Prieto Swain Placilla Duvall Diwik Aba 2009 Final

AMERICAN BAR ASSOCIATION
TRIAL AND INSURANCE PRACTICE SECTION
FIDELITY AND SURETY LAW COMMITTEE

Perspectives on Public Private Partnerships
By

Bob Prieto
Fluor Corporation

Contributors:

Kimberly Swain
Citigroup Global Markets, Inc.

Mel Placilla
HDR, Inc.

Tyler Duvall
U.S. Department of Transportation

James Diwik
Sedgwick, Detert, Moran & Arnold LLP

January 22, 2009
The Waldorf-Astoria, New York, NY

1
prietoswainplacilladuvalldiwikaba2009final-12826596701341-phpapp01.doc

This paper looks at a number of core issues facing the developing and evolving U.S. public
private partnership market. This market, still in its infancy, holds the potential of improving the
delivery of U.S. infrastructure, by reallocating risks and rewards, as well as expanding the
access to a range of new capital markets and new financing tools and structures.

Throughout the paper, we will look at a number of questions facing market participants today.
These include:

• Does the public private partnership framework really offer efficiencies?
• How do the users of public private partnership projects benefit?
• What are the key considerations for investors in this class of infrastructure project?

In considering these and many other questions that this emerging U.S. public private
partnership market faces today, we will consider a number of issues from a developer/contractor
perspective not only in the U.S. public private partnership market but also targeted international
public private partnership markets that are described to support the paper’s perspective.

1. Definition of a Public Private Partnership
The U.S. Department of Transportation defines public private partnerships as a contractual
agreement formed between public and private sector partners, which allows more private sector
participation than is traditional.

The agreements involve government contracting with the private sector 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. The term public private partnership
defines an expansive set of relationships from relatively simple design-build contracts to
development agreements that can be very complicated such as those represented by design-
build-finance-operate-maintain.

In the context of this paper, public private partnership is used for any approach in which the
private sector would have a broader partner role than they would under more traditional
methods of procurement and project delivery.

Public private partnerships may be considered as falling into categories, based on the reasons
for their creation. Key public-private partnership categories include:

• Those designed to accelerate priority projects by packaging and procuring services in
nontraditional ways
• Those that turn to the private sector to provide specialized management capacity for
large and complex programs, such as those provided under program management
• Those focused on arrangements to facilitate the delivery of new technology developed
by private entities
• Those drawing on private sector expertise in accessing a wider range of financial
resources than traditionally employed by the public sector
• Those that encourage private entrepreneurial development, ownership, and operation of
infrastructure assets

2

In reality, public private partnerships in the evolving U.S. market typically involve multiple
partnership aspects. The range of public private partnership types and the levers available to
set the most appropriate public private partnership framework are further described in the next
sections of this paper. The ability to influence ultimate success varies as does the risk/reward
balance point.

2. Spectrum of Public Private Partnership Types
Public private partnerships mean many things to many people. For clarity, the full range of
public private partnership types are described in this section with subsequent sections of this
paper emphasizing public private partnership types that involve private sector participation with
development or financing risk aspects.

3

The definitions that follow were adapted from “Public private Partnerships: Terms Related to
Building and Facility Partnerships,” Government Accounting Office, April 1999. They provide a
good summary of the full range of public private partnership types.

Build-Operate-Transfer (BOT) or Build-Transfer-Operate (BTO)
The private partner builds a facility to the specifications agreed to by the public agency,
operates the facility for a specified time period under a contract or franchise agreement with the
agency, and then transfers the facility to the agency at the end of the specified period of time. In
most cases, the private partner will also provide some, or all, of the financing for the facility, so
the length of the contract or franchise must be sufficient to enable the private partner to realize a
reasonable return on its investment through user charges. At the end of the franchise period,
the public partner can assume operating responsibility for the facility, contract the operations to
the original franchise holder, or award a new contract or franchise to a new private partner. The
BTO model is similar to the BOT model except the transfer to the public owner takes place at
the time construction is completed, rather than at the end of the franchise period.

Build-Own-Operate (BOO)
The contractor constructs and operates a facility without transferring ownership to the public
sector. Legal title to the facility remains in the private sector, and there is no obligation for the
public sector to purchase the facility or take title. A BOO transaction may qualify for tax-exempt
status as a service contract if all Internal Revenue Code requirements are satisfied.

Buy-Build-Operate (BBO)
A BBO is a form of asset sale that includes a rehabilitation or expansion of an existing facility.
The government sells the asset to the private sector entity, which then makes the improvements
necessary to operate the facility in a profitable manner.

Contract Services
Operations and Maintenance
A public partner (federal, state, or local government agency or authority) contracts with a private
partner to provide and/or maintain a specific service. Under the private operation and
maintenance option, the public partner retains ownership and overall management of the public
facility or system.

Operations, Maintenance, and Management
A public partner (federal, state, or local government agency or authority) contracts with a private
partner to operate, maintain, and manage a facility or system providing a service. Under this
contract option, the public partner retains ownership of the public facility or system, but the
private party may invest its own capital in the facility or system. Any private investment is
carefully calculated in relation to its contributions to operational efficiencies and savings over the
term of the contract. Generally, the longer the contract term, the greater the opportunity for
increased private investment because there is more time available in which to recoup any
investment and earn a reasonable return. Many local governments use this contractual
partnership to provide wastewater treatment services.

Design-Build (DB)
A DB is when the private partner provides both design and construction of a project to the public
agency. This type of partnership can reduce time, save money, provide stronger guarantees,

4

and allocate additional project risk to the private sector. It also reduces conflict by having a
single entity responsible to the public owner for the design and construction. The public sector
partner owns the assets and has the responsibility for the operation and maintenance.

Design-Build-Maintain (DBM)
A DBM is similar to a DB except the maintenance of the facility for some period of time becomes
the responsibility of the private sector partner. The benefits are similar to the DB with
maintenance risk being allocated to the private sector partner and the guarantee expanded to
include maintenance. The public sector partner owns and operates the assets.

Design-Build-Operate (DBO)
A single contract is awarded for the design, construction, and operation of a capital
improvement. Title to the facility remains with the public sector unless the project is a design-
build-operate-transfer or design-build-own-operate project. The DBO method of contracting is
contrary to the separated and sequential approach ordinarily used in the United States by both
the public and private sectors. This method involves one contract for design with an architect or
engineer, followed by a different contract with a builder for project construction, and then
followed by the owner taking over the project and operating it.

A simple design-build approach creates a single point of responsibility for design and
construction and can speed project completion by facilitating the overlap of the design and
construction phases of the project. On a public project, the operations phase is normally
handled by the public sector under a separate operations and maintenance agreement.
Combining all three passes into a DBO approach maintains the continuity of private sector
involvement and can facilitate private-sector financing of public projects supported by user fees
generated during the operations phase.

Developer Finance
The private party finances the construction or expansion of a public facility in exchange for the
right to build residential housing, commercial stores, and/or industrial facilities at the site. The
private developer contributes capital and may operate the facility under the oversight of the
government. The developer gains the right to use the facility and may receive future income
from user fees.

While developers may in rare cases build a facility, more typically they are charged a fee or
required to purchase capacity in an existing facility. This payment is used to expand or upgrade
the facility. Developer financing arrangements are often called capacity credits, impact fees, or
extractions. Developer financing may be voluntary or involuntary depending on the specific local
circumstances.

Enhanced Use Leasing (EUL)
An EUL is an asset management program in the Department of Veterans Affairs (VA) that can
include a variety of different leasing arrangements (e.g., lease-develop-operate and build-
develop-operate). EULs enable the VA to long-term lease VA-controlled property to the private
sector or other public entities for non-VA uses in return for receiving fair consideration
(monetary or in-kind) that enhances the VA’s mission or programs

Lease-Develop-Operate (LDO) or Build-Develop-Operate (BDO)

5

Under these partnerships arrangements, the private party leases or buys an existing facility from
a public agency; invests its own capital to renovate, modernize, and/or expand the facility; and
then operates it under a contract with the public agency. A number of different types of
municipal transit facilities have been leased and developed under LDO and BDO arrangements.

Lease-Purchase
A lease-purchase is an installment-purchase contract. Under this model, the private sector
finances and builds a new facility, which it then leases to a public agency. The public agency
makes scheduled lease payments to the private party. The public agency accrues equity in the
facility with each payment. At the end of the lease term, the public agency owns the facility or
purchases it at the cost of any remaining unpaid balance in the lease.
Under this arrangement, the facility may be operated by either the public agency or the private
developer during the term of the lease. Lease-purchase arrangements have been used by the
General Services Administration for building federal office buildings and by a number of states
to build prisons and other correctional facilities.

