July 13, 2018
I. OPENING REMARKS
Today, governments at all levels in the United States are facing fiscal uncertainty driven by demographic pressure and political polarization. At the same time, governments are grappling with serious public infrastructure needs, including the need to repair or replace aging infrastructure, and the need to construct new infrastructure.
Therefore, as mentioned in the promotional materials for this program, "the use of publicprivate partnerships and other alternative infrastructure delivery systems is increasing as governments look for creative ways to meet citizen needs." Governments are still very reliant on the public sector for delivery of infrastructure projects. Public-private partnerships (or "P3s") do not necessarily change this, at least insofar as the source of financing is concerned. Arguably, through the use of their borrowing powers, state and local governments have long relied upon private involvement to fund public projects through the passive investment of bondholders. P3s may in some instances change this model to the extent they rely on larger "equity" (or nongovernmental debt) investment by private parties in projects. However, for the most part, P3 laws are not designed to alter public infrastructure financing models; rather, they are essentially procurement statutes that facilitate design-build types of projects with, in many cases, continued involvement by a private operator.
In this program we will be talking about a road map to greater use of P3s in Virginia, and my part of the presentation is to focus on the statutory framework that the Commonwealth has in place for P3s. This panel will most intensely focus on transportation projects, as that is the most visible area of governmental services in which P3s have been prevalent and, indeed, needed.
The Public-Private Transportation Act of 1995 (Title 56, Chapter 22 of the Code of Virginia) ("PPTA") is our statute that provides a framework for transportation P3s. I will address that statute first, even though it is listed second in the materials. Although it is not highlighted in the program, I also intend to spend a little bit of time on the historic transportation legislation that was passed by the Virginia legislature in 2013 and signed by Governor Bob McDonnell. The focus of that legislation is largely on providing more tax dollars to transportation projects in Virginia, but the presence of such streams of revenue will no doubt facilitate further P3 opportunities under the PPTA. Virginia has emerged as a national and global leader in the development of P3 transportation projects. According to Virginia's Office of Transportation Public-Private Partnerships (represented at this seminar by Tony Kinn), between 2008 and 2013 Virginia has delivered more P3 projects than any other state and has more P3 projects in the pipeline than all other states combined. Virginia is among only a handful of states that have established a dedicated centralized P3 office. We hope and expect that the McAuliffe administration will continue this momentum. We believe that private sector firms and investors are aware of which states have an institutional environment that favors pragmatic cooperation between government and business, and where political risk to derailing projects, at a large cost to the private partner, is minimized.
Although a key focus of this panel will be transportation infrastructure, publicprivate partnerships are on the rise in many other areas of governmental service delivery, from schools to mental health services and many areas in between. Therefore, I will spend the latter part of my presentation discussing the Public-Private Education Facilities and Infrastructure Act of 2002 (Title 56, Chapter 22.1 of the Code of Virginia) ("PPEA").
Despite the prevalence of the word "education" in its title, the PPEA provides a framework for P3s in basically every other conceivable type of public facility or service (hence, you might think of the "E" in "PPEA" as standing for "everything").
II. PUBLIC-PRIVATE TRANSPORTATION ACT
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A. BRIEF HISTORY AND INTRODUCTION
The Public-Private Transportation Act of 1995, as amended1 (the "PPTA"), is the legislative framework enabling the Commonwealth of Virginia, local governments, regulatory authorities and other public entities, all referred to in the PPTA as responsible public entities ("RPEs"), to enter into agreements authorizing private entities to develop and/or operate qualifying transportation facilities. In passing the PPTA, the legislature resolved to encourage investment in the Commonwealth by private entities to provide more flexible and efficient approaches to addressing transportation needs to improve safety, reduce congestion and increase capacity.
The PPTA provides that the Virginia Public Procurement Act shall not apply to proposals submitted in accordance with PPTA guidelines adopted by the applicable RPE, and permits streamlined procurement procedures consistent with either "competitive sealed bidding" or "competitive negotiation."
Note, however, that the Virginia Department of Transportation (the "Department") may not use procedures consistent with competitive negotiation unless the Department provides a written determination to the Secretary of Transportation that such procedures are advantageous to the Department and to the public based on:
(1) the probable scope, complexity, or urgency of a project;
(2) risk sharing including guaranteed cost or completion guarantees, added value, or debt or equity investments proposed by the private entity; or
(3) an increase in funding, dedicated revenue source or other economic benefit from the project that would not otherwise be available. Written approval of the procurement process is required by the Secretary of Transportation before the Department Administrator may sign an interim and/or a comprehensive agreement.
