By Elizabeth M. Andes, Esq.
On August 14, 2018, Governor Phil Murphy signed new legislation into law which allows a local government entity and a private entity to enter into public-private partnership (“P3”) agreements for certain building and highway infrastructure projects for the benefit of the local government unit. The bill becomes effective February 10, 2019.
Specifically, the bipartisan legislation, S-865, allows for local government units, school districts, State government entities, and State or county colleges to enter into P3 agreements where the private entity assumes financial and administrative responsibility for a project that benefits the public entity. This is an expansion of a previous 2009 law that allowed for development through public private agreements on land owned by public colleges and universities. Although the provisions throughout the bill are substantially similar for P3 agreements with each type of public entity, those discussed below relate to P3 agreements between a local government unit and a private entity.
The P3 agreements law authorizes local government units to enter into a contract with a private entity, where the private entity assumes full financial and administrative responsibility for the project that is for the benefit of the local government unit, and where the private entity finances the project in whole and the local unit retains full ownership of the land upon which the project is located.
Optional Lease Term
The legislation also provides for local government units and private entities to enter into a lease, not to exceed 30 years, of a revenue-producing public building, road, structure, infrastructure or facility in exchange for up-front or structured financing by the private entity for the project. Under such lease, the private entity would be responsible for the management, operation and maintenance of the building, road, structure, infrastructure or facility, and may receive some or all of the revenue generated, in accordance with local government unit standards. Following the end of the lease term, all subsequent revenue generated will revert to the local government unit.
Requirements of P3 Agreement Projects
The private entity engaged in a P3 agreement project must establish a construction account and appoint a third-party financial institution as a collateral agent to manage the construction account. Additionally, employees working on the construction, rehabilitation, or building maintenance services of a project must be paid at least the prevailing wage rate for their craft or trade. Building construction projects must contain a project labor agreement, and the general contractor, construction manager, design-build team, or subcontractor must be registered and classified by the applicable State agency to perform the work on the project.
Additionally, one percent of each project must be remitted to the Public Private Partnership Review fund for purposes of plan review and analysis.
Prior to the execution of a P3 agreement, a P3 project must be approved by the State Treasurer, in consultation with the New Jersey Economic Development Authority (“NJDEA”) and the Department of Community Affairs (“DCA”). Where the project involves a transportation component, the State Treasurer’s review occurs in consultation with the Commissioner of the Department of Transportation.
In order to enter into a P3 agreement, the local government unit must determine: (1) the benefits to be realized by the project; (2) the cost of the project if it were developed by the public sector; (3) the maximum public contribution that will be allowed; (4) a comparison of the financial and non-financial benefits compared to other options including the public sector option; (5) a list of risks, liabilities and responsibilities to be transferred to the private entity and those to be retained by the local government unit; and (6) how the public will be protected from the risks.
A public entity can solicit proposals through a procurement process, or accept unsolicited proposals from private entities, which then triggers a publication requirement and a 120-day timeframe for other eligible private entities for projects satisfying the same basic purpose and need. Where a public entity is soliciting proposals, the local government unit must first advertise requests for qualifications for a P3 project on its website and in at least one newspaper with statewide circulation, at least 45 days prior to the close of the time for responses.
To submit a proposal under the procurement process, a private entity must be qualified by the local government unit as meeting the minimum qualifications established by the State Treasurer, in consultation with the NJDEA and the DCA. The local government unit then issues a Request for Proposals to each of the qualified private entities allowing at least 45 days for responses.
Next, the local government unit ranks the proposals in order of preference, relying on evaluation criteria promulgated by the State Treasurer, in consultation with the NJDEA and the DCA, prior to selecting a private entity.
Additionally, the local government unit must conduct a public hearing and find that the project is in the best interest of the public, by finding: (1) the project will cost less than the public sector option, or if the project costs more that there are factors warranting the additional expense; (2) there is a public need for the project and the project is consistent with long-term plans; (3) there are specific significant benefits to the project; (4) there are specific significant benefits to using the public-private partnership instead of other options, including No-Build; (5) the private development will result in timely and efficient development and operation; and (6) the risks, liabilities and responsibilities transferred to the private entity provide sufficient benefits to warrant not using other means of procurement.
Notice of the public hearing must be given at least 14 days prior to the hearing and such notice must be posted on the website of the local government unit and in one or more newspapers with statewide circulation, stating the purpose and nature of the proposed project. The record of the public hearing must be made available to the public within seven days after the conclusion of the hearing, and the public hearing must occur after the ranking of proposals.
Approval by State Treasurer
To be submitted to the State Treasurer for its review and approval, an application for a proposed P3 project must include, at a minimum: (1) a full description of the public-private partnership agreement, including all of the information and required findings by the local government unit; (2) a full description of the project, and a full description of any lease; (3) the estimated costs and financial documentation showing the underlying financial models and estimates that determined the costs; (4) a timetable for completion of construction; (5) an analysis of available funding options; (6) a record of the public hearing; and (7) a governing body resolution of its intent to enter into P3 agreement.
The State Treasurer will consider comments submitted by the NJDEA and the DCA regarding the application. To approve an application, the State Treasurer must find that: (1) the local government unit’s assumptions regarding the project’s scope, benefits, risks and the cost of the public sector option were fully and reasonably developed; (2) the project design is feasible; (3) the experience and qualifications of the private entity; (4) the financial plan is sound; (5) the long-range maintenance plan is adequate to protect the investment; (6) the project is in the best interest of the public; (7) receipt of a resolution by the local government unit’s governing body of its intent to enter into a P3 agreement; and (8) the term sheet for any proposed procurement contains all necessary elements. After obtaining approval from the State Treasurer of the P3 agreement project, the parties can then execute the P3 agreement.
The application must also include a long-range maintenance plan and long-range maintenance bond as part of the estimated costs and financial documentation for the P3 project.
Additionally, the State Treasurer reserves the right to revoke its approval if the project substantially deviates from the plan submitted and reserves its right to cancel the procurement after submission of a short list of private entities is developed, if deemed in the public’s interest.
As stated by Governor Murphy upon the bill’s signing, the P3 legislation affords state, county and local officials flexibility in pursuing government projects, as well as leading to job creation. Certainly, the P3 agreements law provides an alternative avenue for public-private partnerships in furtherance of local government projects.