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Business Observer Friday, Nov. 25, 2016 1 year ago

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Public-private partnerships offer lots of benefits for business — and lots of challenges. Opportunities are on the rise.
by: Beth Luberecki Contributing Writer

Executive Summary
Industry. Infrastructure, construction. Trend. Legislation could boost the amount of public-private partnerships in Florida. Key. While potentially lucrative for businesses, there are pitfalls.

Sarasota attorney Greg Steube has vocally championed lots of causes in Tallahassee, as a state representative for six years.

Some causes lean controversial. Others, such as public-private partnerships, also called P3s, aren't as contentious. But public-private partnerships, while not as sexy, as, say guns on college campuses, play a big role for both businesses and the general community.

“The public wins because you're getting a project sooner than you would with a traditional procurement,” says Steube, a Republican elected state senator in Sarasota this month after three terms in the state house. “The community wins because private business is coming in and building things and creating jobs, which is also creating economic development in the community. And you're not using taxpayer dollars to do it.”

Steube, who works in Becker & Poliakoff's government law and lobbying and business litigation practice groups, sponsored a bill in the 2013 legislative session designed to standardize the P3 process in the state and that created a framework for local governments to follow. “It gives investors some ease to know that the state recognizes these projects,” he says about the bill, which passed. “They're not going to invest billions of dollars and have the wheels fall off the train, so to speak.”

In 2016, another bill he sponsored that became law provides a public-records exception for unsolicited P3 proposals. “That's going to have a huge impact on developers, businesspeople, and investors,” he says, “to know that they can identify a need and then go to that governmental agency with a proposal and their competitors aren't going to come along and undercut them.

“As people start to realize they can use this and they do a small project successfully, I think you're going to see it explode,” Steube says. “There are so many other countries that do it very successfully. The United States is really behind the curve.”

An increase in P3 activity is also good for Steube's law firm — a nugget he was dinged on during his 2016 run for the Florida Senate. But he says the legislation is in the best interests of Florida.

The basics
In a standard public-private partnership, two sides enter a contractual agreement related to the delivery and financing of public buildings and infrastructure projects. The private entity finances the project and then either receives payments from the government or revenue related to the project itself, such as tolls or parking fees. As Steube says, P3s can come in a variety of forms and apply to all kinds of projects. The common parlance is that no two P3s are alike.

“In traditional government procurement, you have a lifecycle of design, build, finance, operate and maintain,” says Randall Clement, an attorney in the Orlando office of Bryant Miller Olive who has handled legal work for a number of P3 projects statewide. “A P3 is basically a government unit contracting with a private entity to perform two or more of those lifecycle stages. It's applicable to an endless variety of government undertakings, I think.”

A public-private partnership brings benefits to both sides. For the public, a private business brings capital that might take a government entity several years to fund. The agreement also transfers much of the risk of the project from the public entity — and local taxpayers — to the private sector.

“The challenge for the businessperson is the risk: You are now assuming the risk for that project,” says Steube. “But without risk there's no reward.”

For businesses, a P3 for something like a toll road or parking garage can offer a good return on investment, since there's already a fee structure in place. “Private entities aren't in the business of just giving away money,” says attorney Trent Cotney, whose Tampa-based firm, with five offices statewide, focuses on construction law. “They've evaluated the ROI and determined it's worth putting a little out for the potential gain they'll reap. I see private entities willing to foot the bill knowing they're going to have the equivalent of an annuity over and over again as the return on their investment.”

A P3 also allows businesses to develop relationships with stable customers who will hopefully come calling again. “It's an enhanced opportunity to do business with a sector that has traditionally been a reliable business partner,” Clement says. “Local governments, and government in general, have a good track record of performing their contractual obligations and meeting their payment obligations.”

'Don't jump'
A P3 can be a great opportunity, but lawyers stress caution. It might not be the right fit for every developer or builder.

“A P3 is not the kind of thing you jump into,” says Cotney. “You should already have experience doing public work. One of the problems I see is a lot of contractors who have experience with residential work then decide to do public-bid work, and it's a completely different arena. The admin alone on public jobs is usually significantly more than what you would face in the private sector.”