Sale-Leaseback
This is a financial arrangement in which the owner of a facility sells it to another entity and
subsequently leases it back from the new owner. Both public and private entities may enter into
sale-leaseback arrangements for a variety of reasons. An innovative application of the sale-
leaseback technique is the sale of a public facility to a public or private holding company for the
purposes of limiting governmental liability under certain statues. Under this arrangement, the
government that sold the facility leases it back and continues to operate it.

Tax-Exempt Lease
A public partner finances capital assets or facilities by borrowing funds from a private investor or
financial institution. The private partner generally acquires title to the asset but then transfers it
to the public partner either at the beginning or end of the lease term. The portion of the lease
payment used to pay interest on the capital investment is tax exempt under state and federal
laws. Tax-exempt leases have been used to finance a wide variety of capital assets, ranging
from computers to telecommunication systems and municipal vehicle fleets.

Turnkey
A public agency contracts with a private investor/vendor to design and build a complete facility
in accordance with specified performance standards and criteria agreed to between the agency
and the vendor. The private developer commits to build the facility for a fixed price and absorbs
the construction risk of meeting that price commitment. Generally, in a turnkey transaction, the
private partners use fast-track construction techniques (such as design-build) and are not bound
by traditional public sector procurement regulations. This combination often enables the private
partner to complete the facility in significantly less time and for less cost than could be
accomplished under traditional construction techniques.

In a turnkey transaction, financing and ownership of the facility can rest with either the public or
private partner. For example, the public agency might provide the financing, with the attendant
costs and risks. Alternatively, the private party might provide the financing capital, generally in
exchange for a long-term contract to operate the facility.

3. Available Public Private Partnership “Levers”

6

Various sectors of the infrastructure market are driven by different regulatory frameworks, varied
financial tools, and different investor risk and return appetites. Investor time horizons are also
influenced by their perception of political and technological risk, exposure to disruptive events
over time, physical asset lives, and renewal or replacement costs.

The figure below summarizes the set of “levers” available for public private partnership design in
the U.S. roads sector. While the levers will vary across infrastructure sectors the specific levers
here provide a broader illustrative example. Each of the levers is briefly described to help frame
the range of considerations which must be thought through and balanced by the public sector as
it proceeds forward with public private partnerships and by the private sector as it seeks to
achieve appropriate risk weighted returns.

Equity
The U.S. roads sector is governed in large part by the requirements of Title 23 as it relates to
activities that may be carried out on roads that are part of the National Highway System. In
addition to regulating activities related to the National Highway System, Title 23 provides for
federal funding, in whole or in part, for eligible projects as defined within Title 23 or by Congress
in specific appropriating legislation. This availability of federal funding is independent of whether
a project is implemented through a public private partnership or purely within the public domain.
In a simple sense, federal funding, to the extent available, represents one possible tranche of
“public equity” in a U.S. road project.

7

Federal fund for roads typically require that there be an investment of state money in the project
with federal funds typically being described in terms of being “matching,” most frequently with
some overall cap on the amount of federal funds available for the specific use intended. Title 23
specifically provides that, to the extent such funds are provided by the private sector, they will
be treated as if they were state funds for purposes of determining the federal “match.”

State funds represent a second source of “public equity” that one might find in a U.S. road
public private partnership. These funds, as considered in this example, are specifically those
related to the financing of initial construction or expansion of the facility, with any state
assistance in the operating and maintenance phase separately considered.

In public private partnerships, the third source of project equity is private equity.

The equity levers shown in the figure reflect 50 percent of equity coming from a federal “match”
with the remaining 50 percent of equity being provided by the state (20 percent) and the private
sector (30 percent). The relative equity contributions will influence the overall public private
partnership deal structure, revenue sharing arrangements, and overall public private partnership
term.

Public private partnership transactions can range from 100 percent private equity to zero
percent private equity, but, with a sub-debt contribution, this structure is used in so-called not-
for-profit public private partnership models where private equity is unable to participate in order
to preserve the tax exempt nature of the structure.

Tolling

8

Two principle factors weigh in as we consider how tolling levers may be set. The first deals with
the extent to which the facility can be or will be self-supporting. Traffic and revenue projections
are a first consideration in setting this lever, but political and social factors weigh in on the
decision as to whether or not the anticipated or required toll rates are acceptable. The extent to
which the road is not self-supporting, either because of traffic and revenue considerations or the
desire to “buy down” toll rates, a subsidy will be required. This subsidy can manifest itself either
as a larger state contribution towards capital costs (in effect, reducing the level of private equity
required and increasing its leverage) or an ongoing state contribution towards operations and
maintenance activities. This later operating phase subsidy may take many forms including
revenues from a tax improvement district, availability payments, shadow tolls, defined
government subsidies, or absorption of certain costs.

The second tolling lever relates to whether tolling will be on a fixed basis, whether this be a fixed
per mile rate, or a fixed toll at defined toll barriers or defined routes traveled, or alternately on a
variable or managed basis. The underlying premise on managed lanes is that tolling policy can
be used to change road usage patterns to spread out peaks, reduce congestion, and/or
encourage HOV or mass transit use. The tolling of certain federally funded road facilities (HOV
lanes) requires the implementation of a managed lane approach to ensure free flow of traffic.

Finance
The finance levers address two fundamental sets of considerations.

The first set deals with the public private partnership form that will be used, namely, a for-profit
structure using private equity (concession) or a not-for-profit structure where the use of private
equity is not possible. Related to this decision if the not-for-profit model is chosen is whether it
will be financed using a traditional muni model or whether a special purpose not-for-profit entity,
a public benefit corporation, will be created for the specific purposes of the project.

The second set of finance considerations focuses on the specific financial structure to be used
and is governed both by certain limitations on the use of financial tools and the risk/reward
points of the public sector, private developer, and lending institutions. Among the decisions to
be made is the split of the capital structure between equity (whether public or private), senior
debt (PABs or bank debt), and sub-debt (TIFIA or privately provided either in lieu of or in
addition to equity). Considerations in setting these levers include the degree to which TIFIA can
be used (capped at 33 percent of eligible project costs) and availability of private activity bonds
(PABs) from the congressionally established pools.

Project Execution
The final lever relates to the degree to which the developer contractor is taking on integrated
project delivery responsibility. This responsibility could range from the use of a traditional
design-bid build approach, in the case of muni type financing and delivery structures, through
progressively more integrated approaches to project delivery that could include:

• Design-build
• Design-build-maintain
• Design-build-operate-maintain

These project execution approaches are independent of the funding and financing strategies
chosen for the project, but the combination of each of these elements must be viewed from a
consolidated risk and return perspective.

9

4. Public-Private Partnership Examples
Pocahontas Parkway (Route 895 Connector) – Richmond, Virginia
This project represents the first capital project constructed under the Commonwealth of
Virginia’s Public-Private Transportation Act of 1995.

• $324 million, 8.8-mile divided highway
• Development, financing, design, and construction
• Raised private capital funding through tax-exempt bonds
• 200-meter clear-span, cast-in-place bridge
• Bridge vertical clearance more than 145 feet for shipping channel

SH 130 Toll Road – Austin, Texas
SH 130 represents the single largest highway project in Texas and one of the largest design-
build transportation projects in the United States.

• 90-mile toll highway, 177 structures, and 7 interchanges
• First project to use innovative Exclusive Development Agreement
• $1.3 billion contract value
• Combination of local, state, and federal TIFIA financing
• Financing, design, construction, and maintenance

A59 Freeway – The Netherlands
The A59 highway upgrade is the first road project in the Netherlands to be procured under a
public private partnership.

• $206 million, 9-kilometer freeway
• First road public private partnership in the Netherlands
• Leadership role in the design-build consortium
• Design, build, finance, and maintenance

I-495 Capital Beltway HOT Lanes – Northern Virginia
The Capital Beltway Project is an innovative solution to traffic congestion through the installation
of 14 miles of HOT lanes under a public private partnership with Virginia Department of
Transportation (VDOT).

• $1.4 billion expansion of the I-495 Capital Beltway
• Addition of four High Occupancy Toll (HOT) lanes (two in each direction)
• Design and construct Phase VIII of the Springfield Interchange to provide a HOV-to-HOT
Lane connection between I-95/I-395 and the Capital Beltway
• Construct associated access/egress ramps
• Construct and/or reconstruct 11 interchanges and 42 bridges and overpasses along the 14-
mile corridor
• Implement a fully electronic tolling system with dynamic pricing and associated traffic
management system
• First Virginia public private partnership that includes private funding

10

• Develop, finance, design, build, and operate

High Speed Line – The Netherlands
This project represents the single largest public-private partnership contract awarded by the
Government of the Netherlands to a private party. With a maximum speed of 185 miles per
hour, the new high-speed rail will be a key part of the Trans-European Rail Network.

