As noted herein, one of the most important issues to resolve during negotiations is the term of any highway public-private agreement. As a general matter, DBOM and similar contracts for operation and maintenance tend to have shorter terms (e.g., 15-30 years) than long-term lease arrangements (e.g., 50-99 years). There has been growing belief since the criticism that followed the Chicago and Indiana deals that the term of any future long-term lease concessions should be reduced, in part because of the difficulty of forecasting traffic demand and revenue growth many years into the future. As a result, the Florida legislature enacted a bill in 2007 that imposes a 50-year limit on any long-term lease of new or existing toll facilities. The Florida Secretary of Transportation can increase the limit to 75 years, but approval of the legislature is required beyond 75 years.241 The new statute in Mississippi provides for a 30-year limit and requires tolling to end at the end of the term.242
In addition to the term of years, a PPP contract also must address what happens at the end of the term or upon a material default by either party during the term. With respect to the expiration of the contract, it is important to have provisions in place that define each party's rights and responsibilities leading up to and following the end of the term. One of the common criticisms of a long-term PPP agreement is that the private sector will not have any incentive to maintain and improve the facility at the highest standards near the end of the term because of the impending reversion of the facility to public control and responsibility. Thus, it is important to develop provisions that can provide incentives or appropriately penalize the private contractor for not maintaining the condition of the facility through the end of the contract term.
Moreover, it is important to have clear and understandable provisions in the PPP agreement that govern the rights and obligations of the parties upon a material default. This is often a very difficult issue to negotiate because of the competing interests of the public- and private-sector participants. The public-sector sponsor needs to ensure that it can take prompt and adequate steps to keep the highway facility available and in proper condition for the traveling public in the event of a contractual breach by the private contractor. On the other hand, the private contractor needs to ensure that it will have a reasonable opportunity to cure any alleged breach, particularly any circumstances caused by factors outside its control (including force majeure conditions).
The USDOT Model Legislation provides that upon occurrence and during the continuation of any material default by the private operator, the state highway authority may elect to take over the transportation facility (subject to any liens on revenues previously granted by the private entity), terminate the PPP agreement, and exercise any rights and remedies that it may have thereunder or pursuant to applicable law.243 The model provisions do not define what constitutes a "material default" and do not otherwise provide for any dispute resolution mechanism that would apply in the event the parties disagree about the existence or cause of an alleged default. These types of additional provisions must be developed in any PPP agreement for a highway project.
_________________________________________________________________________
241 See Florida H.B. 985 (2007).
242 Miss. Code Ann. § 65-23-3.
243 USDOT Model Legislation at § 1-106, available at http://www.apta.com/about/committees/public_private/documents/legis_model.pdf.