Due to the already complex and risky nature of construction, our Fort Lauderdale construction lawyers advise contractors to arm themselves with knowledge concerning Public-Private Partnerships (P3s). With P3s, two or more entities are working partnering together to complete a specific project. This means that one party, usually the private party will carry more risks. The more a contractor understands the risks and benefits, and ask the hard questions, they will position themselves for a successful and strong partnership.
What Are the Risks?
Public-Private Partnerships are complex transactions, so contractors must understand the risks involved especially since they carry most of the risks as the private party. There can be risks in the following phases:
- Development phase (i.e., political, regulatory, procurement, permitting, financing)
- Construction phase (i.e., market conditions, design, defects, construction costs)
- Operation phase (i.e., traffic, operation, maintenance, refinancing)
Every P3 will involve some risks for the private participant. For example, under the conventional design-bid-build procurement process, contractors take on risks such as labor supply and weather risks while public agencies take on a great deal of project-related risks. Due to the many risks involved, a thorough risk analysis and proper risk allocation are vital.
Considerations for Contractors
Contractors must carefully evaluate the risks and rewards of any new project under consideration and must ask themselves a few questions before they enter into this type of partnership agreement. Some of the things contractors will want to think about include:
- How P3s differ from other public works projects
- The state laws that govern P3s
- Whether lien waivers are applicable
- How to protect themselves in P3s
The Benefits of P3s
There’s no doubt that P3s are growing in popularity. Despite some of the risks, P3s offer impressive benefits. For one, both public and private entities invest together and have some ownership. There is also nonpayment protection for the parties and financial risks are allocated between the parties. Contractors will be exposed to new opportunities and will see much of the benefits over time. Additionally, P3s offer improved levels of service, innovation, budget certainty, and a quicker project delivery which makes it an attractive project method.
P3s can last for 20-30 years, so it is critical that contractors are heavily involved at the start of the project. They should stay in close communication to ensure the project is worth pursuing. The key to a contractor’s success is an awareness of the risks that are being transferred to them and to understand how to shift risk appropriately.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.