United States: Navigating Public–Private Partnerships Around Connected Technology

Last Updated: March 29 2019
Article by Emily J. Tait, Aaron D Charfoos, Chase D. Kaniecki and Jenny A. Whalen
Most Read Contributor in United States, September 2019

In Short

The Situation: With aging infrastructure threatening to slow implementation of automated vehicles ("AVs") and other connected technologies, the public–private partnership (variously referred to as "PPP," "P3," or "3P") is gaining traction as a model for next generation infrastructure improvements.

The Result: Increased collaboration among public and private entities to promote emerging technologies is resulting in the implementation of vehicle-to-everything ("V2X") technology and other intelligent systems in cities across the country.

Looking Ahead: Public–private partnerships generally create complex relationships that require careful navigation, particularly in the technology sector. Public and private partners should carefully evaluate prospective partnerships and related agreements to ensure that legal issues are appropriately addressed and analyze any national security concerns prompted by foreign investment and cross-border projects.

As AVs increasingly occupy space on roads across the United States, public and private actors are considering infrastructure demands underlying wide-scale deployment of AVs and other connected technologies. Public–private partnerships are one of the proposed solutions that have emerged to meet this demand. However, there is no perfect solution; while P3s offer a host of potential benefits, they also present their own challenges in implementation and risks that should be considered by parties before entering into them.

Public–private partnerships have been deployed in other countries, such as Canada, Australia, China, and Germany, but as a general matter, their use in the United States has been limited due to historic reliance on municipal bonds for infrastructure financing and conflicting political views on privatization. However, the appetite for such models appears to be growing, particularly among technology providers who are increasingly partnering with cities across the United States to implement cellular and broadband technology for various purposes.

For example, earlier this year, the City of Las Vegas and the Regional Transportation Commission of Southern Nevada announced a partnership with a multinational telecom to implement cellular V2X ("C-V2X") technology along select roadways in Las Vegas. In another example, the City of Los Angeles has engaged in partnership talks with a telecommunications provider for the creation of a "smart city." Meanwhile, according to one provider of intelligent transportation infrastructure, more than 500 cities, counties, school districts, and states across the United States have deployed its LTE C-V2X technology to date.

Notwithstanding these developments, the United States faces distinct challenges. The World Economic Forum currently ranks U.S. infrastructure behind that of most other comparable advanced nations, while the American Society of Civil Engineers estimates that it will cost $3.6 trillion to bring it up to date by 2020.

The appeal of P3s is largely economic, but there is also critical interest in the societal benefits associated with infrastructure improvements, such as improved road safety with AVs and faster communication through 5G. However, when the performance of connected technology relies on infrastructure (e.g., 5G networks to facilitate the real-time communication of AVs employing V2X technology), the adoption of that technology is limited by flaws in the infrastructure, such as aging transportation and communication networks.

But the infrastructure often cannot be readily fixed: overhauling networks to support connected technology is often cost-prohibitive for municipalities owning the underlying infrastructure. Public–private partnerships have the potential to resolve this dilemma, but they also create complex relationships that require navigation of issues such as data privacy, intellectual property rights, tort liability, and compliance with state and federal law, in addition to analysis of any national security concerns prompted by foreign investment and cross-border projects.

Data Privacy and Cybersecurity

AVs and other connected technologies utilize data collection and processing to fuel decision-making processes. Informed by an array of data-collecting sensors, vehicles automatically brake to avoid collisions, and office buildings regulate air conditioning based on occupancy. In a P3 arrangement involving connected technology, a private actor not only needs to address the privacy and cybersecurity concerns of holding the data itself, but needs to consider what obligations it has if it shares the data with others. This is particularly true as states rush to enact new laws that protect far more information than even before, such as protecting names and email address—all of which might be necessary for the proper functioning of the network. Any collection or disclosure of data between public and private partners should be carefully assessed for compliance with local, state, and federal privacy and cybersecurity laws, with appropriate policies or indemnification provisions drafted to protect partners in the event of an incident.

Ownership of Intellectual Property

Each partner to a P3 arrangement may have intellectual property that it owns, licenses, and/or upon which it hopes to improve or build. Determining and appropriately addressing intellectual property ownership and use in the parties' agreement may deter subsequent disputes. Whether and to what extent a particular entity owns intellectual property, including proprietary data, can be a complex inquiry and is one that is best handled by counsel familiar with the relevant governing law. Thinking about this early—and particularly before entering into the P3—is critical to avoiding, or at least minimizing, future problems.

Tort Liability

P3 arrangements introduce complex questions of tort liability. For example, when a smart traffic light malfunctions or traffic control system using artificial intelligence fails, who is liable for a resulting accident? While the artificial intelligence fueling the traffic light or intelligent transportation system may be the technology of a private partner, it was installed with the public partner's permission and, presumably, oversight. Drafting sufficient liability protections and considering the implications of a public partner's possible immunity is essential to understanding the potential tort exposure faced by a party to a P3 arrangement.

State and Federal Law

More than 30 states have enabled transportation-related P3 projects through specific authorizing legislation, according to the Federal Highway Administration. States like Colorado and Florida have passed numerous P3-enabling statutes authorizing state agencies and other participants to pursue a range of projects with private entities. Other states, like North Carolina and Texas, have taken a more limited approach, passing P3-enabling statutes written for specific projects or available to only select agencies. At the federal level, it is important to consider that separate statutes and regulations apply to federal entities. In addition, a public partner may also be restricted by its own authorizing legislation in the actions it can take in furtherance of a P3. Before entering into a P3 relationship, a party will need to take steps to ensure compliance with applicable laws.

National Security

The Committee on Foreign Investment in the United States ("CFIUS") has the authority to review transactions in which a foreign person will acquire control of a U.S. business. As a practical matter, CFIUS is interested only in transactions within its jurisdiction that raise national security concerns. Foreign investments in private U.S. companies that have partnered with and receive funding from the U.S. government often can be of interest to CFIUS, particularly where the companies are developing technology employed in U.S. critical infrastructure.

In addition, in late 2018, CFIUS established a program pursuant to which controlling and certain non-controlling foreign investments in U.S. critical technology companies trigger a mandatory CFIUS notification. Although the definition of what constitutes a "critical technology" is fairly well defined and includes companies that develop technologies subject to stringent export controls, there is one portion of the definition that is not yet defined. Specifically, the U.S. Department of Commerce is working on lists of emerging and foundational technologies. Companies that develop those technologies will be considered critical technology companies under the program. Certain technologies underlying AVs and other connected technologies, such as artificial intelligence, likely will be covered by those lists.

Accordingly, private companies that participate in public–private partnerships should consider CFIUS issues if they intend to raise capital from outside the United States. In addition, such technologies will become subject to export controls. This could impact the ability of companies to license those technologies outside the United States.

Three Key Takeaways
  1. Connected technology in autonomous vehicles, smart cities, and nearly every other sector is constantly evolving, yet it often relies on aging infrastructure. P3 arrangements have emerged to address this reality, but they create complex relationships between public and private partners that require careful navigation before and after an agreement has been reached.
  2. P3 arrangements can provide the necessary financing and speed to make improvements that would be cost-prohibitive and time-consuming for a public entity acting alone. Municipalities are constrained by tax revenues and variable federal funding and often must rely on traditional procurement to finance and schedule improvements. P3s are not so constrained and can potentially mitigate cost overruns and schedule delays.
  3. As P3 arrangements are increasingly utilized in the United States, partners should implement appropriate safeguards to ensure compliance with state and federal law and protection of their interests in any resulting contract(s) and consider how other legal concerns, such as CFIUS and export controls, can impact them in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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