Note: Public Private Partnership (P3) projects present unique challenges in determining which rules and regulations apply, such as the Davis-Bacon Act which regulates prevailing wages on federal construction projects. A 2016 court case provided some guidance to determining the underlying nature of the project, and the applicability of the Davis-Bacon Act.
What Is a P3 Project?
While the term “P3 Project” is used regularly, there is still some confusion as to what exactly a P3 project is, and how these projects are actually classified. Public private partnerships are rapidly increasing in popularity, and continue to take over a larger piece of the construction project landscape.
In short, a P3 project is one in which public and private entities invest together, and both may have some “property rights” or ownership. In this project type, a public entity strikes an agreement with a private entity for some combination of funding, construction, operation, or maintenance on a project.
P3 projects are appealing to government officials and private industry players alike for numerous reasons; one of which is the ability for a public body to alleviate public cost (and the associated taxpayer burden) by allocating some of the financial risk and subsequent reward to private companies. This structure not only allows the public entity to reduce government’s costs, but also bring in greater expertise in overseeing the project itself.
There is no specific structure for P3s that is routinely used, however, and the specific nature of the individual project is defined by specific agreement and contract between the parties on the project. Indeed, in some situations there may be no public involvement at all other than the fact that the project is located on public property (that the public body leased to the applicable private developer/operator). Because of this, the underlying structure of the contract can have a significant impact on the nature of the project and the applicable rules, regulations, and remedies.
“P3 Projects – What If You Have Payment Problems?” | originally published in MultiBriefs by levelset CEO Scott Wolfe
So Is a P3 Project Public or Private? Or Both?
This question is perhaps the most important, and the most ambiguous. Because the underlying project-type defines the applicable rules, and potential remedies for non-payment (generally speaking, lien rights are the remedy for private projects, and bond claims are the remedy for public projects), it is extremely important to be able to determine the “actual” project type. While there can be numerous factors in determining what kind of project a P3 project actually is, and what the relationship between the contracting parties means for the requirements that control the project, the U.S. Court of Appeals for the District of Columbia circuit recently provided some helpful insight.
Project Type, Prevailing Wage, and Things to Look For
In the relatively recent case, the court was examining the question of whether the Davis-Bacon Act (which requires that contractors and subcontractors working on federal and D.C. projects of more than $2,000, pay their laborers at least the local prevailing wage) applied to the CityCenterDC project. In doing so, the court had to determine whether the project, which was nominally a P3 project, was a public project or a private project underneath, since the Davis-Bacon Act doesn’t apply to private projects.
In the project at issue, all construction contracts and agreements appeared to be private (entered into by the developer), however, the one wrench in the works was that the project was located on public land, which the District of Columbia leased to the developer for 99 years. So, the underlying ownership of the land itself was public, while the development, construction, and subsequent management of the project was private. The court in this case, determined that the mere lease of the underlying property did not make D.C. a party to the work and that the project was a private project for the purposes of the Davis-Bacon Act applicability.
To Be Considered Public, A P3 Project Must Pass a Test
An interesting and potentially helpful test for parties trying to determine the underlying nature of a P3 project, was set forth by the court. In the test, the court determined that in order for a project to be considered a public work (at least for these purposes): 1) a project must involve public funds, and 2) the project must be subject to government ownership or operation of the completed facility. In the D.C. case, the court found that neither condition of the test was met.
Although helpful to some extent, it seems that this test provides a relatively low bar to a project being classified as “public.” While the project in this case didn’t meet the requirements as the sole connection was a lease and there was no involvement on the project at all by the public entity, it appears from this case that any minimal involvement of the public entity in terms of construction funds would be enough.
This is an interesting result for parties attempting to determine the security rights applicable to the project, and for GCs working on such projects. If the addition of any amount of public funds means that the rules related to public projects apply, that means that any such project would necessarily incur the mandated bonding requirements of the Miller Act or the various states’ Little Miller Acts.
The decision provides guidance for P3 projects in D.C., but raises other interesting and potentially very valuable questions. As always, the takeaway is that parties working on P3 projects must be diligent in examining the project to understand what rules apply, and what any potential remedy might be.