Pennsylvania's P3 Implementation Manual: An Overview

by Ballard Spahr LLP
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On January 9, 2013, the Pennsylvania Public-Private Transportation Partnership Board (P3 Board) approved the Implementation Manual for Solicited and Unsolicited Projects (Implementation Manual), which provides highly anticipated specifics on the new law (P3 Law), Act 88 of 2012. The P3 Law was enacted in July 2012.

Pennsylvania’s P3 Law enables public entities to enter into agreements (P3 Agreements) with a private party to develop a transportation facility project as a P3. “Public entity” is defined as:

  • A Commonwealth of Pennsylvania executive agency, such as the Department of Transportation (PennDOT or Department)
  • A Commonwealth independent agency
  • A Commonwealth-affiliate entity
  • A municipal authority
  • An authority created by statute that owns a transportation facility (e.g., SEPTA, Port Authority of Allegheny)

Counties, cities, townships, and other local government units are not “public entities” under this law. Presumably a county that wants to undertake a P3 project could establish a municipal authority or industrial development authority, or use an existing authority.

The law defines “transportation facility” broadly to include things such as roads, bridges, ferries, airports, and port facilities. These facilities can be proposed or may already exist, and they also can encompass buildings, parking areas, and other property related to the facility’s operation.

The law allows for P3 projects that are identified and initiated by a public entity (Solicited Projects) or that are submitted by a private party to a public entity (Unsolicited Projects). The newly approved Implementation Manual sets forth the process for obtaining approval for both types of projects and the offices responsible for granting approval.

During its January 9 meeting, the Board also established two periods during which it would accept unsolicited projects in 2013—May 1-31 and October 1-31—and approved the Commonwealth’s first P3 procurement for proposals to manage and operate PennDOT’s 511 system, 511PA, as well as the Pennsylvania Turnpike’s Roadway Information Program (TRIP). You can read PennDOT’s Press Release here.

P3 Office

PennDOT has established an Office of Public-Private Partnerships (P3 Office) that will be responsible for administering the P3 Law and the Implementation Manual. The P3 Office reports directly to the Secretary of Transportation.

The Office will play a pivotal role in the development, assessment, and screening of all potential P3 projects. It will provide guidance to public entities and private entities, and it will provide support and expertise to the P3 Board (discussed further below), whose approval is required before project procurement may take place.

The P3 Office initially will be housed with PennDOT’s existing Policy Office as the Office of Policy & Public Private Partnerships, but as the program evolves, the P3 Office will transition to its own separate office within the Department. The P3 Office will work directly with the respective deputy or appropriate agency administrator based on the project being considered. Funding sources for the Office are still under review. The Office will be staffed by a Director (P3 Director) and other key staff to carry out its efforts. Bryan Kendro, Director of the Office of Policy & Public Private Partnerships, has been appointed as P3 Director.

The P3 Office’s primary functions are set out below.

Project Screening

The P3 Office will coordinate with the Commonwealth and other public entities in the evaluation of potential projects, both those of Commonwealth agencies and of other public entities. The office will also make recommendations to the P3 Board about whether or not to move forward with specific projects.

Developing Projects

For agencies under the Governor’s jurisdiction, the P3 Director will appoint a Project Manager for each project approved by the Board. The Project Manager will work closely with other areas of the Department and will oversee the project. For agencies outside the Governor’s jurisdiction, the Director will designate a liaison to interact with the relevant public entity.

Contract Management

The P3 Office will also be responsible for overseeing and administering executed P3 Agreements, including reviewing updates to financial models, evaluating revenue sharing provisions, and reviewing financial statements.

Steering Committee

The P3 Office will receive support from the Steering Committee, which is comprised of representatives from the Secretary of Budget, Secretary of Policy and Planning, and the Governor of the Commonwealth as well as representatives from various PennDOT departments, including Planning, Highway Administration, Safety Administration, Local & Area Transportation, and Aviation. The Steering Committee will:

  • Provide policy guidance to the P3 Office
  • Review and provide feedback to submitting public entities or to private parties on a P3 project during the High Level Screening process (discussed below)
  • Make recommendations to the P3 Board on such projects

Solicited Projects

Requests for Information

When a public entity is interested in pursuing a P3 project, it may issue a Request for Information (RFI) from private parties. The issuance of an RFI is not a commitment to pursue the project or an indication that the project has been approved.