B. WHAT CHANGES HAVE BEEN MADE?
There have been several amendments to the PPTA since it was passed in 1995. The recent changes to the PPTA from the 2005 legislative session though the most recent 2013 legislative session include:
(i) HB 2666 & SB 1108 – Provisions for Streamlining and Enhancing:
Passed in the 2005 session, this amendment made several revisions to the PPTA. Theamendment authorized the establishment of an interim agreement to provide for partialplanning and development activities while other aspects of a qualifying transportationproject are being negotiated and analyzed. The amendment also (i) authorized a privateentity to request approval of multiple RPEs in proposed projects involving multimodaltransportation facilities, (ii) authorized RPEs to enter into comprehensive agreementswith multiple private entities, (iii) required the RPE to protect confidential informationsubmitted by a private entity, and (iv) added factors that an RPE may consider whenselecting proposals. (Amended and reenacted Va. Code §§ 56-557 through 56-561, 56-563 through 56-572, and 56-573.1 and added §§ 56-566.1, 56-566.2, and 56-567.1)
(ii) SB 666– Allocation of Concession Payments: Passed in the 2006 session, this amendment authorized "concession" agreements under the PPTA.
"Concession" means any lease, license, franchise, easement or other binding agreement transferring rights for the use or control, in whole or in part, of a qualifying transportation facility by a responsible public entity to a private entity for a definite term during which the private entity will provide transportation-related services including, but not limited to, operations and maintenance, revenue collection, toll-collection enforcement, design construction and other activities that enhance throughput, reduce congestion or otherwise manage the facility in return for the right to receive all or a portion of the revenues of the qualifying transportation facility. (Amended and reenactedVa. Code §§ 33.1-23.03:1, 56-557, 56-558, 56-560, 56-563, 56-564, 56-566, 56-567.1,56-573.1, 58.1-811, 58.1-3203, and 58.1-3703 and added §§ 33.1-23.03:9 and 58.1-3606.1)
(iii) HB 1516 & SB 754 – Tolls on Interstate Highways: Passed in the 2008 session, this amendment prohibited a private entity from imposing tolls or user fees under the PPTA on any rural portion of I-81 without the prior approval of the General Assembly. (Amended and reenacted Va. Code § 56-565)
(iv) HB 1658 – Legislative Review of Certain Proposals Initiated by
Private Entities: Passed in the 2011 session, this amendment provided that any RPE that is a state agency receiving a detailed proposal from a private entity for a qualifying transportation facility that is a port facility shall provide notice to the Public-Private Partnership Advisory Commission. (Amended and reenacted Va. Code § 56-559)
(v) HB 1592 – Public Procurement; State Agencies to Put Requests for Bids, Etc. on DGS' Website: Passed in the 2011 session, this amendment required all state authorities, agencies, institutions, and units of state government to put requestsfor proposals and invitations to bid on the Department's website. (Amended and reenacted Va. Code §§ 2.2-1110, 2.2-4301, 2.2-4303, 23-38.90, 23-38.110, 56-573.1:1, and 56-575.17).
(vi) HB 1692 & SB 977 – Receipt of Competing Proposals; Disclosure of Major Business Points: Passed in the 2013 session, this amendment requires thatwithin 30 days of the receipt of an unsolicited proposal under the PPTA, the public entity must post a public notice of the unsolicited proposal on the Department's website and allow a 120-day submission period for competing proposals. The notice must include information on the nature, timing, and scope of the proposal and the public comment opportunities. Further, the amendment requires that after negotiations are complete and the decision to award is made, the public entity must post the major business points of the interim or comprehensive agreement and outline how the public can submit comments.
(Amended and reenacted Va. Code § 56-573.1:1).
C. IMPLEMENTATION MANUAL & GUIDELINES
The PPTA requires that the Responsible Public Entity (RPE) develop guidelines that establish the process for the acceptance and review of both Solicited Projects and Unsolicited Proposals from a private entity. The PPTA requires that the guidelines establish a specific schedule for review of a Proposal by the RPE, a process for alteration of that schedule by the RPE if it deems that changes are necessary because of the scope or complexity of Proposals it received and the type and amount of information that is necessary for adequate review of Proposals in each state of review.