• €2.6 billion, 95-kilometer, high speed rail project
• Services included design, build, finance, and maintenance
• Rail infrastructure system key part of the Trans-European Rail Network
• 25-year concession as a public-private partnership

E-470 Public Highway – Denver, Colorado
Contractor provided financing, design, and construction services for the first phase of the E-470
toll
highway.

• $323 million, 29-mile toll highway
• First major design-build toll highway in the United States
• Value engineering savings of $90 million
• Initial phase completed two months ahead of schedule
• 2.2 million hours worked without a lost-time accident

11

Highways Agency National Roads Telecommunication Services (NRTS) Project – United
Kingdom
The NRTS project is a public private partnership for the program management, design,
construction, financing, and maintenance of an integrated communications system throughout
England’s motorway and trunk roads network.

• Design, build, finance, and maintain transmission network for 10 years
• $450 million to $900 million (with options)
• Current network has 12,000 Service Type Instances (STI), e.g., telephones
• Capacity at Client High Deployment Scenario 28,000 STIs
• Requirement to enhance main network to meet high deployment

SR 125 South – San Diego, California
This project is the design-build of a publicly funded 1.5-mile roadway and a privately funded 9.2-
mile toll road that will complete San Diego’s third north-south corridor. The four-lane toll road will
have six interchanges, a major toll plaza with electronic toll collection, and a precast, segmental
bridge crossing the Otay River.

• Innovative combination of private equity and federal TIFIA funding
• One of two California public private partnership demonstration projects to go forward

Connect London Underground – United Kingdom
Managing contractor responsible for the financing, design, and construction of London
Underground’s communication system. This public finance initiative (PFI) contract provides
London Underground with a single point of responsibility.

• Financing, design, and construction of network-wide integrated radio and transmission
service
• £1.2 billion, 20-year concession as a PFI
• Implementation of safety procedures while protecting ongoing rail operations

JFK International Arrivals Building – New York, New York
Terminal Four and associated facilities.

• $1.4 billion redevelopment that included new 140,000-square-meter, three-level terminal
plus
• Two-wing, two-level concourse with 16 new contact gates
• One of the largest public private joint ventures to be undertaken in the United States
• Phased construction adjacent to operating terminal
• Decreased schedule to 4.5 years from normally expected 10 years

5. Attributes of Good Legislation
A successful public private partnership environment must start with political will; however,
political will is, in and of itself, not sufficient. It must be backed up first and foremost with good
legislation. The legislative process itself helps build the political consensus necessary to
implement and sustain a successful public private partnership program.

12

More recently, FHWA has provided some model legislation for consideration by the states, but
the plusses and minuses of that legislation will not be addressed in this paper.

What are some of these attributes of good legislation?
• Clear statement of policy
• Provision to receive unsolicited proposals – a competition of ideas
• Approval authority delegated to DOT
• Requirement for clear regulations including evaluation of proposals
• Involvement of local governmental units defined
• Clear authority to commit public property
• Powers of private sector partner delineated
• Right to toll or charge other user fees explicitly stated
• Exemption from property and ad valorem taxes
• Authority and requirements related to predevelopment and comprehensive development
agreements fully delineated
• Termination provisions for cause and convenience provided for, including any remedies
• Funding resources identified if federal, state, or local resources to be included
• Condemnation authority defined
• Enforcement provisions related to tolls and traffic enforcement
• Waiver of any procurement regulations inconsistent with public private partnership delivery
model

The legislature performs a key role in ensuring these essential ingredients are present before
moving down the public private partnership path; however, that role should not stop there. The
legislature must be asking itself the following questions:

Have we sufficiently considered what steps and activities are necessary to create a
climate for a sustained use of the public private partnership model?
No developer-contractor is interested in just doing a series of one-off projects. Rather, they are
interested in participating on a sustained basis in well-defined sectors, with sustaining project
pipelines and political support that goes well beyond just the pilot project stage.

Have we clearly defined the regulatory objectives in our public private partnership
processes?
This is an easy question, but it is not one so easily answered. The public interest must be
protected but not at the cost of stifling private sector creativity.

Have we clearly defined our policy priorities and reduced the non-financial barriers to
financial closure?
Prioritize! Prioritize! Prioritize! In the short term, there will always be more capital than good
projects. Do we have a good process to ensure that the “proposed solutions” are solving the

13

real problems we want to address? The absence of well-defined priorities drives the public
private partnership provider into a role of justifying the need for a solution rather than just
promoting the merits of his solution. The role of needs-definition – and communication – lies
with the public sector at the outset of the process, not with the private sector public private
partnership provider as a last hurdle before financial closure.

Does the public sector have the tools it needs to broadly evaluate the financial offerings
it receives in the public private partnership process, especially where there are
competing offers with different risk structures and time frames?
Public private partnership models are more than pure financial models in that they must allow
the regulator to consider broader economic and specific user impacts. Government must be a
sophisticated seller of rights, which traditionally (at least since about the 1920s) have been its
purview only. A successful public private partnership industry in the United States cannot be
built just on headlines.

6. Clear Regulatory Objectives
The design of a robust regulatory framework in the United States must start with a clear
understanding of what the regulators’ objectives are in their entirety. While these may be
expected to vary reasonably from state to state, there will be nonetheless a general template
that will address a broad set of objectives that are likely to exist across the individual states. The
development of such a template would likely foster the development of public private
partnerships at the state and local level while reducing marketing and bidding costs by public
private partnership providers. Herein is a role for the U.S. DOT. The U.S. Department of
Transportation regulatory framework must build on the experiences not just gained to date in the
U.S. market but also reflecting the vast experience in this area which international regulators
and financial institutions have gained.

Regulatory objectives must start with the recognition that they are not unitary or necessarily
independent, and are often bounded by unwillingness to deal with difficult political tradeoffs. The
main objectives should include viability, efficiency, and fairness; however, they cannot stop
there. These regulatory objectives must also specifically consider:

• Financial viability of public private partnership
− Alternative is failure and potential early recapture by government of a distressed and
most likely debt-burdened asset
− Regulator must understand IRR, cash flows, debt structure and coverage ratios, equity
returns and time to target return, profitability, bankruptcy risk of project, and
concessionaire’s business model

• Toll rate structure efficiency
− Toll rate structure design intended to provide a regulatory substitute for both ensuring
the operator receives a fair rate of return while protecting the general public from “unfair”
monopolistic pricing
♦ Must address adjustment for factors outside the regulators’ and concessionaires’
control:
 Difficult credit markets (for any agreed to refinancing flexibility)

14

 Tight labor markets (that cause labor costs to behave dramatically different than
indexed averages that may have been used in developing the toll rate structure)
 Tax system changes

• Fairness of toll rate structure
− Not uncommon to establish toll rate structures that incorporate inherent cross subsidies
♦ Recalibration over the public private partnership lifetime must be addressed

• Efficiency of delivery and operation
− Important in any regulated rate of return scenario
− Reward early delivery
− Efficiency must be encouraged

• Reinvestment efficiency
− Public private partnership structure should not encourage excessive early cash flow
harvesting
♦ For example, the facility is not run into the ground
♦ Condition and capacity of facility at turnover must be addressed
♦ Investments linked to demand forecasts and actual demand realized must be
addressed

• Recalibration of toll rate structure at periodic refinancing
− Important in concession terms extending beyond the duration served by the debt
markets
− Important in valuing the recapture of debt market risk premiums (reflected in higher
coverage ratios) associated with the initial ramp-up of the infrastructure project’s traffic
and revenue streams

• Development of regulatory regime must be simple, transparent, non-conflictive, justifiable
and justified, fair in allocation of risks, and avoid pricing discrimination and excessive price
fluctuation

7. Tools of the Trade
The design of any robust regulatory model for the U.S. public private partnership market must
go far beyond just having an understanding of other models and an ability to articulate the
state’s regulatory objectives. It must also provide the regulator with a well-defined set of tools
that are clearly understood by potential public private partnership providers. False starts during
this initial growth period run the risk of impacting effective regulatory framework design by
discouraging potential public private partnership providers from making the types of investments
required (often exceeding one percent of total installed cost by the time of financial closure).