Candidate Project Form

Public entities may initiate a High Level Screening (as discussed below) of a potential P3 project by submitting a P3 Candidate Project Form to the P3 Office. The Office, or the Steering Committee, will provide feedback and determine whether the project should advance to the Detailed Level Screening process.

High Level Screening

The P3 Office will perform an initial analysis to assess if a project would benefit from a P3 approach. During a High Level Screening, the P3 Office may consider:

  • The opportunity to accelerate the implementation of the project and reduce reliance on public funds
  • The potential for increased revenue generation/revenue sharing with the Department or public entity
  • The private sector’s capability to address project complexities
  • The ability to allocate/share risks in a cost-effective manner
  • Technical and financial feasibility
  • The project’s ability to meet transportation, economic development, and environmental goals

Once the High Level Screening Report is complete, it will be sent to the Steering Committee for review. The Steering Committee will decide if the project should proceed to the Detailed Level Screening stage.

Detailed Level Screening

If a P3 project passes the High Level Screening, the P3 Office will conduct a Detailed Level Screening, which may include additional planning, engineering, travel demand, and environmental and financial analyses. The P3 Office also will conduct a Best Value analysis of the potential P3 project. Finally, the Steering Committee will review the Detailed Level Screening Report and make a recommendation to the P3 Board whether or not to approve the P3 project.

Best Value

The P3 Office and the public entity involved in the proposed project will conduct a “Best Value” analysis to determine if a P3 is the preferred method as compared to a conventional project delivery method. The Office will then assess how well a potential project under a P3 or conventional delivery approach can accommodate potential downside risks such as:

  • Higher-than-expected construction and lifecycle costs
  • Delayed implementation
  • Greater-than-expected financing costs
  • Lower revenues than projected

The P3 Office, in concert with the Department and/or public entity, will evaluate the projected financial results on a year-by-year nominal basis and/or a present-value basis, as appropriate, to determine whether the potential project should continue as a P3 project. The financial analysis is combined with the results of the quantitative and qualitative assessment to determine Best Value.

Based on the findings from this analysis, the Office will recommend to the Steering Committee and the P3 Board whether a project should proceed using a P3 delivery method.

Unsolicited Projects

Private parties may submit proposals for Unsolicited Projects (Unsolicited Proposals) to the P3 Board, the P3 Office (on behalf of the Department), or any other public entity. Such proposals may be for any transportation mode and may be submitted at any time.

Process

Before submitting an Unsolicited Proposal, the private party may request a one-on-one meeting with the P3 Office and/or relevant public entity to discuss aspects of the proposal. Upon the formal submission of the proposal, the Office and public entity will review it and will advise the P3 Board whether to proceed with the project, just as it would with a Solicited Project.

The Office will establish and publish in the Pennsylvania Bulletin and on the P3 Office website dates when it and the P3 Board will accept and consider Unsolicited Proposals for projects on facilities owned by the Commonwealth. During its January 9 meeting, the Board established two such periods—May 1-31 and October 1-31—as periods for accepting unsolicited projects for 2013. These dates are subject to change.

If an Unsolicited Proposal is submitted to the P3 Board or the P3 Office, the Board will review the merits of the proposal in accordance with the Implementation Manual. If such a proposal is submitted to another public entity, the public entity will review it and decide whether to submit it to the Office.

After the submission of an Unsolicited Proposal, the P3 Office will conduct an initial Pass/Fail review to determine whether the proposal complies with the Implementation Manual’s filing requirements. The Office and/or public entity will then conduct a High Level Screening and then a Detailed Level Screening if the proposal passes the initial screening.

During the Detailed Level Screening, in addition to the process set forth above, the P3 Office or the Steering Committee may choose to seek public input through public polls, focus groups, or other public meetings. The Office or the Steering Committee also may meet with the private party to clarify certain issues in the Unsolicited Proposal.