For Qualifying
Transportation Facilities that have approved or pending state and federal environmental clearances, secured significant right of way, have previously allocated significant state or federal funding, or exhibit other circumstances that could reasonably reduce the amount of time to develop and/or operate the Qualifying Transportation Facility in accordance with the PPTA, the PPTA Office will coordinate a prioritized documentation, review and selection process.
The Virginia Public Procurement Act (§ 2.2-4300 et seq. of the Code of Virginia) (the VPPA) does not apply to the PTPA, except to the extent specified in § 56- 573.1 of the Code of Virginia. Additionally, in soliciting or reviewing project Proposals under the PPTA, the Commonwealth's transportation agencies and offices, including the PPTA Office, shall comply with applicable federal, state and local laws. Likewise, in submitting Proposals and in developing or operating Qualifying Transportation Facilities pursuant to the PPTA, private entities shall comply with applicable federal, state and local laws. Such laws may include, but not necessarily be limited to, requirements for workers' compensation insurance coverage, compliance with prompt payment, compliance with ethics in public contracting and compliance with environmental laws, workplace safety laws, and state or local laws governing contractor or trade licensing, codes and permit requirements. Further, all proposals submitted by private entities to the OTP3 pursuant to the PPTA become the property of the OTP3 and are subject to disclosure pursuant to the Virginia Freedom of Information Act.
In June 2011, Governor McDonnell's administration created the Office of Transportation Public-Private Partnerships (OTP3) to oversee PPTA project development.
This role was previously the responsibility of the PPTA Office. The OTP3 and its Director report to the Secretary of Transportation regarding policy implementation. The primary objective of the OTP3 is to ensure the timely delivery of PPTA projects addressing priority transportation needs by developing and implementing a statewide program for transportation project delivery via the PPTA. In May 2012, the Implementation Guidelines were updated to reflect the creation of the OTP3. These guidelines were also updated to provide clarification of the role of public participation in PPTA projects.
The OTP3 Director (formerly the PPTA Program Director) is responsible for overseeing all aspects of the PPTA Program, from identifying, screening and prioritizing candidate PPTA projects to timely development, procurement and contract management. This includes PPTA Program outreach and stakeholder coordination and reporting all program and project activities to the Commonwealth Transportation Commissioner and the Secretary of Transportation.
D. PROCESSES AND PROTOCOLS
Proposals submitted to the Virginia Department of Transportation under the PPTA are evaluated according to a six-phase process:
Phase One: Quality Control
The Department's quality control evaluation will consist of, but not be limited to, whether the proposal addressed the needs identified in the appropriate local, regional, or state transportation plan and identifies that public needs may not be wholly satisfied with existing methods of procurement. The quality control review will also identify if the proposal will result in the availability of the facility to the public on a timelier, more efficient or less costly fashion and provide for cost and/or risk-sharing with private entities.
Phase Two: Independent Review Panel
The Independent Review Panel (IRP) will consist of members of the Commonwealth Transportation Board (CTB), Department representatives, transportation professionals, members of the academic community and representatives of other entities affected by the proposal. The IRP will review and evaluate all proposals based on the evaluation and selection criteria in these guidelines or as modified by the Department in the request for proposal. The IRP will then recommend to the Department and the CTB whether none, one, or more proposals should be advanced to the detailed review. Public participation and receiving comments from the affected jurisdiction will be a part of the Phase 2 process.
Phase Three: CTB Recommendation
Following review and recommendations by the IRP, the CTB will review the Conceptual Proposals and any recommendations of the IRP and will recommend whether to advance to a Detailed Proposal and further evaluation and action by the Department under the PPTA. If public funds are proposed, the CTB will be asked for a determination to support future allocations for such funding prior to advancing to the Phase 4.
Phase Four: Submission and Selection of Detailed Proposals
The Department will form a proposal review committee to review the recommendations of the IRP and CTB, and may request that none, one, or more proposer(s) submit Detailed Proposals. Detailed Proposals should be consistent with the recommendations of the IRP, CTB and the provisions and evaluation criteria as defined in the Department's Request for Detailed Proposals (RFDP). Based upon a review of the Detailed Proposals, the Department may select none, one or more proposals for competitive negotiations.