Other keys to success include having high levels of bonding and insurance to cover the project; legal counsel to wade through all the elements of the deal; and a willingness to over-communicate with all parties.

“It's important to be clear who's emptying the wastepaper baskets, who's cutting the lawn,” says Kenneth Artin, another attorney in Bryant Miller Olive's Orlando office. “Make it very clear in the agreements up front who's responsible for what going forward.”

Attorneys who work with P3s are unsure how or if recent legislation will boost P3 activity. “It's fair to say we are hearing more discussions and seeing more activity in this area,” Clement says. “People are at least curious and beginning to consider it for a wider range of projects.”

Steube sees something like Sarasota's Bayfront 20:20 initiative as ripe for a P3 deal, since it would be difficult for local government alone to come up with all the money needed for such a large-scale effort. “A project that size is a $300 million project,” he says. “The only way you're going to be able to do that is through some type of public-private partnership.”

Notable P3 Projects
Most public-private partnerships in Florida have centered on transportation or education. The University of South Florida, for example, is building a residential village through a P3 considered the largest public-private partnership in the state university system.

Examples of public-private partnerships in the state include:

n Pasco County recently entered into a P3 for an environmental recovery project called the Central Pasco County Beneficial Water Reuse Project. The partners include the county, the Southwest Florida Water Management District and the ownership behind 4G Ranch.

The project, in which the county signed a long-term lease with 4G, will focus on the construction of 237 acres of wetlands in an area that's suffered environmental degradation due to groundwater withdrawals. The county benefits by not spending millions to buy the land, while 4G benefits from a revenue stream and the improvements to its land that will come from the project.

The project broke ground at the end of October and is expected to be completed in a year. “That's unheard of for county projects because of all the hoops that have to be jumped through and established processes that need to happen,” says Pasco County staff biologist and project manager Jeff Harris. “This has been so efficient and saved a considerable amount of money that I can't imagine us not pursuing this P3 option more often.”

The P3 that widened Interstate 75 in Lee and Collier counties proved beneficial for a variety of reasons, says Florida Department of Transportation District 1 Secretary Billy Hattaway.

“We were able to accelerate and build this project and its associated improvements all at one time,” says Hattaway.

The private companies involved in the deal, Ajax Paving Industries Inc. and Anderson Columbia Co. Inc., advanced the funding needed for the widening. That allowed FDOT to reimburse the companies over a period of several years instead of coming up with the total cost upfront. “And they were done more quickly to allow the public to take advantage of them sooner,” Hattaway says.

The on-campus residence halls at Florida Polytechnic University in Polk County were built through a P3.

Jacksonville-based Vestcor Cos., which specializes in multifamily housing, was chosen in October 2013 to partner with the school to build and manage an on-campus residence hall.

“The school had limited credit because it was a brand new university,” says Vestcor President Will Morgan. “It was using all of its funds for infrastructure at the school, that phenomenal building and the ancillary services needed.”

Vestcor completed the project in time for the school's inaugural August 2014 class. It financed the project privately and committed to operate it for 50 years. That's long enough to give the company a return on its investment through fees it collects from students, but also requires the firm to manage the complex. It recently built a second dorm there.

The partnership must have pleased both sides: Vestcor recently built a second dorm for the university.

Partnership Problems
Not every public-private partnership works out, for a variety of reasons.

Consider Tampa Bay Water, which entered into a P3 to design, build, own and operate a desalination plant in the late 1990s.

Two private partners declared bankruptcy and a third had financial issues, which led to confusion and long delays. The plant was finished in 2003, but didn't meet the production levels Tampa Bay Water had stipulated in the contract due to technical issues resulting from inadequate pilot testing.

A big issue, in hindsight: Tampa Bay Water ceded too much control of the design process. “Our preference in looking back would be more toward a design-build-operate model, because it gives you much more involvement during design,” says Ken Herd, construction and contracts senior manager for Tampa Bay Water.

The problems at the plant have since been resolved, and Herd believes the agency is now better prepared for future P3s. Its Tampa Bay Regional Surface Water Treatment Plant, for example, was built through a P3 with Veolia Water.

“We've been very open about what we've gone through,” says Herd. “We hope the things we've learned can help others going through the same challenges in developing these types of facilities.”

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