Tools of the trade include:

• Policy framework

15

• Concession period and its linkage to rate of return
• Toll rate level, structure, and adjustment mechanisms
• Concession payments
• Penalties and fines for non-compliance
• Timing of investment and reinvestment
• Quality standards, including those related to effective management and operation of the
facility over time
• Depreciation and amortization rules (tax and accounting policy issues)

8. Design of an Efficient and Effective Bidding Process
The process of selecting a public private partnership partner is one of the best opportunities for
the regulator to get things off on the right foot and greatly increase his opportunity for a
successful outcome. In designing the public private partnership bidding process, the regulator
should:

• Encourage the bidder’s creativity
• Judge all proposals received by carefully assessing the capabilities, credibility, and
commitment of the proposers and carefully respecting the intellectual property rights
• Choose a proposer on the basis of known and qualitative abilities. Financial criteria cannot
be sole selection criteria
• Recognize that the concessionaire’s capital contribution is determined by financing
community requirements and should not be artificially capped
• Establish the clear legal framework required
• Implement a well-defined and transparent concession process with clearly defined selection
criteria
• Clearly define the obligations of concessionaire to:
− Build
− Maintain in good condition
− Operate
− Hand over the works at end of period
• Identify rights of the concessionaire
− Counterparty rights which arise from financial agreements, including subsidies and tariff
guarantees included in the contract
− Rights to operate the service and the degree of independence of those rights from the
granting authority
− De facto monopoly rights
− Rights with respect to third parties
− State rights transferred to concessionaire (eminent domain)
− Rights to use the facility and receive fees
• Procurement process itself should be carefully conceived:

16

− Should not be built around competing on toll levels or expected usage (increase risk to
government from increased likelihood of concession company default)
− Should have adequate preliminary studies complete to define project scope and facilitate
advancement of the environmental process
− Rely on careful pre-selection of qualified bidders to ensure capability to meet financial
commitments
− Carefully define government’s role and obligations at outset of process
− Provide an opportunity to comment on tender documents and negotiate contract form in
advance of proposal submission
− Clearly define the evaluation criteria
− Establish a realistic timetable for the negotiation process

9. Contract Issues to be Addressed by Regulator
The regulator’s challenge is to now turn to the key contract issues which he will be required to
negotiate with the public private partnership provider. The more defined the regulatory
framework is and the better prepared the regulator is to address the key contract issues, the
more likely that an agreement will be reached in a timely manner. Key issues that the regulator
must focus on include:

• Concession period
− Time to recover target rate of return; repayment of debt
− Procedure for toll rate approvals (and linkage to cash flows and costs)
− Procedure for monitoring cash flows
− Rules related to transfer of assets for non fully amortized investments (otherwise,
investment at end of concession period is discouraged)

• Investment
− Provisions to ensure investment commitments are met
− Timing of toll rate increases and linkage to political cycles
− Amortization rules (accounting, tax, and concession agreement specific)

• Toll rates and structure
− Where the rubber meets the road
− Set to allow operator to break even under targeted rate of return reflecting targeted
efficiency gains
♦ Modeling of uncertainty and changing financial coverage ratios become key
parameters in the negotiation process
− Handling of any nonregulated activities must be carefully addressed
− Cross subsidies clearly defined and any restrictions placed on use of cross subsidies
fully understood

• Quality
− Technical and service quality standards

17

− Caps or floors
− Level of fines
− Relationship between cost, quality, and level of fines

Many of the issues addressed within the contract will directly or indirectly be affected by other
policy and regulatory frameworks which may or may not be specific to public private
partnerships but which must be explicitly considered in the development of a successful public
private partnership contract. Some of these issues would include:

• Forms and timing of restructurings allowed
• Nature and duration of any exclusivity or restrictions on competing facilities
• “Social” composition of user base (unintended social consequences)
• Idiosyncrasies/uncertainty in forecasting models
• Policy/rights retained and related to sequestration, forfeiture, withholding or suspension of
guarantees, liability allocation and third party liability

10. Key Considerations for Investors in this class of Infrastructure
Project
A developer/contractor will be focused on a broader set of risks than either a designer,
contractor or lender would be under a traditional muni approach to infrastructure delivery and
financing. The new risks encompass a broader set of political risks; risks related to revenue
levels, timing and achievable “revenue Efficiencies”; and costs, both related to capital
construction of the facility as well as costs throughout the balance of the facility lifecycle.

Succinctly these risks include:

18

• Political risk
− Delay
− Change of law
− Clawback
− Competing facility impacts

• Revenue
− Traffic ramp up drivers and rates
♦ Development, congestion, growing freight %, personal and discretionary income
growth
♦ Shoulder periods, changed annualization rates over time
♦ Local, regional and national traffic patterns acting on the facility
− Mismatch between assumed traffic volumes and physical capacity of facility
♦ Required capacity additions to handle modeled traffic volumes not accounted for
in project financial model design
− Unit pricing index ($/mi) growth rates assumed
♦ Linkage to value of time assumptions and modeling (time savings and
affordability) – Toll leakage and diversions
♦ Competing facilities impacts ³ Timing; changed patterns over concession
period; enforcement regime – Traffic mix assumptions/changes
♦ Modal shifts, HOV growth, changed freight patterns; reverse commutes
− Impact of maintenance, renewal, weather and accidents on availability levels

• Revenue Considerations for Managed Lanes
− Value of Time
♦ Time savings term
♦ Affordability term ³ Increases to the extent that income of the candidate user
population grows faster than the CPI
♦ Top MSA income growth has historically outpaced CPI growth
♦ Modeling of toll rate growth in excess of CPI requires confidence in the level
selected
♦ Toll rate growth in excess of CPI, even if allowed by the concession agreement
may face future political risks!
♦ Bias terms for toll roads and electronic tolling
− Annualization factor
♦ Growth of weekend traffic volumes and congestion over concession period
− Peak spreading

19

♦ Wider peak or higher toll rate during “shoulder periods”
♦ Definition of rush hour changes

• Capex
− Adequacy of risk modeling and funding
− Project schedule
♦ Duration, phasing assumptions (linkage to revenue and Capex), and potential for
delays (ROW, environmental, legal)
− Sensitivity to key commodity prices and availability
♦ Steel, concrete, fuel/asphalt, labor
− Sensitivity of financial model to upfront project delay
♦ Important when construction escalation growing at 2X CPI and maybe toll rate
growth – Adequacy of risk modeling and $$$
− State process risk – delays on required reviews; failure to take timely actions; design
interpretation beyond contract language
− Warranty and force majeure relief

• O&M
− Adequate expenditures on customer service
− Tolling technology choices
♦ Reliability, accuracy, availability, maintainability, life cycle and operating cost, and life
span
− Renewal funding rates and mechanisms
♦ Key as terms extend beyond design life
♦ Funded reserves requirements (DSR, renewals)
♦ Spread between O&M and revenue growth rates
− Overall level of maintenance expenditures assumed
♦ Required maintenance levels during ramp-up period
♦ Linked to Capex decisions
♦ Key driver in financial capacity of project
 Historical State O&M expenditures not a reliable guide

The importance of this last set of risks cannot be understated since its impact on financial
returns is significant as shown in the following figure.

20

• Financial structure
− Financing Default triggers
− Refinancing risks
− Sensitivity to ramp up and long term traffic growth rates
− Funded reserves requirements (DSR, Renewals)
− Spread between O&M and Revenue growth rates

• Financial option parameters
• Emerging Issues
− Availability payment structure may accelerate profits into construction phase for
federal tax
− PABs impact on depreciation may be proportionate to PABs share of capitalization
and not total
− Co Venture risk from a tax perspective is created when public authority is a "partner"
Would limit use of tax loss until year of tax gain. Revenue sharing likely to
trigger....may also be triggered by any contribution to capitalization of project

It is important to also understand how the developer/contractor and Investor perspectives of risk
will vary based on whether the public private partnership process is primarily related to an
existing, well established “brownfield” asset as compared to the development and construction
of a largely new or greatly expanded facility. In the US roads sector many headlines were
created around the sales (extended leasing) of the Chicago Skyway and Indiana Tollroad, but
these were in many ways more akin to tradition public-private real estate transactions.

The table below compares a number of risk elements as they relate to brownfield and
Greenfield public private partnership structures.

