P3 Partnerships: Understanding Some of the Legal Concerns

P3 Partnerships: Understanding Some of the Legal Concerns

Arizona Society of Civil Engineers Newsletter, July 2009
By Roger Owers, Ph.D., P.E., J.D.

After ordering lunch, Cyrus told his lawyer Angie the good news.  Cyrus’ civil engineering firm had been contacted by a large construction contractor about joining a Public-Private Partnership (“P3”) with the state government for an upcoming health care campus project.

“Exciting!” said Angie.  “What do your expect your role to be?”

“My firm would be the lead designer on the project, both civil and structural.  We would also have a long-term role in designing various renovations, additions, and repairs relating to operation and maintenance of the project.”

“Wow.  It sounds like this is a great opportunity to provide your firm with some steady, long-term work,” Angie said.  “P3 projects are very complex, with potentially large rewards but also large risks.  May I give you some things to consider?”

“Sure,” said Cyrus, taking a sip of his iced tea.  “This is the first P3 opportunity for my firm.”

“First, recognize the political forces. The government is a major player in a P3 partnership.  Because the government is subject to the taxpayer and to other political influences, their role may change, or be forced to change, in a way that negatively affects you and the contractor.”

“Such as?”  Cyrus asked.

“The government’s funding of the project, tax restrictions, ownership of the facilities, and other roles of the government may be modified during the life of the project. Make sure these items are discussed and that contingency plans are in place in your agreements.”

Cyrus asked, “What other types of agreements should we consider?”

“That brings me to my second point,” said Angie.  “Because this is a partnership, you and the other “partners” will need an agreement that sets out what type of entity the partnership will be and also clearly describes the roles and responsibilities of each of the partners.  You will also need to address cost controls, transparency, and recordkeeping.  While this document can serve as a master agreement that governs your roles and responsibilities, it should also allow design contracts to go to you, construction contracts to go to the contractor, and so on.”

“Sounds reasonable,” said Cyrus.  “Anything else?”

“You bet.  Another area where you will need to agree is in the performance by the partners.  For example, you will want to have performance standards for design, construction, operation and maintenance, etc.  That way, you can have a contingency plan to deal with a situation in which one of the partners might not perform up to standard.  And, that brings me to my third point.”

“Liability?” asked Cyrus.

“Indeed” said Angie.  “Given the complexity of P3 partnerships, the influence of the players, and the risks associated with the long time horizon of P3 partnerships, the third main area you will want to address is liability between and among the partners.  Liability could arise if the relationship with the partners goes sideways and also from external sources such as injuries to employees or to the end-user public. Your insurer will need to look at your role as the designer to make sure your role is insurable under your policy.”

As the waitstaff brought out their lunch, Cyrus pondered this information.  “So in anticipation of this P3 partnership, I need to understand the risks from the politics, obtain agreements that cover our roles, responsibilities, and entity interactions, and address my liability exposure?”

“These are some of the key areas.  P3 partnerships have lots of potential rewards, but also lots of potential risks.  There are many things to consider, some of which I touched on today.  As you get further into negotiations, we can discuss more.”

“Sounds good,” said Cyrus.  “More iced tea, please.”

This article is intended for general information only.  It should not be construed as legal advice with respect to any particular situation.  Readers should not act upon information contained in this article without first consulting their lawyer.

Roger S. Owers is a commercial real estate professional with Keyser LLC and is a lawyer with the Kaibab Law Offices of Roger S. Owers LLC.  Roger holds a Ph.D. in civil engineering, is a registered professional civil engineer, holds a real estate license, and is a licensed attorney.  He can be reached via e-mail at rowers@kaibabllc.com or www.kaibabllc.com.  He can also be found on LinkedIn at http://www.linkedin.com/in/rogerowers/.

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