both the public entity’s and the private company’s staff know how to work within the structure, the speed from conception to delivery of final product can be astoundingly fast. Furthermore, the projects frequently fund themselves, which relieves the taxpayers of that burden. Thus, the P3 structure should be considered for most types of public works, as the benefits can be huge.