Public-Private partnerships are regularly associated with infrastructure, but they provide value for other projects as well. One area where we can expect more action is with P3 projects and affordable housing. P3’s have the support of the Department of Housing and Urban Development (“HUD”), and all signs point toward greater P3 usage in their future projects. Unfortunately for those in the construction industry, this may create some questions with protection.
P3 Projects And Affordable Housing
HUD Secretary Ben Carson seems to love P3’s. In fact, he stated that they are “The Answer” to affordable housing. Back in April, Carson even participated in an event kicking off a P3 project for affordable housing in Miami. With the backing of HUD, P3 projects and affordable housing will likely go hand in hand moving forward.
How Does It Work?
Part of the reason P3 projects are so valued is that they’re flexible. P3’s can refer to just about any non-traditional combination of private and public efforts. In the affordable housing arena, public-private partnerships typically mean that the public entity will retain ownership of the underlying property, while the private partner will handle some combination of the construction, maintenance, funding, and operation of the facility.
For the private partner, the arrangement might not look all that different from a traditional project- sometimes it’s as simple as the public entity hiring a developer to come up with a plan, get approval, then commence work. However, with housing, there are a lot of different combinations that could come into play for P3 projects.
What’s the Protection?
Protection is still a huge issue for public-private partnerships, and that will certainly not change with P3 projects and affordable housing. The gist of the issue is this: Projects that are wholly private have mechanics liens, and projects that are completely public have payment bonds. With P3 projects, liens are often not available and bonds aren’t always required. It’s even possible that as part of the P3 arrangement, a private party could be exempt from bonding requirements otherwise applicable.
So what happens when a P3 project is in play?
It all comes down to the agreement.
Now, that’s not to say the answer will be obvious in the contract. But by looking at who retains ownership of what, things should become a little clearer. Where the public entity retains ownership of the building and/or the underlying property, it’s usually safe to say that a mechanics lien won’t be available. The agreement may state that bonding is required, but it won’t always be so easy. If the project will be publicly owned and the agreement is silent on bonding, it is probably time to contact the awarding authority to ask if the project is bonded.
As is often the case, there’s no neatly-wrapped takeaway here. However, it’s important to know about potential issues before it’s too late. Since it looks like affordable housing projects are destined to be taken over by the P3 format, contractors, subs, and suppliers should be wary about protection available. Before signing the agreement, ask whether the project is bonded and read through the contract and project agreement to draw your own conclusions. Never assume that liens or bond claims will be available; verify it!