21

Risk Brownfield Greenfield
1. Development risks
Political will #1 requirement #1 requirement
Enable legislation May not be required Typically required
Regulatory framework Evolving Evolving
Environmental permitting Only for expanded capacity Significant
ROW acquisition Only for expanded capacity Significant
requiring ROW addition
EPC risks Limited to expansion Significant
2. Operating risks
Ramp-up risks None Significant
Steady state traffic volumes Known Projected
Diversion characteristics Predictable if previously tolled Significant
Vehicle mix Known Projected
Growth rate Projected Projected
Peak to average ratio Known Projected
Maintenance characteristics Known Projected
Corridor related constraints Known Projected
3. Financing risks
Traffic profile Known Projected
Traffic growth Projected from historical baseline Projected
Asset condition Aged New
Time to required capacity Short to medium Medium to long
additions
Toll rate growth/sensitivity Projected Projected
Refinancing Limited opportunity Significant opportunity
Revenue sharing with state Function of up-front payment Limited opportunity
structure
Tax benefits Co-venture risk Availability payment structure
may accelerate profits into
construction phase for federal tax
Availability of TIFIA Limited to capacity expansion Significant opportunity
Availability of PABs Limited to capacity expansion Value uncertain

11. Design-Build Contract Issues
A. Ownership of design drawings – The design build contractor (Contractor) should state in
the contract that it is the sole owner of the work product of the design-build design efforts (see
parallel clause for inclusion into Design subcontract). Contractor should grant to the project
owner a limited license to use the documents for the specific project and explicitly state that no
rights are granted to use the design as a prototype for other projects. If Contractor is terminated
as the design-builder and the owner chooses to complete the project with another design-
builder, then Contractor is entitled to a defined premium over any compensation it is otherwise
entitled to. This premium should be spelled out either to amount or methodology for calculating.
If Contractor is replaced as design-builder the owner must agree to indemnify Contractor for any
damages resulting from the use of these documents including any litigation, arbitration or other
costs arising in connection with such use. In addition the owner should indemnify the Designer
in a similar fashion and preferably all other subcontractors (geotechnical, surveying – physical
and environmental, QA/QC, etc. are all reasonable examples to cite in requesting such
protection).

22

B. Changes – Owner directed changes should be limited to “reasonable” and provide for
adjustments to cost and time. If agreement on time and cost has not yet been reached the
owner can direct Contractor to proceed paying Contractor 80 - 90% of its estimated cost but up
to a defined limit on the yet unagreed to amounts. Once that limit has been reached Contractor
may exercise its rights under the contract provisions for Owner default.

The contractor should preserve its right “to make minor changes in the construction documents,
provided it gives notice to the owner and there is no material or adverse effect on the work,
price, or time.”

C. Design standard of care – The contractor should state that design services will meet the
generally accepted standard of care (that is not negligently performed) and, if performance
requirements are specified, that the contractor “will meet the standard of care necessary to
provide design services achieving agreed upon performance standards.” Performance standard
related language must also flow down to the design subcontractor.

D. Warranty – Any warranty to correct “any work” will typically cover implicitly any related
design services which will generally create an uninsurable loss under any errors and omissions
policy (unless negligent). Warranty should be limited to construction work. Any flow down of a
more comprehensive definition of work to the design subcontractor should recognize that the
design subcontractor assets are all that supports the warranty since generally their E&O policy
will be unavailable.

Typically, the contractor would be willing to give a bifurcated warranty such that with respect to
engineering errors, we re-do the deficient design and, with respect to construction errors, we
repair or replace within scope.

E. Indemnity – The contractor should not provide “defense” for the owner against claims as
there will be no recourse to any E&O policy of the design subcontractor. Such a provision
creates a contractual liability for damages that would otherwise not be awarded by a court in the
absence of such a clause.

The contractor should also seek to have the owner indemnify it “to the extent that damages
arise out of the negligence of other contractors separately engaged by the owner.”

F. Right to stop work – The contractor should have the right (after a due notice period, say a
week) to stop work if the owner fails to:

• Provide financial assurances required by the contract
• Make payments that are due and payable

G. Right to terminate contract for default by the owner – The contractor should have the
right to terminate the agreement exclusive of clauses that survive such termination (payment
due, indemnification against damages caused by other contractors hired separately by the
owner, ownership of drawings, etc.) if:

• Work has been stopped for whatever reason (including as a result of the contractor
exercising its rights to stop work) for more than 60 consecutive days or 90 cumulative days
over the life of the project
• Owner has failed to provide needed information, permits, or approvals

23

H. Dispute resolution – A dispute resolution process through nonbinding mediation should be
spelled out, but, in the event of failure to come to closure after non-binding mediation, the next
step should be left to subsequent agreement. To do otherwise may create a subsequent dispute
with insurers over the factual and legal basis of any arbitration decision as it relates to
apportionment of responsibility to the insurer.

In certain foreign jurisdictions, it may be more desirable to seek a binding arbitration provision in
the contract than leave the matter to the local courts.

I. Electronic records – Any requirement to maintain records for the life of the project or a
period of time afterwards should specifically exclude e-mail files which may be destroyed by the
routine purging of such files.

12. Design-Build Subcontract Issues
All Subcontracts
A. Indemnity – Certain states have anti-indemnity statutes (e.g., Minnesota) so contract
language to indemnify may not be sufficient. Specific language should clearly state the
subcontractor “would protect the contractor from all claims including claims for which the
contractor may or may not be claimed to be liable.” Additionally, the subcontract should require
the subcontractors to name the contractor as an additional insured on their CGL policies.
Alternately, the contractor may require the subcontractor “to purchase an owners’ and
contractors’ protective liability policy.”

B. Confidentiality – This is particularly important during the bidding stage. In general, the
contractor shall require all subcontractors to hold all of the contractor information or other
project specific information, including all documents in electronic form, confidential and only
available to release to a third party through the expressed permission of the contractor.

Design Subcontract
A. Ownership of design drawings – The contractor shall be deemed to be the owner of all
drawings developed by the design subcontractor during the project pursuit process whether
successful or unsuccessful in achieving an award. The contractor shall also be the owner of all
drawings developed by the design subcontractor during the project execution phase and
subsequent to project completion.

B. Role of the design subcontractor during construction – The contractor should clearly
spell out this role including any role in inspection, shop drawing review, and payment
certification.

C. Errors and omissions – Process and responsibility for costs associated with errors in plans
and specifications should be clearly spelled out. Costs to be covered by contractor provided
contingency, absorbed by the design subcontractor, or covered by insurance should be clearly
delineated.

D. Liability for proper and timely completion of the design – General and specific liabilities
associated with faulty or incomplete design or timely delivery of design documents shall be
detailed including the contractor’s rights to complete the design or have another complete the
design at the designer’s cost and without relief of other liabilities incurred. Specifically, the
“designer shall keep the contractor informed of the progress and quality of the work endeavoring

24

to guard the contractor against deficiencies in the work of the contractor or any of its
subcontractors.”

E. Representation at bidding stage – To aid in the protection of the contractor against
significantly defective information during the bidding stage, work on which the contractor would
base its estimate and schedule, the contractor should require the designer in the initial teaming
agreements and in subsequent contract documents “to represent and assure to the contractor
that the designer is well qualified to do the work and that it has the expertise and workforce to
perform.”

13. Special Concern – “Protecting the Public Good”
As public private partnerships become more visible to the general public, the need to visibly
address public interest concerns also grows. The lack of a clear definition of “public interest”
however, causes the term to be used as a stalking horse by those who seek to delay or derail a
given project. In many instances, public private partnerships represent the implementation of
user-based fees to cover all or part of the project’s funding requirements, and as such there is a
confusion of the public private partnership’s delivery and innovative finance benefits with user
fee-based funding that most likely would exist even if the project was more traditionally
implemented.

Surveys of public attitudes as they relate to toll road projects highlight some of the public’s more
fundamental concerns, many of which stretch across other infrastructure systems.

These concerns (Compilation of Public Opinion Data on Tolls and Road Pricing; NCHRP
SYNTHESIS 377; Transportation Research Board; 2008) include:

• Public wants to see the value
• Public wants to react to tangible and specific examples
• Public cares about the use of the revenues
• Public learns from experience
• Public uses knowledge and information available
• Public believes in equity but wants fairness
• Public wants simplicity
• Public favors tolls over taxes

Other public concerns encountered include:

• Public sector inexperience – Concern that the lack of appropriate experience may
undermine the public sector’s ability to make good decisions in the public interest
• Undervaluation fears – Big difference in uncertainty in value depending on whether the long-
term concession agreement is for the development of a new (“greenfield”) facility or the
long-term lease of an existing facility
• Perception that public sector could raise as much money as the private concession deal
• Public participation and outreach – Critics say public participation is limited and private
sector proposals and contracting terms remain confidential and out of reach to the public
• Private sector interests conflict with public sector interests – Public concern that the private
sector will be focused on recouping its investment and on generating a profit, while
neglecting users’ needs and interests

25

• Tolling policy – Public sector has shifted toll setting to the private sector (within a contractual
framework), but public is concerned profit will be the only factor when setting toll rates
• Length of lease
• Extent of “noncompete” clauses
• Consideration of the transportation system as a whole – Concerns about the creation of a
fragmented system by leasing highway infrastructure to different private investors
• Labor issues
• Eminent domain

14. Case History on “Protecting the Public Good”: Capital Beltway
Key aspects of the 80-year agreement require the Commonwealth of Virginia to:

• Retain ownership and oversight of the HOT lanes including ensuring that private sector
partner meets all of the daily and hourly operational standards of the HOT lanes. VDOT will
continue to own and manage the Beltway general purpose lanes, as VDOT has done since
the opening of the Beltway in 1964
• Retain all other rights (naming, air rights, signage, etc.) other than the limited rights granted
• Share in project revenues and refinancing gains when they exceed a total return on
investment of 8.1 percent – a first in the U.S. concession market
− Revenues mean all amounts received by or on behalf of the concessionaire from toll
revenues; proceeds from insurance (other than proceeds of fire and other casualty
insurance but including proceeds from business interruption insurance), refinancing gain,
amounts received pursuant to any judgment or settlement with respect to the project,
amounts received with respect to concessionaire damages or other compensation from
the department, condemnation awards with respect to the project; all amounts payable
to the concessionaire (but not the department) as liquidated damages under contracts, in
each case, to the extent the same relate to the project; all amounts derived from the sale
or other disposition of the concessionaire’s interest (excluding, however, the proceeds of
any direct or indirect sale of equity interests in the concessionaire); amounts derived as
grants, loans, or otherwise from the United States of America, the State, or any other
person by the concessionaire for the acquisition, development, construction,
management, operation, and maintenance of the project; and all other amounts derived
from or in respect of the operation of the HOT lanes project which constitute revenues in
accordance with Generally Accepted Accounting Principles, including without limitation
tolls and any interest income earned on any funds on deposit in any bank account or
securities account. Revenues exclude the costs of goods and/or services in kind
provided to the concessionaire with respect to which the concessionaire has no
obligation of repayment and revenues and proceeds arising out of or relating to reserved
rights or the disposition of surplus or residual property. Revenues exclude the proceeds
of concessionaire debt or capital contributions to the concessionaire.
− Total return on investment or TRI means as of any date after the closing date, the rate
(rounded up, if necessary, to a whole multiple of 1/1000 of 1 percent) that should be
used to discount the sum of the total invested project funds and net cash flows
(calculated from the respective dates on which total invested project funds and net cash
flows are paid, contributed, incurred, or received as the case may be) so that the sum of

26

the then discounted total invested project funds and net cash flows as at the closing date
is zero
• Provide a $409 million financial grant to the project to support the construction of key
elements including the final phase of the Springfield Interchange (Phase VIII), improvements
to the I-66 interchange, participation in the regional congestion management plan, and
reconstruction of aging bridges on the Beltway. In addition, approximately 20 percent of the
riders in the HOT lanes are anticipated to be traveling for free in support of broader public
policy objectives
• Have the right to build any other transportation improvement in the corridor
− However, private sector partner may bid to construct those additional improvements
• Provide police and emergency services to the corridor

Key aspects in the 80-year agreement require private sector partner to:

• Finance and build a 14-mile stretch of HOT lanes (two lanes in each direction) on the
Capital Beltway, based on a fixed-price, fixed-time, design-build contract
• Finance and build three new access points from the Beltway into Tysons Corner, build HOV
connections from I-95 to the Beltway, as well as reconstruct and improve more than $250
million of existing bridges, traffic lanes, overpasses, interchanges, and signs. These
maintenance and reconstruction costs are long-term savings to Virginia taxpayers
• Finance all but $409 million in project costs, accepting the financial risk if HOT lane use
does not meet expectations or if construction costs exceed current estimates
• Manage and fund all operations and maintenance of the HOT lanes including major repairs
and rehabilitation
• Collect tolls from non-HOV vehicles. Tolls will vary and be based on the level of congestion
in the HOT lanes. All toll collection will be “open lane” and with transponders. During rush
hours, the average trip cost is expected to be $5 to $6, and operator must ensure free-
flowing traffic conditions in the HOT lanes at all times in accordance with federal policy
• Ensure that HOV, transit, and commuter buses travel for free. Toll collection and
enforcement will be in accordance with state laws including privacy requirements and EZ
Pass requirements. Today, toll enforcement is by camera and police monitoring. Initial HOV
enforcement technology will also be police monitoring of the lanes
• Return the HOT lanes to the Commonwealth in good order at the end of the agreement

27

References
1. Public-Private Partnerships: Terms Related to Building and Facility Partnerships,
Government Accounting Office, April 1999.
2. 23 USC Highways (Title 23).
3. Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA).
4. Internal Revenue Service Revenue Ruling 63 – 20, 1963-1 C.B. 24.
5. Risk & Profit – A Private Sector Perspective, The 4th Annual Public Private Partnership USA
Summit, with Kimberly Swain, Citibank, Washington DC, February 4-6, 2008.
6. Case History: Availability Payment PPP Delivers High Speed Line, Mass Transit, March 9,
2008.
7. A Triple Bottom Line Opportunity for Our Cities, Environmental Expert, March 14, 2008.
8. Expanded Program Management Risks on International Concession Projects, Mass Transit,
March 20, 2008.
9. Mega-project Lessons Learned: Public Private Partnerships and Design-Build; Construction
Trends, March 25, 2008.
10. PPP Legislation and Regulation A Private Sector Perspective, Pennsylvania P3 Roundtable,
Harrisburg, PA, April 7, 2008.
11. PPP “How to” Guide: A Private Sector Perspective, Pennsylvania P3 Roundtable,
Harrisburg, PA, April 7, 2008.
12. Failure of Financial Sector Risk Management as an Analog for the Engineering &
Construction Industry, Construction Trends, May 1, 2008.
13. Infrastructure Resiliency: Do We Have The Focus Right?, Mass Transit Forum, May 8, 2008.
14. Beyond The Toll Road: What Might Be The Next Targets For U.S. Investors?, Dow Jones
Infrastructure Summit, Panel Discussion, May 13, 2008.
15. Public Private Partnerships: The Next Phase for World Bank, World Bank, May 15, 2008.
16. Framework & Perspectives for PPP Delivery Methods of U.S. Transportation Infrastructure,
CMAA, May 19, 2008.
17. Public Private Partnerships: The New Infrastructure Mega-Projects, PM World Today, June
2008.
18. “Driving Louisiana Forward”: Available Funding Mechanisms and An Example of What is
Possible in Louisiana, Baton Rouge, January 10, 2007.
19. Panel on the Challenges of Greenfield Projects, The 3rd Annual Public Private Partnerships
USA Summit, The Government-Industry Forum on PPP Developments in the United States,
February 22, 2007.
20.Developing Fit for Purpose PPP Legislation, The 3rd Annual Public Private Partnerships
USA Summit, The Government-Industry Forum on PPP Developments in the United States,
February 21, 2007.
21. From Concept to Program Management: How PPPs Benefit the Full Cycle of Your Toll Road
Project, TOLL ROADS 2007, Washington, DC, February 27-28, 2007.
22.Fostering Public-Private Cooperation and Coordination: Framework & Requirements for
Successful Public-Private Partnerships, 6th Annual TISP Congress: In pursuit of “Regional
Disaster Resilience”, Washington DC, March 28, 2007.

28

23.International Bar Association, 6th Biennial Conference Project Finance, April 26-27, 2007.
24.Executive Roundtable – Innovative Vehicles for Private Equity Investment in Infrastructure
Projects, Infrastructure Finance & Investment Summit, New York, June 11, 2007.
25.Public Roads, Financing Megaprojects, Vol. 69-No. 4, Contributor, January/February 2006.
26.Innovative Financing or Alternative Delivery: What’s Really Up?, Transportation Builders
Magazine.
27. Panel Chair – Politics, Needs, Laws, and Deals: Understanding the State of Play Across
Different States, The 2nd Annual North American PPP and Infrastructure Finance
Conference, New York, September 25, 2007.
28.Construction Panel – The Globalization of the Infrastructure Sector, The 2nd Annual North
American PPP and Infrastructure Finance Conference, New York, September 25, 2007.
29.National Research Council Committee on Sustainable Critical Infrastructure Systems:
Framing the Challenge, Washington DC, October 1-3.
30.Highways Agency National Road Telecommunications Project; Infrastructure: Global
Resources, Local Touch; Global Infrastructure Business, Markets, and Trends; Washington,
DC; October 4-5, 2007.
31. Public Benefit, Real Toll, Availability – The Real Issues for Greenfield Projects, 2nd Annual
Infrastructure Investing: A Growing Asset Class, New York, October 9-10, 2007.
32.Public Private Partnerships – What Are They? What Do They Mean to You?, Surface
Transportation, Vol. 3-No. 2, Second Quarter 2007.
33.FHWA/Midwest States’ Workshop on Public/Private Partnerships, Detroit, November 6,
2007.
34.Payment Mechanisms under the Microscope: Availability Payments. Shadow Tolls. Direct
Tolls; Canadian Council for Public Private Partnerships; Toronto; November 26-27, 2007.
35.Availability Payment Structures in Public Private Rail Partnerships – Mass Transit Forums,
October 31, 2007.
36.PPP Legislation and Regulation from a ‘Greenfield’ Developer Perspective, Public-Private
Partnerships in the United States – Association of the Bar of the City of New York, March
21, 2006.
37. Alternate Funding Mechanisms – PPP, American Society of Highway Engineers, The Future
of Our Highways, New York, October 19, 2006.
38.Financing the Growth of Infrastructure: The Role of Public Private Partnerships,
Infrastructure: A Growing Asset Class, Strategic Research Institute, New York, October
26-27, 2006.
39.Issues in Regulatory Policy Design, National Council on Public Private Partnerships, June 7,
2005.
40.PPPs: A Contractor/Developer’s “How To” Guide, National Council on Public Private
Partnerships, October 2005.
41. PPPs: A Contractor/Developer’s ‘How to Guide’, NCPPP Council Insights, Issue 19-No. 6,
Winter 2005.
42.Developing Best Practices for Promoting Private Sector Investment in Infrastructure –
Roads, Asian Development Bank, 2000.
43.Concessions for Infrastructure – A Guide to their Design and Award, World Bank and Inter-
American Development Bank, 1998.