Phase Five: Negotiations
If the Department, upon review of the Detailed Proposal determines (1) that the proposal meets the selection criteria established for evaluation and (2) that initiation of the negotiation stage shall be in the public interest, the Department may initiate the negotiation stage. Components of the negotiations for the interim and/or the comprehensive agreement will, among other things, outline the rights and obligations of the parties, set a maximum return or rate of return to the private entity, determine liability, and establish dates for termination of the private entity's authority and dedication of the facility to the Commonwealth. There are certain hot-button topics on which the Commonwealth will not negotiate: (i) no indemnification by the Commonwealth, and (ii) all RPE payment obligations must be subject-to-appropriation.
Phase Six: Interim and/or Comprehensive Agreement
Once the Department and selected proposer have finalized the draft language of the interim and/or comprehensive agreement, the draft version will be forwarded to the Office of the Attorney General (OAG) for review and approval. The Commissioner has the statutory authority to enter into an agreement under the PPTA once the Department has received written approval of the procurement method from the Secretary of Transportation. The major business points of the interim or comprehensive agreement must then be posted on the OAG's website.
How will the new transportation funding law impact PPTA proposed projects?
Virginia's new transportation funding law will provide new tax dollars to transportation projects, which potentially could be utilized in connection with P3s. One challenge will be that, at least with respect to the dollars going to Hampton Roads, there appears to be no local authorization to borrow against the revenue stream (any borrowing would have to be at the state level).
III. PUBLIC-PRIVATE EDUCATION FACILITIES AND INFRASTRUCTURE ACT
A. BRIEF HISTORY AND INTRODUCTION
The Public-Private Education Facilities and Infrastructure Act of 2002, as amended2 (the "PPEA"), grants responsible public entities the authority to create publicprivate partnerships for the development of a wide range of projects for public use if the public entities determine there is a need for the project and that private involvement may provide the project to the public in a timely or cost-effective fashion. The PPEA defines "responsible public entity" (RPE) to include any public entity that "has the power to develop or operate the applicable qualifying project." Individually negotiated interim or comprehensive agreements between a private entity and an RPE will define the respective rights and obligations of the RPE and the private entity.
In order for a project to come under the PPEA, it must meet the definition of a "qualifying project." The PPEA contains a broad definition of qualifying project that includes public buildings and facilities of all types:
(i) Any education facility, including but not limited to a school building (including any stadium or other facility primarily used for school events), any functionally related and subordinate facility and land to a school building and any depreciable property provided for use in a school facility that is operated as part of the public school system or as an institution of higher education;
(ii) Any building or facility that meets a public purpose and is developed or operated by or for any public entity;
(iii) Improvements, together with equipment, necessary to enhance public safety and security of buildings to be principally used by a public entity; (iv) Utility and telecommunications and other communications infrastructure;
(v) A recreational facility;
(vi) Technology infrastructure and services, including but not limited to telecommunications, automated data processing, word processing and management information systems, and related information, equipment, goods and services;
(vii) Technology, equipment, or infrastructure designed to deploy wireless broadband services to schools, businesses, or residential areas;
(viii) Services designed to increase the productivity or efficiency through the use of technology or other means;
(ix) Any improvements necessary or desirable to any unimproved locally- or state-owned real estate; or
(x) Any solid waste management facility that produces electric energy from solid waste.
The PPEA establishes requirements that the RPE must adhere to when reviewing and approving proposals received pursuant to the PPEA. In addition, the PPEA specifies the criteria that must be used to select a proposal and the contents of the interim or comprehensive agreement detailing the relationship between the RPE and the private entity.