Unsolicited Proposal Contents

The Implementation Manual sets forth required information for the Unsolicited Proposal including: qualifications of the private party, as well as the project’s description, schedule, operating plan, finance plan, financial feasibility, and legal basis.

Administrative Fee

P3 projects with a total cost of greater than $10 million will require a deposit of $50,000 as an administrative fee. If a project is not recommended by the Steering Committee as part of the High Level Screening process, the deposit will be returned to the private party with its agreement not to offer the proposal directly to the P3 Board.

If the private party submits the Unsolicited Proposal directly to the Board despite an unfavorable recommendation from the Steering Committee, the deposit will become a non-refundable administrative fee, regardless of further Board action. Once an Unsolicited Project advances to the Detailed Level Screening process, the P3 Office may require the private entity to share in a portion of the costs associated with the evaluation and review of the Unsolicited Proposal.

P3 Board

Duties and Meetings

The P3 Board’s primary responsibilities are to receive solicited and unsolicited project proposals and review and approve proposed projects. The Board must meet at least once a year but may meet more often as necessary, with at least four members participating to form a quorum. A majority vote of the members in attendance is required for the Board to take official action. The existing P3 Board has met twice since its appointment in September 2012. The Board must submit an annual report to the General Assembly of the Commonwealth.

Project Approval

The P3 Board must approve a project before the public entity sponsoring the project may begin procurement. Once a P3 project passes the Detailed Level Screening phase, the Board will consult with any affected persons and jurisdictions and approve or reject the project.

Transportation projects owned by the Commonwealth are subject to an additional review by the State Legislature before procurement may begin. After the Board approves a P3 project, the Board must submit the Commonwealth-owned project to the General Assembly for review. The General Assembly has nine legislative days or 20 calendar days, whichever is longer, to decide to veto the project. If the General Assembly does not veto the P3 project, the Board will notify the public entity, and the public entity can begin the procurement process.

In contrast, P3 Board-approved transportation projects owned by other public entities (e.g., SEPTA, Port Authority of Allegheny County) are not subject to General Assembly review.

Procurement Process

Competition Required

All P3 projects undertaken under the new law must be procured competitively. Although the law permits a variety of procurement methods, it does not permit sole-source contracts. The selection of the winning private party will be based on the public entity’s determination that the winning response provides the best value to, and is in the best interests of, the public entity. A variety of factors may be included in that determination—low price, by itself, need not be the sole basis for selection.

Multi-Phase Selection Process

The P3 Office or public entity, as applicable, may choose to procure a P3 project using a multi-phase selection process. This may include the following:

RFQ

The issuance of a Request for Qualifications (RFQ) is to identify a pool of qualified respondents. The P3 Office or the public entity may prequalify one or more respondents based on their responses to the RFQ. These prequalified candidates will be eligible to receive a Request for Proposals (RFP) and submit a proposal in response to the RFP.

RFP

A public entity may solicit proposals for a P3 project through the issuance of an RFP. The RFP must establish the evaluation criteria for that P3 project along with assigned weights. Evaluation criteria can include:

  • Cost
  • Price
  • Financial commitment
  • Innovative financing
  • Bonding
  • Technical, scientific, technological, or socioeconomic merit
  • Financial strength the design, operation, and feasibility of the P3 project
  • Public reputation, qualifications, industry experience, and financial capability of the private party
  • The ability of the P3 project to improve economic growth or public safety, reduce congestion, increase capacity, or rehabilitate, reconstruct, or expand the existing transportation facility
  • The compatibility with existing local and regional land use plans
  • The commitment of local communities to approve land use plans

The RFP may provide for one-on-one discussions with respondents and a submission of best and final offers.

Evaluation and Selection Process

The P3 Office and/or public entity may engage in negotiations regarding project elements, project scope, risk allocations, price, project financing, financial terms, P3 terms, technical requirements, and other matters with the respondent offering the apparent best value. The P3 Office and/or public entity should not disclose the contents of any proposal to competing respondents during the negotiation and selection process.

The public entity will select the proposal that is determined to be the best value for and in the best interests of the public entity. The public entity and the winning respondent will then enter into final negotiations for a P3 Agreement. If negotiations with the winning respondent are not successfully concluded, the public entity may enter into negotiations with the next ranked respondent or cancel the procurement.

