Public private partnerships: the future of public construction in Florida?

• Author: Rowlson, Brian M.
• Position: Real Property, Probate and Trust Law

The recent economic downturn and limited funding for construction projects has caused state and local governments to turn to alternatives for financing public projects. Florida, for example, was forced to cut its five-year projected spending plan by $7.3 billion. (1) Many contractors have also shifted their focus from private projects to available public sector jobs in order to remain viable during the aftermath of the "great recession."

Government and contractor interests can align in specialized project delivery systems called public private partnerships, or P3s. Under these unique agreements, a private entity (often called a concessionaire) will assume the costs and financing for the project. The private entity may be entitled to revenue-generating activities related to the project or potentially lucrative bonuses for efficient completion. (2) P3s are structured to encourage direct private investments in these projects through the promise of revenue, and the government is able to shift the risk and funding burdens onto the contractor. (3)

The definition of a P3 is elusive and often depends on the degree of risk, financial obligations, and funding provided by the private entity. (4) The Florida Department of Transportation (FDOT) defines a P3 as a "contractual agreement between a public agency (federal, state, or local and a private sector entity)" whereby "the skills and assets of each sector (public and private) are shared in delivering a facility for the use of the general public." (5) There are several different types of P3 delivery systems including build-own-operate (BOO), build-own-operate-transfer (BOOT), build-transfer-operate (BTO), design-build-finance-operate (DBFO), and design-build-operate-maintain (DBOM). (6)

P3s are common throughout the world, and use in the United States is gaining traction. (7) Currently, 23 states have enacted P3 legislation. (8) In 1991, Florida recognized the need to infuse private resources into its highway construction projects, as well as the need to provide "safe, convenient, and economical transportation facilities" to the general public. (9)

Florida has recently renewed its interest in public private partnerships. As a result of limited resources, FDOT entered into a $1.3-1.8 billion DBFO P3 contract with I-595 Express, LLC (the concessionaire) for the improvement of the I-595 roadway in Broward County. (10) I-595 Express is comprised of a consortium of entities led by ACS Infrastructure Development, Inc., an affiliate of the Spanish-based Actividades de Construccion & Servicios SA. (11) The project involves the expansion of a 12mile stretch of the road between SR 7 and the I-75 Sawgrass Expressway junction and will include reversible lanes. (12) In addition to the I-595 project, Florida has also recently entered into several other P3 projects. (13)

The project has understandably drawn a wide amount of attention because it is one of the largest P3 transportation projects in the United States and is representative of a unique financial model involving annual performance-based "availability payments." (14) Availability payments are a means of payment whereby the government makes regular distributions to the private entity based on the availability and operation of the P3 facility. (15)

Many parties are interested to see whether the project's predicted benefits can actually be realized. These benefits include cost savings (for governments and Florida residents), profitability for the concessionaire, and most importantly, a functioning, safe roadway for Florida drivers completed in a much shorter period of time. The project is also projected to inject nearly $1 million per day into the local South Florida economy and create approximately 30,000 jobs. (16)

Legitimate questions have been raised as to the viability of P3s. There is a belief that P3s are more beneficial to foreign conglomerates than Florida-based businesses. Adopting a protectionist attitude, these critics insist that the dollars spent on P3 projects should remain in-state. (17) This question and other related issues must be considered in order to determine the lasting effectiveness and continued viability of P3 projects in Florida.

Part one of this article will address Florida's comprehensive, yet flexible statutory scheme related to P3s for transportation projects. Part two will examine Florida's use of the P3 framework in the context of the I-595 project. Part three will analyze the issues, rewards, and risks of pursuing P3s through the lens of the contracting parties. Finally, part four will assess the future of P3 projects in Florida, including recent legislative activity concerning this topic.

Part I: Florida's Statutory Framework for P3 Transportation Projects

Florida P3s are governed by a series of statutes that demonstrate a strong legislative endorsement of these projects. F.S. [section]334.30, the comprehensive statute authorizing P3s for transportation projects, is explicit that such projects are vital to the "public need for the rapid construction of safe and efficient transportation facilities." (18) Recognizing the benefits P3s can provide to the state's interest in "safe, convenient, and economical transportation facilities," the statute is friendly to both the government and private entities. (19) However, no more than 15 percent of the total annual state and federal funding for the state transportation trust fund can be obligated to P3 projects. (20)

F.S. [section]334.30 grants FDOT explicit authority to enter into both solicited and unsolicited P3s. FDOT is required to submit the P3 into either its five-year work plan, or, in cases of projects of more than $500 million dollars, the 10-year strategic intermodal system plan. (21) If FDOT solicits proposals from private entities for FDOT-developed public private transportation projects, then FDOT will request that each proposer submit a statement of qualifications. (22) FDOT will then grade these submissions and create a short list of usually three to four proposers. (23)

In the event a prospective party would like to submit an unsolicited proposal for a transportation project in the state, the following process is recommended by FDOT (24):

1) Begin "conceptual discussions" with the project finance manager;

2) If the proposal meets the basic program requirements, then continue discussions with the district/turnpike authorities to determine the interest for the proposal and seek express direction from the district/turnpike;

3) FDOT's central office will then determine if the proposed project involves federal aid or is state funded;

4) The proposer will thereafter submit its unsolicited proposal to the project finance manager with an accompanying $50,000 fee payable to FDOT. (25) FDOT may require additional fees for evaluation expenses. (26) Failure to pay either the initial or any subsequent fees will result in the...