In 2005, the Nossaman firm was tasked by FHWA to survey State enabling laws relative to public private partnerships and analyze their key elements. A copy of this report can be found at http://www.fhwa.dot.gov/ppp/legislation.htm. Most of the authorizing statutes followed the model established by Virginia's 1995 PPTA law in providing guidance to the States' transportation agencies as to the procedures they should follow in procuring private partners and the criteria they should use in evaluating proposals and negotiating agreements.
Most States authorize the responsible public entity to solicit requests for PPP proposals for improvement of specific systems, corridors or routes. Many States may also accept unsolicited proposals, which enable the private sector to offer projects that the public entity might not otherwise have considered, provided that they satisfy the criteria outlined in the governing statutes and regulations, and are consistent with the State's overall transportation plans. Competition is incorporated in the unsolicited process by requirements for the public entity to invite competitive proposals within specified periods designed to permit adequate time for the preparation, submission and evaluation of competitive proposals.
Statutes generally afford the public entity considerable flexibility in the types of agreements they may enter into and the specific procurement process so that they may to more easily select the one that is most appropriate for a particular project. Contracts are awarded on the basis of "best value" taking into account both short and long-term benefits of the project proposal. Proposals to finance well-defined projects that have cleared the environmental process may be solicited on the basis of "hard money" bids. These can include the amount of franchise fees to be paid by the private party, the amount of required public investment, and/or limits on return on investment or future user fee levels. Private participation in projects that are still in the early development stage may be solicited based on the amount of funding the developer is willing to advance at its cost and risk for preliminary engineering, traffic and revenue studies and permitting activities, in return for the right of exclusive negotiation of the final terms for construction and operation. If such negotiations are ultimately unsuccessful, the agency retrains the right to re-bid the project. It should be noted, however, that the private sector is generally unwilling to accept the risk of NEPA approvals due to significant uncertainties about the time required to obtain such approvals and the ultimate outcome.
State laws or regulations typically require that proposers first demonstrate their qualifications to undertake a project based on relevant experience in development, design, construction, financing and/or operation of projects with attributes similar to the project being procured; the financial resources they bring to the undertaking and their legal structure. Short-listing of the most qualified proposers limits the number of final proposals that the agency must consider to those that are backed by qualified teams.
State law or regulations also outline what should be incorporated in a responsive proposal meriting review by the public entity, with flexibility given to the agency to add additional requirements relating to a specific project procurement. These typically include such items as a description of the proposer's technical approach, its financial plan, an estimate of its design and construction costs, the development timeline, the anticipated financial commitment of the parties, including equity, debt and other financing mechanisms, the monetary or other benefit to the public sector, assumptions about toll rates and other user fees, and proposed caps on rates of return and/or proposed revenue sharing with the public sector.
Authorizing statutes generally address who has user fee rate-setting authority and under what circumstances may they be changed or otherwise reviewed. States laws generally leave to contract negotiation when and by how much tolls can be modified by the private operator.
In our experience State and local transportation agencies take great care in managing the solicitation and review process, and in negotiating final agreements. These are time-intensive undertakings, and they assign their most senior and qualified public servants to the task. Months of effort are usually required to develop procurement documents and related agreements, including consideration of comments from the public and industry. Additional months are taken up in and in the detailed evaluation of final proposals and negotiation of implementation agreeemnts. Outside engineering, planning, environmental and legal consultants are brought in to advise on the numerous technical issues that arise, and to give the agency the benefit of their experience on similar undertakings elsewhere in the country and around the world. Many States also establish review committees made up of representatives of various stakeholders outside the DOTs, as well as seeking the approval of the State's transportation commissions.
The States vary in the extent to which the State legislature is involved in project selection. Some enactments limit authority to engage in PPPs to specified projects, or limit the number or location of projects. Some laws require submission of projects or agreements to the State legislature's transportation committees for review, although few require legislative approval of final agreements. The latter is viewed as creating a "political risk" that would discourage proposers from expending the significant sums - not infrequently in the millions of dollars-in preparing proposals.
Other public policy issues sometimes addressed in legislative enactments include: whether tolls must be removed upon termination of the agreement; conversion of existing non-tolled highways to tolled projects; and maintenance of competitive routes or restriction on "non-compete" agreements. Most states leave the resolution of these issues to a case-by-case determination by the sponsoring agency.