29

44.Garvin, Ph.D., P.E., Michael J. Role of Project Delivery Systems in Infrastructure
Improvement, Construction Research Congress, 2003.
45.Compilation of Public Opinion Data on Tolls and Road Pricing, NCHRP SYNTHESIS 377,
Transportation Research Board, 2008.
46.Protecting the Public Interest: The Role of Long-Term Concession Agreements for Providing
Transportation Infrastructure, USC Keston Institute for Public Finance and Infrastructure
Policy, Research Paper 07-02, June 2007.
47. Tolls Not Big Issue, but the Traffic Is, Chicago Tribune, May 16, 2001.
48.Regan, E. The View on Tolls: Political Perceptions vs. Public Opinion, Presented at
International Bridge Tunnel and Turnpike Association International Transport Finance
Summit, Nice, France, 2005.
49.Poll Shows Most Support Toll Road – TCA Surveys Says 54 Percent of Residents Support
Foothill South: Environmental Groups Question Poll, Orange County Register, June 7, 2001.
50.Education May Shift Toll Road Acceptance into Fast Lane, San Antonio Express-News,
October 13, 2005.
51. Pacific Rim Resources, Parsons Brinckerhoff, Inc., and HS Public Affairs; Managed Lanes
Public Opinion Research – Draft; Prepared for Washington State Department of
Transportation; Olympia; May 2001.
52.Wilber Smith Associates, I-15 Managed Lanes Value Pricing Project Planning Study for San
Diego Association of Government, Vol. 2: Public Outreach, February 2002.
53.Cain, A. Achieving Majority Public Support for Urban Road Pricing – Preserving the Driver’s
Right to Choose, Presented at the 84th Annual Meeting of the Transportation Research
Board, Washington, DC, January 9-13, 2005.
54.Study Suggests Tolls Instead of Gas Tax, Oregonian, December 25, 2000.
55.Podgorski, K. and K. Kockelman. Public Perceptions of Toll Roads: A Survey of the Texas
Perspective, Presented at the 85th Annual Meeting of the Transportation Research Board,
Washington, DC, January 22-26, 2006.
56.Lawrence Research, A Two-Phase Study of Attitudes of Washington State Voters Toward
Transportation Issues, Prepared for Washington State Transportation Commission, April 11,
2006.
57. OECD, Conference on Improving Governance and Fighting Corruption: New Frontiers in
Public Private Partnerships, Brussels, Belgium, March 14-15, 2007.
58.British Columbia Ministry of Municipal Affairs, Public-Private Partnership: A Guide for Local
Government, May 1999.
59.Canadian Council for Public Private Partnerships, About PPP – Definitions and Models.
60.Guidebook On Promoting Good Governance In Public Private Partnerships, United Nations
Economic Commission for Europe, 2008.

30

Appendix

A View on Model Legislation

Appendix A

Public Private Partnership Act of 2009

§ 11-000. Title.

This chapter may be cited as the “Public Private Partnership Act of 2009.”

§ 11-001. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Affected local jurisdiction” means any county, city, or town in which all or a portion of a
qualifying transportation facility is located.

“Asset management” means a systematic process of operating and maintaining the state
system of highways by combining engineering practices and analyses with sound business
practices and economic theory to achieve cost-effective outcomes, including, without limitation,
ordinary, preventive, and rehabilitative maintenance activities.

“Comprehensive agreement” means the comprehensive agreement between the private entity
and the responsible public entity required by § 11-010 of this chapter.

“Develop” or “development” means to plan, design, develop, finance, lease, acquire, install,
construct, and/or expand.

“Material default” means any default by the private entity in the performance of its duties under
subsection F of § 11-009 of this chapter that jeopardizes adequate service to the public from a
qualifying transportation facility and remains unremedied after the responsible public entity has
provided notice to the private entity and a reasonable cure period has elapsed.

“Multi-modal transportation facility” means a transportation facility consisting of multiple modes
of transportation.

“Operate” or “operation” means to finance, maintain, improve, equip, modify, repair, and/or
operate.

“Private entity” means any corporation, limited partnership, general partnership, limited liability
company, joint venture, business trust, or other business entity.

“Public entity” means the State and any agency or authority thereof; any county, city, or town;
and any other political subdivision of any of the foregoing but shall not include any public service
company.

“Qualifying transportation facility” means one or more transportation facilities to be developed
and/or operated by a private entity pursuant to this chapter.

31

“Responsible public entity” means a public entity that has the power to develop and/or operate
the applicable transportation facility.

32

“Revenues” means all revenues, income, earnings, user fees, lease payments, or service
payments arising out of or in connection with a qualifying transportation facility, including without
limitation moneys received as grants or otherwise from the United States of America, from any
public entity, or from any agency or instrumentality of the foregoing in aid of such facility.

“Service contract” means a contract entered into between a public entity and private entity
pursuant to § 11-005 of this chapter.

“Service payments” mean payments to the private entity in connection with the development
and/or operation of a qualifying transportation facility pursuant to a service contract.

“State” means the State of __________.

“Transportation facility” means any road, bridge, tunnel, overpass, ferry, airport, mass transit
facility, vehicle parking facility, port facility, or similar commercial facility used for the
transportation of persons or goods, together with any buildings, structures, parking areas,
appurtenances, and other property needed to operate such facility.

“User fees” mean the rates, fees, or other charges imposed by the private entity for use of all or
a portion of a qualifying transportation facility pursuant to the comprehensive agreement.

§ 11-002. Policy.

A. The legislature finds that:
1. It is essential for the economic, social, and environmental well-being of this State
and the maintenance of a high quality of life that the citizens of this State have an
efficient transportation system;
2. The availability of adequate transportation facilities is an important element of the
ability of public entities to provide for the continuing economic growth that affords
jobs for the State’s citizens;
3. Because the State and its political subdivisions have limited resources to fund
the development and operation of transportation facilities, alternative funding
sources must be identified to supplement public revenue sources;
4. Allowing public entities to contract with private entities for the development
and/or operation of transportation facilities will provide significant public benefits
to the citizens of the State by making available additional transportation facilities
to the general public while minimizing the need for additional public tax revenues;
5. Further, authorizing private entities to develop and/or operate transportation
facilities may result in the availability of such transportation facilities to the public
in a more timely or less costly fashion, thereby serving the public safety, benefit,
and welfare; and
6. There is a public need for timely development and/or operation of transportation
facilities within the State and such public need may not be wholly satisfied by
existing methods of procurement in which qualifying transportation facilities are
developed and/or operated.
B. It is the intent of this chapter, among other things, to encourage investment in the State
by private entities and facilitate to the greatest extent possible the financing,
development, and operation of transportation facilities. Accordingly, public and private

33

entities shall have the greatest possible flexibility in contracting with each other for the
provision of the public services which are the subject of this chapter.

C. This chapter shall be liberally construed in conformity with the purposes hereof.

§ 11-003. Prerequisite for operation.

Any private entity seeking authorization under this chapter to develop and/or operate a
transportation facility shall first obtain approval of the responsible public entity under § 11-004.
Such private entity may initiate the approval process by requesting approval pursuant to
subsection A of § 11-004, or the responsible public entity may request proposals pursuant to
subsection B of § 11-004.

§ 11-004. Approval by the responsible public entity.

