United States: Public-Private Partnerships Gain Ground In Georgia

Recent developments in Georgia, from the General Assembly's recent legislative session to a new residence hall project for the State University System of Georgia, show that the use of public-private partnerships (or P3s) in the state is gaining serious traction, with more P3 projects likely on the horizon.

The Partnership for Public Facilities and Infrastructure Act of 2015

On May 5, 2015, Georgia Gov. Nathan Deal signed Senate Bill 59, the "Partnership for Public Facilities and Infrastructure Act," into law. The governor's signature brings successful closure to a multi-year effort by state Sen. Hunter Hill (R, 6th Dist.) and his co-sponsors in the General Assembly to bring this enabling legislation for so-called "vertical construction" P3s into the Georgia Code and allow public entities at all levels of state government and the private sector to partner to design, build, finance, lease, operate and/or maintain qualifying projects.

Speaking just the day after the law's signing on a panel at the Georgia Construction Finance Conference in Atlanta, Sen. Hill stated that he and the other drafters looked to similar legislation in Virginia, Florida, Texas and other states in crafting the legislation. The law joins existing P3-enabling statutes covering water resources and highway transportation in Georgia.

The new law applies to such "qualifying projects" (defined broadly as "meeting a public purpose or a public need") requires the adoption of P3 guidelines to govern the procurement of such projects, sets forth requirements for comprehensive agreements between the public and private sector entities, and sanctions the acceptance of both solicited proposals and unsolicited proposals from private sector bidders. While the new law expressly does not apply to facilities that generate electric power, provide communications, cable, or video services, or contain water reservoirs, the new law could be used for a broad range of infrastructure and facilities, including water and wastewater facilities, stormwater projects, solid-waste facilities, and all manner of so-called "social infrastructure" projects (e.g., schools, police and fire stations, courthouses, detention centers, public housing, mixed-use developments and civic centers), as well as transportation projects (e.g., ports, airports, railways, bridges, roads and highways), among many others.

The legislation is a tool that governmental entities may use to provide an equitable framework for both the procurement of these projects and the governance of the resulting multi-year partnerships between private and public sector entities. Any Georgia county, municipality, consolidated government, board of education or any other local authority (e.g., sewer or water authority) created under Georgia law can utilize the new law, as well as any state agency, department, bureau, board, commission, or authority of the State of Georgia (including the Board of Regents of the University System of Georgia).

A P3 Guidelines Committee composed of 10 experienced professionals in a variety of public and private sector fields related to infrastructure will be appointed by the governor, lieutenant governor and the speaker of the house under the new law by August 1, 2015. The committee will issue model guidelines for local governmental entities to use in receiving and handling unsolicited proposals by July 1, 2016. Under the law, a local governmental entity wishing to accept unsolicited proposals must either adopt the committee's model guidelines or prepare their own; the new law delineates a number of requirements any set of guidelines must address. Sen. Hill has stated that these requirements were added to ensure a transparent and open process in the procurement of unsolicited proposals and head off the appearance of favoritism.

The law also prescribes the information to be included in any unsolicited proposal, and any interested bidder should carefully follow these instructions. Importantly, the law grants a local governmental entity broad discretion in deciding to cancel a project, allowing that, "[a]t any time during the process outlined in [the law] but before the full execution of a comprehensive agreement, the local government may, without liability to any private entity or third party, cancel its request for proposals or reject all proposals received in response to its request for proposals, including the unsolicited proposal, for any reason whatsoever."

Once the local governmental entity has evaluated the unsolicited proposal and all competing proposals submitted in response to the RFP, the entity must rank all of the proposals according to the criteria set out in the RFP. While price can be a factor considered in the contract award, it cannot be the only factor. After the ranking of proposals, the local governmental entity shall enter into negotiations with the first-ranked bidder. Should those negotiations not result in an interim or comprehensive agreement, then the entity shall enter into negotiations with the second-ranked bidder, and so on until either an agreement is reached or the local governmental entity decides to abandon the project.