Project Delivery Methods

The P3 Office and/or public entity will evaluate the appropriate delivery method for the project. Possible delivery methods include agreements (including concession agreements) with a private entity covering one or any combination of the design, construction, financing operation, and maintenance of a transportation project, as well as predevelopment agreements leading to other implementing agreements.

P3 Agreements

The P3 Law requires that the P3 Agreement include 19 specific provisions regarding the project. Note that the required provisions call for specific matters to be addressed but generally do not mandate that a specific matter be handled in a uniform manner for all projects. For instance, an Agreement must establish grounds for contract termination, but neither the law nor the Implementation Manual specifies what those grounds must be. The Implementation Manual does not add any other specific requirements to the Agreement.

These provisions are:

1. A detailed description of the P3 project

2. The term of the Agreement (which cannot exceed 99 years)

3. The nature of the private party’s property interest, including the acquisition of any needed right-of-way

4. Allowances for the public entity to inspect project-related assets and properties and review the private party’s project records

5. Grounds for termination of the Agreement

6. Procedures for amendment of the Agreement

7. Rights and remedies for breach or default

8. Requirements for bonds or other forms of security in amounts acceptable to the public entity

9. Requirement that ownership of the subject transportation facility remain with the public entity

10. Standards for construction, maintenance, and/or operation of the transportation facility

11. Standards for improvement or modification of a capital facility if such activities are part of the project

12. Standards relating to payments by the public entity to the private party if such payments are part of the project

13. Standards for allocation and management of risk

14. Standards for allocation of costs of development, including cost overruns

15. Remedies, damages, and dispute resolution procedures in an event of nonperformance

16. Performance criteria and incentives, if any

17. Terms requiring that at the termination of the contract, the transportation facility be turned over to the public entity in good condition

18. Provisions for law enforcement coverage of the facility

19. Provisions incorporating the P3 Law’s requirement for the private party’s employment of public employees who would otherwise lose employment because of the project.

Applicable Laws

The P3 Law provides that the following laws apply to P3 projects and the P3 Board:

  • Separations Act, Prevailing Wage Act

The P3 Law specifically identifies the Pennsylvania Separations Act of 1913 (Separations Act) and the Pennsylvania Prevailing Wage Act (Prevailing Wage Act) as laws that will apply to any P3 Agreement. The Separations Act requires public entities to solicit separate bids and award separate contracts for heating, electrical, ventilating, and plumbing work on construction projects (costing more than $4,000). It appears that the Separations Act would apply only to transportation projects that involve the construction of buildings.

The Prevailing Wage Act requires workers on Commonwealth-funded construction projects over $25,000 to be paid prevailing wages.

  • Procurement Code

The Commonwealth Procurement Code does not generally apply to P3 Agreements. The P3 Law does set forth a half-dozen discrete elements of the Procurement Code that apply if a Commonwealth agency is a party to the agreement. Those elements include provisions relating to: debarment and suspension, approval of accounting systems, plant inspection, the Commonwealth agency’s right to audit records relating to the transaction, retention of procurement records, and legal and contractual remedies.

  • Right-to-Know Law

Records of the P3 Board are subject to Pennsylvania’s Right-to-Know-Law. Records received by the Board or its members qualify as "public records" under the law. Most information contained in the winning bidder’s RFP response will be made public. Financial information submitted by a private party that it deems confidential, as well as proprietary information, trade secrets, and security information are not required to be made public, however, nor are records prepared to evaluate proposals.

  • Vehicle Code

The P3 Law states the Pennsylvania Vehicle Code, other state laws, and local ordinances will apply to highways, bridges, tunnels, and similar such public-private transportation facilities for use by motor vehicles to the same extent they would apply if the facility was not part of a P3 project.

If you have questions on transportation financing and P3s, please contact Brian Walsh at 215.864.8510 or walsh@ballardspahr.com, Adrian R. King, Jr., at 215.864.8622 or kinga@ballardspahr.com, or Steve T. Park at 215.864.8533 or parks@ballardspahr.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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