A. The private entity may request approval by the responsible public entity by submitting an
unsolicited proposal. Any such proposal shall be accompanied by the following material
and information unless waived by the responsible public entity with respect to the
transportation facility or facilities that the private entity proposes to operate as a
qualifying transportation facility:

1. A topographic map (1:2,000 or other appropriate scale) indicating the location of
the transportation facility or facilities;
2. A description of the transportation facility or facilities, including the conceptual
design of such facility or facilities and all proposed interconnections with other
transportation facilities;
3. The proposed date for acquisition of or the beginning of construction of, or
improvements to the transportation facility or facilities;
4. A statement setting forth the method by which the private entity proposes to
secure all property interests required for the transportation facility or facilities.
The statement shall include: (i) the names and addresses, if known, of the
current owners of the property needed for the transportation facility or facilities,
(ii) the nature of the property interests to be acquired, and (iii) any property that
the responsible public entity is expected to be requested to condemn;
5. Information relating to the current transportation plans, if any, of each affected
local jurisdiction;
6. A list of known permits and approvals required for acquisition or construction of
or improvements to the transportation facility or facilities from local, state, or
federal agencies and a projected schedule for obtaining such permits and
approvals;
7. A list of known public utility facilities that will be crossed by the transportation
facility or facilities and a statement of the plans of the private entity to
accommodate such crossings;
8. A statement setting forth the private entity’s general plans for financing and
operating the transportation facility or facilities, including identification of any
dedicated revenue source or proposed debt or equity investments by the private
entity or public entities;

34

9. The names and addresses of the persons who may be contacted for further
information concerning the request; and
10. Such additional material and information as the responsible public entity may
reasonably request.
B. The responsible public entity may request proposals from private entities for the
development and/or operation of transportation facilities. The responsible public entity
shall not charge a fee to cover the costs of processing, reviewing, and evaluating
proposals received in response to such requests.

C. The responsible public entity may grant approval of the development and/or operation of
the transportation facility or facilities as a qualifying transportation facility if the
responsible public entity determines that it serves the public purpose of this chapter. The
responsible public entity may determine that the development and/or operation of the
transportation facility or facilities as a qualifying transportation facility serves such public
purpose if:

1. There is a public need for the transportation facility or facilities of the type the
private entity proposes to develop and/or operate as a qualifying transportation
facility;
2. The transportation facility or facilities and the proposed interconnections with
existing transportation facilities, and the private entity’s plans for operation of the
qualifying transportation facility or facilities, are reasonable and not incompatible
with the State transportation plan and with the local comprehensive plan or plans;
3. The estimated cost of the transportation facility or facilities is reasonable in
relation to similar facilities; and
4. The private entity’s plans will result in the timely development and/or operation of
or improvements to the transportation facility or facilities or their more efficient
operation. In evaluating any request, the responsible public entity may rely upon
internal staff reports prepared by personnel familiar with the operation of similar
facilities or the advice of outside advisors or consultants having relevant
experience.
D. The responsible public entity may charge a reasonable fee to cover the costs of
processing, reviewing, and evaluating an unsolicited proposal submitted by a private
entity.

E. The approval of the responsible public entity shall be subject to the private entity’s
entering into a comprehensive agreement with the responsible public entity.

F. In connection with its approval of the development and/or operation of the transportation
facility or facilities as a qualifying transportation facility, the responsible public entity shall
establish a date for the acquisition of or the beginning of construction of or
improvements to the qualifying transportation facility. The responsible public entity may
extend such date from time to time.

G. The responsible public entity shall take appropriate action to protect trade secrets and
other confidential, privileged, and proprietary information obtained from a private entity,
including, but not limited to, information which is exempt from disclosure under the
federal or any state Freedom of Information Act. The responsible public entity is
authorized to enter into confidentiality agreements in connection with any

35

comprehensive agreement, service contract, lease, or other agreement for a qualifying
transportation facility.

§ 11-005. Service contracts.

In addition to any authority otherwise conferred by law, any public entity may contract with a
private entity for transportation services to be provided by a qualifying transportation facility in
exchange for such service payments and other consideration as such public entity may deem
appropriate.

§ 11-006. Adoption of guidelines.

Any responsible public entity requesting or considering a proposal for a qualifying transportation
facility shall adopt and make publicly available procedures that are sufficient to enable the
responsible public entity to comply with this chapter. Such procedures shall guide the selection
of projects under the purview of the responsible public entity and include, among other things,
reasonable criteria for choosing among competitive proposals and timelines for selecting
proposals and negotiating a comprehensive agreement. Further, such procedures:

1. Shall permit accelerated selection, review, and documentation timelines for
proposals that involve a qualifying transportation facility that the responsible
public entity deems a priority, which will be funded, in whole or substantial part,
by a dedicated revenue source, such as user fees, lease payments, service
payments, special district assessments, or a long-term maintenance agreement,
or debt or equity investments by the private entity; and
2. May permit accelerated selection, review, and documentation timelines for
proposals that relate to a qualifying transportation facility with an aggregate
estimated cost in excess of $250,000,000 which, in the judgment of the
responsible public entity, has a high probability of success, involves a less
complex plan of finance, and requires no substantial state funding.

§ 11-007. Affected local jurisdictions.

A. Any private entity requesting approval from, or submitting a proposal to, a responsible
public entity under § 11-004 shall notify each affected local jurisdiction by furnishing a
copy of its request or proposal to each affected local jurisdiction.

B. Each affected local jurisdiction that is not a responsible public entity for the respective
qualifying transportation facility shall, within 60 days after receiving such notice, submit
any comments it may have in writing on the proposed qualifying transportation facility to
the responsible public entity and indicating whether the facility is compatible with the
local comprehensive plan.

§ 11-008. Dedication of public property.

Any public entity may dedicate any property interest that it has for public use as a qualified
transportation facility if it finds that so doing will serve the public purpose of this chapter. In
connection with such dedication, a public entity may convey any property interest that it has,
subject to the conditions imposed by general law, to the private entity, subject to the provisions
of this chapter, for such consideration as such public entity may determine. The aforementioned
consideration may include, without limitation, the agreement of the private entity to operate the

36

qualifying transportation facility. The property interests that the public entity may convey to the
private entity in connection with a dedication under this § 11-008 may include licenses,
franchises, easements, or any other right or interest the public entity deems appropriate.

§ 11-009. Powers and duties of the private entity.

A. The private entity shall have all power allowed by law generally to a private entity having
the same form of organization as the private entity and shall have the power to develop
and/or operate the qualifying transportation facility and impose user fees and/or enter
into service contracts in connection with the use thereof. No tolls or user fees may be
imposed by the private entity on any free road or system of roads, bridge, tunnel, or
overpass unless such road or system of roads, bridge, tunnel, or overpass is improved
or expanded.

B. The private entity may own, lease, or acquire any other right to use or operate the
qualifying transportation facility.

C. Subject to applicable permit requirements, the private entity shall have the authority to
cross any canal or navigable watercourse so long as the crossing does not
unreasonably interfere with then current navigation and use of the waterway.

D. In operating the qualifying transportation facility, the private entity may:

1. Make classifications according to reasonable categories for assessment of user
fees; and
2. With the consent of the responsible public entity, make and enforce reasonable
rules to the same extent that the responsible public entity may make and enforce
rules with respect to a similar transportation facility, including, but not limited to,
rules relating to toll enforcement.
E. The qualifying transportation facility may be granted certain characteristics typically
incident to public ownership. Including but not limited to exemption from property taxes
and ad valorem taxes, relief from zoning restrictions, and/or tort immunity.

F. The private entity shall:

1. Develop and/or operate the qualifying transportation facility in a manner that
meets the engineering standards of the responsible public entity for
transportation facilities operated and maintained by such responsible public
entity, all in accordance with the provisions of the comprehensive agreement;
2. Keep the qualifying transportation facility open for use by the members of the
public at all times after its initial opening upon payment of the applicable user
fees (except when exempted), lease payments, and/or service payments;
provided that the qualifying transportation facility may be temporarily closed
because of emergencies or, with the consent of the responsible public entity, to
protect the safety of the public or for reasonable construction or maintenance
procedures;
3. Maintain, or provide by contract for the maintenance of, the qualifying
transportation facility;

37

Prieto Swain Placilla Duvall Diwik Aba 2009 Final

Prieto Swain Placilla Duvall Diwik Aba 2009 Final

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (8)

Semelhante a Prieto Swain Placilla Duvall Diwik Aba 2009 Final

Semelhante a Prieto Swain Placilla Duvall Diwik Aba 2009 Final (20)

Mais de Bob Prieto

Mais de Bob Prieto (20)

Prieto Swain Placilla Duvall Diwik Aba 2009 Final