This legislation also lays out the content requirements for the comprehensive (or final) agreement between the public and private sector partners, including bonding requirements and the rights and responsibilities of the local governmental entity should the agreement be terminated or the private sector party causes a material default under the agreement (including the public entity's assumption of the private sector party's duties and responsibilities). Although "interim" agreements (defined in other states' legislation to be akin to an agreement between the partners to begin certain project phases before the execution of the comprehensive agreement) are mentioned in the legislation, such a term is not otherwise defined in Georgia's new law.

Finally, the legislation provides that sovereign and official immunity is not waived by entering into a "qualifying project," nor can the power of eminent domain be delegated to the private sector partner.

Although the eventual uses for this legislation in Georgia are unclear so soon after passage, projects in other states with similar legislation can illuminate the possibilities. One such example from Texas, utilizing enabling legislation very similar to Georgia's and procured pursuant to the City of San Antonio's P3 guidelines, shows the potential that P3s have, not only for fiscal cost-saving, but also to aid urban renewal. On April 27, 2015, the City of San Antonio announced a deal with Frost Bank and developer Weston Urban for a complex land-swap, which will:

  • Consolidate the city's operations into Frost Bank's existing tower and other buildings, eliminating approximately $3.5 million a year in commercial lease obligations for the city;
  • Facilitate the development of 265 new housing units by Weston Urban in the central business district on formerly City-owned land; and
  • Provide formerly city-owned land to the private sector partners - where Weston Urban will construct San Antonio's first skyscraper since 1989, which Frost Bank will use as its new headquarters. 

The deal still requires approval from the city council at a meeting scheduled for June 2015. Although not yet complete, the deal shows the exciting potential an unsolicited proposal from the private sector can have, not only in redefining a major city's skyline, but also its bottom line.

While such a land-swap deal has yet to materialize in one of Georgia's cities, local governmental entities are considering the P3 structure to deliver key infrastructure. Information about Chatham County's consideration of qualifying bidders for a design/build/finance/maintain (or P3) contract for the Chatham County Courthouse complex is available here.

P3 Residence Halls Throughout the University System of Georgia

In November 2014, the University System of Georgia's Board of Regents and Corvias Campus Living announced they were entering into a public-private partnership to develop, construct, manage and maintain new and existing residence halls with approximately 10,000 student beds on nine of the university system's 30 college campuses for the next 65 years.1 The project will include the construction of buildings for 3,753 new beds and the renovation of buildings with 6,195 beds. This project, where a state university system has entered a P3 for student housing over a portfolio of its campuses, is the first of its kind in the country. The agreement calls for renovations on all existing residence halls to take place within the first year and includes an injection of $6.3 million in upfront funding for these repairs in the initial phase. Additionally, Corvias has already broken ground on new residence halls at six of the campuses to date.

Speaking on the same panel with Sen. Hill at the Georgia Construction Finance Conference referenced above, University System of Georgia Associate Vice Chancellor for Fiscal Affairs Susan Ridley and Corvias Campus Living Vice President for Business Development Geoff Eisenacher expressed excitement for this new partnership, which will allow the university system to add 3,753 new beds without incurring any new debt and also the ability to service $300 million in existing debt. The speakers noted that the university system would retain "campus life" services, while Corvias would maintain the residence halls. The university system also expects, over the life of the partnership, to receive $8 billion via ground rent, contingent rent, retained services and a reinvestment fund. Additionally, according to Ridley and Eisenacher, the university system can expect to receive these residence halls back from Corvias in top-notch condition at the end of the 65-year term. On May 15, 2015, as the parties approached financial close on the P3, StudentHousingBusiness.com reported that Corvias had secured $548.3 million in private financing to fund the initial phase of this P3. Corvias has stated that students in the university system will begin to see improvements in their student housing experience as early as fall 2015.

Conclusion

In the face of some daunting infrastructure needs, entities throughout the State of Georgia continue to show a willingness to explore the P3 model as a potential solution for project delivery, with additional P3 projects in Georgia likely to follow.

If you have any questions about this Alert, please contact Antony L. Sanacory, William W. Fagan III, any of the attorneys in our Construction Group or the attorney in the firm with whom you are regularly in contact.

Footnote

1. Although the university system is expressly authorized to utilize the new legislation (discussed above), this P3 was procured pursuant to the already-existing and broadly enabling procurement statute governing the university system's activities.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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