Public-Private Partnerships for Infrastructure Projects

, New York Law Journal

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Kingsley Osei
Kingsley Osei

The debate surrounding the financing of the replacement of the Tappan Zee Bridge1 has revived the need for New York State to take a hard and serious look at the use of public-private partnership (PPP) project delivery methods rather than relying exclusively on legislative appropriations and public debt to finance its infrastructural construction projects.2

The project, estimated to cost about $3.142 billion, is being constructed through a Design Build contract, a PPP project delivery method,3 and will be financed by a federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loan of $1.6 billion,4 bonds, private lending and state appropriations.5 Coincidentally, two bills pending in the New York State Assembly (A.08183)6 and Senate (S.5501)7 will authorize private companies to develop and operate public infrastructure projects in New York.

Although the fate of these bills is yet to be determined, legislation in the Executive Budget of 2013/148 which would have allowed all New York State agencies to use the Design Build Method other than the five currently allowed to do so, failed to pass into law. Interestingly, the recently enacted SUNY Tax-Free Areas to Revitalize and Transform Upstate New York Program (START-UP NY) legislation9 is a novel PPP approach that allows the New York public university system and private colleges, to grant long term ground leases and leverage certain tax incentives to attract private businesses to the state.10

While the Build Design law and START-UP NY program are steps in the right direction, New York still remains with a minority of states that have not enacted a comprehensive PPP legislation to deploy innovative and penetrative PPP delivery methods that allow greater private sector participation in the delivery of public projects. As will be demonstrated in this article, there are public accountability, social policy and work force protection issues that constrain the state from embracing other PPP delivery methods.11

PPP Methods

A public private partnership has been defined as:

an agreement formed between public and private sector partners, which allow more private sector participation than is traditional. The agreements usually involve a government agency contracting with a private company to renovate, construct, operate, maintain, and/or manage a facility or system. While the public sector usually retains ownership in the facility or system; the private party will be given additional decision rights in determining how the project or task will be completed.12

Arguably, PPPs "benefit both public and private partners by allowing governments to benefit from the efficiency, funding, and expertise of the private sector, while giving private company partners a reliable stream of revenue and consumers, not only guaranteeing a return, but making it easier to secure investors."13 "Current data indicate that PPPs often can result in significant project cost and time savings compared to traditional procurement. Causes can include direct incentives to the private contractor for on-time delivery; use of warranties…or performance-based contracting; competition among bidders; transfer of risk to the private sector for cost and schedule overruns or revenue shortfalls; and lifecycle efficiencies…"14

On the other hand, PPP arrangements are often derided in some quarters as "corporate welfare" and thereby assailed as distorting the true cost of private sector participation in the marketplace and hiding the true cost of public debt. Optimal PPP arrangements, however, safeguard the public interest, but also create the economic imperatives that attract private sector participation in projects.

PPP methods are of infinite variety and reflect the continuum of private sector participation in projects that are typically undertaken by the public sector. The legislative framework adopted by a state may provide for a narrow range of PPP options, as evidenced in New York, or allow a broader array of options that are often influenced by political inclinations, public agency goals and financial considerations.

New York Program

Under the Infrastructure Investment Act, 2011 (IIA)15 a specified number of New York state agencies and public benefit corporations can utilize the Design Build method to fund and execute infrastructure projects. A Design Build PPP structure merges the traditionally bifurcated Design Bid Build16 process by awarding the design and construction phases of a project to a single bidder or a consortium of bidders.

IIA requires a two-step selection process. Contractors who have demonstrated the "general capability" to perform Design Build contracts are first, selected into a prequalified pool. They are then selected for a specific project on best value basis. By using this PPP and employing a Project Labor Agreement, it is estimated that the State of New York will save $452 million in project costs for the construction of replacement of the Tappan Zee Bridge.

Significantly, IIA addresses other unique political, social and economic imperatives by providing that construction for each capital project undertaken pursuant to it is deemed a "public work" subject to Labor Law prevailing wage requirements. It further requires contractors to comply with the objectives and goals of minority- and women-owned businesses or, in the case of projects receiving federal aid, comply with federal requirements for disadvantaged business enterprises.

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