Legal Alerts

Local Governments Can Learn from State’s Experience with P3 Projects

The California Legislative Analyst’s Office (LAO) just released a report recommending the adoption of legislation to tailor public-private partnership (P3) project selection for State projects, a move presumably aimed at greater project efficiency.

The LAO report advocates consistency. For example, LAO recommends that the Legislature specify potential P3 project evaluation criteria, such as whether a project is technically complex, shifts risk to private partners, would benefit from non-state financing, and is supported by a revenue source (such as a toll or user’s fee). The LAO report suggests that all potential P3 projects undergo a comparative analysis to determine whether the project is best suited for a P3 or for a more traditional procurement. LAO further proposes that an expert commission be charged with developing uniform best practices, reviewing and approving P3 projects, and determining whether P3 authorization should be expanded to other state departments.

The State is leading the effort in P3 project development and local governments can benefit from the State’s experience in such projects.

At the local level, aging and inadequate infrastructure, essential upgrades and scarce public financial resources are fostering a new interest in innovation based upon necessity. P3 projects are being successfully implemented in California and elsewhere for local water, wastewater and transportation projects. The P3 approach offers local governments new options to meet the current infrastructure challenges.

In a successful P3, the public agency and the private investor function as “partners” under a contractual relationship for project development, financing and construction. The relationship can even extend through operation and maintenance. 

P3 projects come in many different forms or deal structures to deliver projects; each delivery method provides for a different amount of "risk shifting" from the public to the private entity. The public agency can benefit from the expertise of the private partner and complete a project more quickly than it could through a more traditional procurement method. 

For questions regarding this report or other issues concerning public-private partnerships, please contact Best Best & Krieger attorneys Seth Merewitz or Jill Tremblay, or any attorney in the firm’s Municipal Law practice group.

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