Colorado Real Estate Journal - September 2, 2015
Public-private partnerships are rapidly becoming a featured form of procurement for construction projects, which are primarily infrastructure. Although there is no strict definition of a P3, it is generally a method of project delivery that is based on a contractual agreement between a public entity and a private partner in which the private partner (the concessionaire) assumes responsibility for the design, construction, finance, operation and maintenance of the project. Depending on the nature of the project, the concessionaire may be a well-known national or international financial institution, a large construction company, an infrastructure investment firm or fund, an operational company for toll roads or other revenue producing infrastructure or any combination thereof. In determining whether to use a P3 for project delivery, the governmental entity will take into account whether the costs to perform the project itself through traditional funding and project delivery systems (including the combined costs of design, construction, finance, operation and maintenance over its useful life) would be equal to or lower than cost for awarding the project to a P3 concessionaire. Part of the reason for the increase in use of the P3 model of project delivery is the urgent need for infrastructure repairs and improvements coupled with the absence of adequate public funding. According to the World Economic Forum’s Global Competitiveness Report for 2012-2013, U.S. infrastructure – quality and availability of roads, railroads, ports, air transport, electricity and telephones – is lacking compared with most advanced countries and even some developing ones. The United States ranks 25th, behind nations such as Bahrain, Oman and Barbados. Furthermore, state and municipal governments have been, and will continue to be, strapped for cash, and the federal government seems politically unwilling or unable to pass legislation to fund and manage much of the needed infrastructure repairs and development. Traditionally federal and state road transportation spending has relied on revenue from motor fuel taxes. Those taxes are no longer adequate given that Americans are consuming less fuel, and fuel tax rates have not increased in over two decades, as confirmed by New York Times columnist Thomas L. Friedman in an August 5, 2015 column, “[t]he gasoline tax is currently 18.4 cents a gallon, and was last hiked by Bill Clinton in 1993 after a raise by George Bush in 1990.” Such shortfalls and lack of funding help explain why governments are exploring and turning more frequently to P3s. At the federal level, the House Transportation Infrastructure Committee produced a report Sept. 17, 2014, encouraging the use of P3s, particularly for high-cost, technically complex projects that otherwise might not be executed for lack of funding. Similarly, in July 2014 President Obama launched a “Build America Investment Initiative” to encourage broader public and private sector collaboration and expand opportunities for P3s. There has also been considerable support for P3s in Colorado. For example, Colorado has enacted legislation that authorizes RTD to issue bonds and loan proceeds to private businesses so they can finance mass transportation projects. (See C.R.S. § 32-9-128.5 [West 2015].) The Colorado General Assembly also has passed legislation authorizing CDOT to use P3s to design, finance, construct, operate, maintain or improve toll roads, turnpikes, HOV toll lanes, new and existing highways, tunnels, toll tunnels, bridges and toll houses. (See, e.g., id. §§ 43-1- 1201 to 43-1-1209, and §§ 43-3- 202 to 43-3-202.5.) The Colorado Legislature also passed a statute that established the High Performance Transportation Enterprise in the Funding Advancement for Surface Transportation and Economic Recovery or “FASTER” Act in 2009. (See id. § 43-4- 806.) The General Assembly found and declared that the relative decline of state and federal motor vehicle taxes, coupled with the effects of the economic recession and attendant rise in unemployment, and the urgent need for infrastructure improvements, supported the creation of HPTE and its charge to seek out opportunities for public partnerships and other innovative and efficient means of completing surface transportation infrastructure projects. (See id. § 43-4-802.) Although Colorado requires a performance and payment bonds for public works projects, there is no specific legislation requiring performance and payment bonds for P3 projects and there remains an open issue in Colorado as to whether a P3 project is a “public works” project per applicable Colorado statute. Two P3 projects of note in the Denver metropolitan area are the Fast Tracks Eagle P3 Project and the expansion of U.S. 36 between Denver and Boulder. The Eagle P3 Project includes the construction of three new commuter rail lines and a commuter rail maintenance facility and is scheduled to open in 2016. One of the commuter rail lines will connect Denver International Airport directly to Union Station. The Eagle P3 Project is essential not just to travelers seeking quick and inexpensive transportation to and from DIA, but to help ease the flow of people to and from Denver and surrounding areas to get to and from downtown more easily. The basis of the Eagle P3 Project is a concession agreement between RTD, a regional transportation district, and a “concessionaire” selected through a competitive proposal process. (Background on the Eagle P3 Project can be found at http://www.rtd-fastracks. com/ep3_77.) The “concessionaire” for the project is Denver Transit Partners, a special purpose company owned by Fluor Enterprises, Uberior Investments and Laing Investments. A number of equity, construction, and other firms are involved as well. The Eagle P3 Project is a $2.2 billion capital project comprised of federal funds, RTD sales tax bonds and private equity DTP. The Eagle P3 Project was accepted by the Federal Transit Authority as part of its PublicPrivate Partnership Program, and received a $1.03 billion Full Funding Grant Agreement on August 31, 2011.
The Eagle P3 Project concession agreement requires DTP to design, build, finance, operate and maintain the East Rail Line, Gold Line, Northwest Electrified Segment (segment 1 of the Northwest Rail Line) and Commuter Rail Maintenance Facility project under a single contract. agreement provides that RTD will retain all assets while shifting much of the risk of designing and building the project to DTP. DTP has arranged for approximately $400 million of private financing for the project through the issuance of bonds. RTD and DTP negotiated and agreed that DTP would post bonds, or a letter of credit or other surety to provide some degree of security for the subcontractors and suppliers for this project. The Eagle P3 Project also incorporates 17 Alternative Technical Concepts into the project’s scope that saved RTD an estimated $300 million and further reduced overall operations and maintenance expenses. Another example of a local P3 project is Phase II of the expansion of U.S. 36, which is CDOT’s first P3 project. (Background information on Phase II of the U.S. 36 expansion can be found at https://www.codot.gov/news/2013-news-releases/04-2013/cdot-and-hpte-select-concessionaire-to-complete-the-us-36-express-lanes-project; see also http://www.ncppp.org/colorado-p3-completes-first-phase-of-ambitious-highway-widening-project/.) The concessionaire for this project is Plenary Roads Denver, a consortium that includes the Plenary Group, Ames Construction, Granite Construction, HDR, Transfield Services and Goldman Sachs. Phase 1 of the project was recently completed and includes a newly widened segment between Federal Boulevard and 88th Street. Phase I of the expansion of the U.S. 36 corridor was not a P3 project. Phase 2 of the Boulder U.S. 36 project, which is a P3 project, includes the construction of express lanes for HOV/bus rapid transit/ and tolled single-occupancy vehicles between 88th Street and Table Mesa in Boulder as well as reconstructing the general traffic lanes on U.S. 36. There are other components of the Phase 2 project that involve bridgework, installing bikeways and improvement of an existing RTD station. Under its 50-year agreement with CDOT and HPTE, Plenary Roads Denver also assumed responsibility to operate and maintain the entire U.S. 36 corridor between I-25 and Table Mesa in Boulder and the I-25 Express Lanes between downtown Denver and U.S. 36. These two P3 projects portend favorably for the anticipated increase in P3 projects in Colorado to build, finance, and maintain critical infrastructure projects in the years to come.