1. MAKING IT HAPPEN. TRB 88 th Annual Meeting Risk Management in Public-Private Partnerships January 14, 2009 Statutory and Public Policy Approaches to PPP Risk Issues Karen J. Hedlund Nossaman, LLP

2. 2 Governmental Risk Under Traditional Low Bid Procurement  “Lowest Bid” does not equal “Lowest Cost”  risk of cost increases from design errors or changes  risk of delays and cost of delays  risk of higher operating and maintenance costs  no long-term warranties  Government bears all capital cost financing risk  Government bears all O&M funding risk  Political risk of increasing user fees (gas taxes or tolls) to pay increased O&M and capital costs

3. 3 Governmental Risk under PPPs  Loss of control—final design, operations  Potentially higher user fees  Excessive private profits  Developer non- or under-performance  Developer financial failure  Future compensation for certain revenue impacting events  Cost to repurchase if default or for public interest

4. 4 States with “PPP” authority

5. 5 PPPs: Key Public Sector Objectives  Maximize Private Sector Investment and Risk Sharing  Effective Competitive Procurement Methods  Maximize Private Sector Innovation  Quality Design, Construction, Operation and Maintenance  Effective Assurances of Performance  Effective Remedies

6. 6 Essential Elements of Authorizing Legislation: Procurement Authority  Best price / best value (price and other factors) v. “low bid” –Life cycle cost –Quality and effectiveness of proposed technical solutions –Management capabilities –Qualifications of key staff –Proposed stakeholder/community outreach and business outreach plan –Quality of proposed operations and maintenance plan –“Added value” features of the proposed approach  Financially and technically qualified proposers

7. 7 Essential Elements of Authorizing Legislation, cont.  Flexible Contracting Authority –Contract with private party to design, build, finance, operate and maintain –Any of the above  Solicited vs Unsolicited Proposals –Innovation in project identification and solutions? –“Jumping the STIP”?

8. 8 Financing and Revenue Authorizations  Contractually constrained tolling regime –exceptions for public/emergency vehicles –suspension during emergencies  Assignment of tolls or fairbox revenues  “Availability Payment” schemes –strong agency credit required –payment for performance over long term  “Mixed” security

9. 9 Some Legislative Obstacles  Legislative Approval of Final Contract  No Public Contribution  100% Payment and Performance Bonds  No Ad Valorem Property Tax Exemption  Short, Inflexible Maximum Term  No foreign investors  Utility-type rate regulation

10. 10 Additional Policy Issues  Transparency vs. Confidentiality –Protect confidentiality of procurement data, documents, information before award –Protect confidentiality of private sector trade secrets and proprietary information  Future revenue impacting facilities  Term and Extension – 35, 50, 57, 99 years?  Limit on Return on Investment

11. 11 Current Federal Statutory and Regulatory Overlay  FHWA “Design-Build Rule” – applies to PPPs  FTA policies provide flexibility  “Penta P” pilot program under SAFETEA-LU –risk sharing –streamlined project development  Applicable federal requirements –Davis-Bacon; Buy American; DBE; NEPA  New “Fair Market Value” Rule

12. 12 Potential Additional Federal Requirements  Value for money analysis  Limits on ROR/ Revenue sharing  Increased process and contract transparency  Integration with planning process  Use of upfront payments and revenue sharing  Labor protections  Buy Back provisions  Public agency competition

13. 13 Model Legislation  Several Sources of Model Legislation –FHWA: http://www.fhwa.dot.gov/ppp/legis_model.pdfhttp://www.fhwa.dot.gov/ppp/legis_model.pdf –ABA Model Code for Public Infrastructure Improvement http://meetings.abanet.org/webupload/commupload/P C500500/relatedresources/5IntroductionToModelCod eforPublicInfrastructureProcurement.pdf –Nossaman’s Public-Private Partnerships in Transportation Act –VA, OR, FL, TX etc.

14. 14 Contact Karen J. Hedlund Nossaman LLP 1666 K Street, Suite 500 Washington, DC 20006 khedlund@nossaman.com nossaman.com