B. WHAT CHANGES HAVE BEEN MADE TO PPEA?
There have been several amendments to the PPEA since it was passed in 2002. The recent changes to the PPEA from the 2005 legislative session though the most recent 2013 legislative session include:
(i) HB 1945 – Definition of Qualifying Project: Passed in the 2006 session, this amendment expanded the definition of "qualifying project" to include any improvements necessary or desirable to any unimproved state or locally owned real estate. (Amended and reenacted Va. Code § 56-575.1)
(ii) HB 2381 – Provision of Wireless Broadband Services: Passed in the 2007 session, this amendment specified that the PPEA can be used for projects related to the technology and infrastructure necessary to deploy wireless broadband services to schools, businesses, and residential areas. The amendment also authorized the Virginia Resources Authority to fund wireless broadband projects. (Amended and reenacted §§ 56-575.1, 62.1-198, and 62.1-199)
(iii) SB 756 – Public-Private Partnership Advisory Commission:
Passed in the 2007 session, this amendment established the Public-Private Partnership Advisory Commission to review and advise RPEs that are agencies or institutions of the
Commonwealth on detailed proposals for qualifying projects under the PPEA. The amendment also required all RPEs to adopt guidelines to guide the selection of projects under the PPEA containing certain specified provisions. For RPEs that are not agencies or institutions of the Commonwealth, the guidelines must include a mechanism for the appropriating body to review the proposed comprehensive agreement prior to execution under certain circumstances. (Amended and reenacted Va. Code §§ 56-575.1, 56-575.3:1, 56,575.4, and 56-575.16 and added §§ 30-278 through 30-281 and §§ 56-575.18)
(iv) HB 677 – Public Hearing Prior to Interim or Comprehensive
Agreement: Passed in the 2008 session, this amendment provided that at least 30 days prior to entering into an interim or comprehensive agreement under the PPEA, a RPE must hold a public hearing on the proposals. Previously a RPE was required to provide an opportunity for public comment, which included a public hearing at the sole discretion of the RPE. (Amended and reenacted Va. Code § 56-575.17)
(v) HB 955 – Technology Projects; Gain Sharing: Passed in the 2008 session, this amendment added to the categories of "qualifying project" under the PPEA any services designed to increase productivity or efficiency through the direct or indirect use of technology. The amendment also added technology applications to the types of technology infrastructure projects that may be carried out under the PPEA. (Amended and reenacted Va. Code § 56-575.1)
(vi) SB 1153 – Definitions; Review of Proposals: Passed in the 2009 Session, this amendment revised the definition of "qualifying project" to include any services designed to increase the productivity and efficiency of a RPE. Previously such services required the direct or indirect use of technology (see HB 955 above). In addition, the amendment (i) required that a public hearing be held by the RPE on a proposal at least 30 days prior to entering into an interim or comprehensive agreement, and (ii) provided for the Auditor of Public Accounts to post copies of interim and comprehensive agreements that have been periodically reviewed by that office in an online database. The amendment also established a working group convened by the Chairmen of the Senate Committee on General Laws and Technology and the House Committee on General Laws to annually review model guidelines used by RPEs and to consider best practices recommendations. (Amended and reenacted Va. Code §§ 56-575.1, 56 575.17, and 56-575.18)
(vii) SB 1127 – Review of Proposals Initiated by Private Entities:
Passed in the 2011 session, this amendment provided that whenever a RPE rejects a proposal initiated by a private entity that purports to develop specific cost savings, the RPE shall specify the basis for the rejection. (Amended and reenacted Va. Code § 56-575.3)
C. PROCESSES AND PROTOCOLS
The PPEA process can be broken into the following nine general steps:
1. Guidelines
The RPE must first adopt PPEA guidelines pursuant to Va. Code § 56-575.3:1.
2. Solicitation
The RPE will solicit for Conceptual Proposals or accept unsolicited proposals from private entities.
3. Competition Period
There is a minimum 45 day period of open competition for unsolicited Conceptual Proposals. A private entity's Conceptual Proposal outlines its qualifications, proposed cost, scope and the contemplated public benefits from the project.
4. FOIA Negotiation
The Freedom of Information Act ("FOIA") protections for confidential information must be negotiated.
5. Conceptual Review
All competing Conceptual Proposals are reviewed in the Conceptual Phase Review and then the proposals are narrowed down. The RPE may impose a proposal review fee on both solicited (rare) and unsolicited (typically always) to cover project review costs.
6. Detailed Proposal
The private entity that submitted the Conceptual Proposal approved in the Conceptual Review down select is then requested to submit a Detailed Proposal, which often relies on recommendations of outside and inside advisors. Detailed Proposals begin to lock in the project's costs, scope and schedule of completion.
7. Detailed Review
After the private entity submits its Detailed Proposal, the terms are reviewed and negotiated by the RPE as well as reviewed by Public- Private Partnership Advisory Committee.
8. Public Hearing
Once a Detailed Proposal is agreed, then the RPE must hold a public hearing on the Detailed Proposal at least 30 days prior to entering into an interim or comprehensive agreement.
9. Agreement
After the 30 day period for the public hearing, the RPE may enter into an interim or comprehensive agreement with the private entity to begin work on the project.
1 Va. Code §§ 56-556 through 56-575.
2 Va. Code §§ 56-575.1 through 56-575.17.