The Need for Model Legislation on Private Investment in Public Infrastructure Projects

AuthorBy Emily D. Anderson and C. Jade Davis
THE CONSTRUCTION LAWYER6 Volume 41, Issue 4, 2022
The Need for Model Legislation
on Private Investment in Public
Infrastructure Projects
By Emily D. Anderson and C. Jade Davis
Long before the infrastructure
investment bill was signed into
law on November 15, 2021, it
was evident to most world travel-
ers that America’s infrastructure
was crumbling. “Infrastructure”
refers to the permanent facili-
ties on which commerce moves
and people travel, including
public roads, bridges, airports,
seaports, public waterways,
and broadband technology.1
Public investment in Ameri-
ca’s infrastructure as a share
of the gross domestic product
(GDP) has fallen by more than
40 percent since the 1960s.
a result, the United States now
ranks thirteenth globally in the
assessment of overall quality of infrastructure.3
Amid its well-documented public infrastructure crisis,
the practicality of nancial guarantees to motivate nec-
essary private investment and backing is severely lacking.
This article explores: (1) the need for infrastructure mod-
ernization to promote economic growth; (2) the states that
have scored the worst under comprehensive assessments;
and (3) the legal roadblocks that prevent private entities,
investors, developers, and contractors from buying in,
specically focusing on the reliance of the government
on public-private partnerships (P3s) to nance infrastruc-
ture projects and applicable construction laws.
P3s: Critical to Sustainable Growth
P3s are creatures of contract and are therefore variable
depending on the type of project, industry involved, and
the needs and overall goals of the public agency and pri-
vate developer. Additionally, the denition of P3s vary
from state to state, depending on the enabling legislation.
While these denitions can vary, in 1999, the U.S. Gen-
eral Accounting Ofce (GAO) published the following
denition of P3s after a study into the federal govern-
ment’s use of P3s; this denition captures the spirit and
common goals of P3 relationships.4
Under a public-private partnership, sometimes
referred to as a public-private venture, a contrac-
tual arrangement is formed between public- and
private-sector partners. These arrangements typi-
cally involve a government agency contracting with
a private partner to renovate, construct, operate,
maintain or manage a facility or system, in whole
or in part, that provides a public service.
Under these arrangements, the agency may retain
ownership of the public facility or system, but the
private party generally invests its capital in design-
ing and developing the properties. Typically, each
partner shares in income resulting from the part-
nership. Such a venture, although a contractual
arrangement, differs from standard service con-
tracting in that the private-sector partner usually
makes a substantial cash, at-risk, equity investment
in the project, and the public sector gains access to
new revenue or service delivery capacity without
having to pay the private-sector partner.
While the federal government and many states have
passed legislation enabling the use of P3s to nance
infrastructure projects, these statutes have taken starkly
different approaches and, in many states, the laws relating
to P3s and even the permissibility of a P3 structure lack
necessary clarity. Some P3-enabling statutes are robust,
while others remain silent regarding all details of the
P3 agreements, including important protections for the
public arm of the P3 and downstream contractors and
suppliers, such as bonding requirements, prevailing wage
requirements, and lien rights.
P3s are advantageous because they allow the public
to transfer risk to the private sector while simultane-
ously benetting from the subsequent enhancement of
the public interest once a project is complete. However,
any time the private sector accepts additional risk, the
private sector requires additional nancial incentives to
do so;5 and in the rare event where the private sector does
not, the private parties are left in vulnerable positions
where they are at risk of funding a public project with-
out just compensation.
P3s are especially reliant on the public agency con-
ducting thorough diligence of the private developer to
ensure that the infrastructure project is properly funded
Emily Anderson
Jade Davis
Published in
The Construction Lawyer
, Volume 41, Number 4. © 2022 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not
be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

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