President Obama Emphasizes the Value of Public-Private Partnerships

Last Friday, President Obama visited Miami and, speaking at the Port of Miami, detailed his proposals for increased public-infrastructure spending through public-private partnerships.  Although the President envisions traditional financing approaches for certain projects, he continues to emphasize the importance of P3s to rebuild our aging infrastructure and has proposed, for example, a $10 billion infrastructure bank that, in conjunction with private funds, could help fund public-works projects.

Expansion of Public-Private Partnership Programs

At the same time, the states, including Florida, are expanding their PPP programs at a dizzying pace.  In both Maryland and Florida, for example, the legislatures are currently considering legislation that would establish statewide policies and procedures for implementing public-private partnerships.  Florida Senate Bill 84 is currently moving through Senate committees (and a similar bill, House Bill 85, is moving through the House).  The Florida legislation, if adopted, would primarily:

  1. establish a new, statewide public policy in favor of public-private partnerships for public projects,
  2. create a task force to help establish factors to be used by public agencies when evaluating potential P3s, and
  3. establish new procurement procedures to facilitate P3s.
Understanding the “Unsolicited Proposals” Process

The procurement procedures are perhaps the most interesting proposal in the Florida legislation, which attempts to create a workable process for the receipt and evaluation of “unsolicited proposals.”  Unsolicited proposals are proposals for public projects initiated, not by the public agency that will procure the project, but by a would-be contractor.  In a typical procurement process, the public agency will decide what it needs and then solicit bids or proposals from potential contractors to provide it with that particular project.  An unsolicited proposal flips that process around; a potential contractor determines what it believes the agency may want and then submits a proposal to the agency to evaluate.  Because P3s inherently involve novel projects and financing techniques, including making use of assets the public agency may not have known it had, unsolicited proposals could be a useful tool for expanding the use of P3s.

The current unsolicited-proposal process, however, is largely self-defeating.  In Miami-Dade County, for example, the unsolicited proposal process creates a significant disadvantage for the contractor that comes up with the idea in the first place.  Not only must the proposer pay an initial processing fee of $25,000 when submitting an unsolicited proposal, but if the proposal is “accepted,” the County will solicit competing proposals from other contractors and permit those contractors to inspect the initial proposal, including the novel financing approaches.  This process places the initial proposer at a significant competitive disadvantage and disincentives creativity.  Many of the problems with the current County process stem from requirements of state law, however, which is why the new proposed legislation is so significant.

Proposed Florida Legislation

The proposed Florida legislation attempts to fix the unsolicited-proposal process.  First, the timeframe for receiving competing proposals may be no later than 120 days from the posting of the solicitation; because there is no time limit for creating the unsolicited proposal, some advantage for the “first mover” is preserved.  Second, and more significantly, only the scope of the unsolicited proposal may be published and available for inspection by competing proposers–the financial terms may not be disclosed until the competing proposals have been received and opened.  For example, if a contractor develops a novel P3 approach to construct a bridge, competing contractors will be able to offer their own solutions to construct the same bridge, but they will not have prior knowledge of the novel P3 financing scheme and, for example, offer the exact same scheme but at $1 less, as would be possible using the current process.

Accordingly, if the Florida legislation passes, we might expect to see an increase in unsolicited proposals and novel public-private approaches towards developing public infrastructure.  And the timing–when we are in need of several billion dollars in sewer-system improvements–could not be any better.