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Earl Adams: P-3 passed — now what?

The General Assembly took a big step toward solving the state’s infrastructure needs when it passed the governor’s Public Private Partnership bill during the 2013 session. As with all significant pieces of legislation, the hard part is now in implementing it, which includes the drafting of detailed regulations. With the estimated revenue the governor’s transportation package is expected to raise — roughly $3 billion over five years — it is imperative that state agencies embrace the full potential of P-3 projects and work quickly to get projects moving and shovels in the ground whether initiated by the state or otherwise.

Earl Adams

Earl Adams (Photo provided)

Though the original bill filed in 2012 failed because of several controversies — from State Center to prevailing wage and even levels of MBE requirements — the administration, General Assembly and advocates did an excellent job at introducing a consensus bill during the last session. The final product established a framework of notices and approvals, whereby specific state agencies, including the University System of Maryland and the Department of Transportation, can enter into what the legislation refers to as “long-term, performance-based agreements” with private entities, otherwise known as P-3 agreements. Said differently, the law allows certain state agencies to pass upfront capital costs onto private operators in exchange for giving the operator a dedicated revenue stream.

The state has completed a couple of P-3 projects in the past, including the Port of Baltimore and the I-95 travel plazas, and recently MDOT issued a request for information on two potential light rail P-3 projects, the Red and Purple lines. The hope is that the new law will be a signal to the market that Maryland is serious about investing in many more such projects.

Based on the participation at MDOT’s Red/Purple Line informational sessions, the new law has achieved that goal, namely by creating certainty in the process, (e.g., setting fixed review timelines by legislative and executive branch committees) and promoting transparency in the internal decision making process (e.g., requiring that pre-request for proposals reports be published in the Maryland Register). It also differentiates between solicited and unsolicited P-3 projects and creates a more direct process for evaluating the benefits of unsolicited proposals. It is in the area of unsolicited proposals that the state could truly take its P-3 goals to another level.

The reality is that the best ideas may not always come from within government. The private sector is often able to leverage new and innovative approaches to solving problems more rapidly than the public sector, and a developer’s organic interest in a particular project is often a great indicator of its future success. The question is whether agencies like MDOT, which have tremendous obligations to execute the administration’s priorities, will be willing to green-light unsolicited proposals and more importantly dedicate resources to bringing worthwhile projects to fruition. Even though there is the risk of developers “cherry picking” the most profitable opportunities at the expense of other priorities, MDOT and other agencies should still give unsolicited proposals fair consideration.

To facilitate the process, MDOT should avoid drafting regulations that create disincentives for unsolicited proposals. For example, the legislation allows MDOT to charge a fee for unsolicited proposals for projects not in Maryland’s Consolidated Transportation Plan. Although it is reasonable to pass along the cost of reviewing the proposals to the private operator, an exorbitant, arbitrary fee will discourage developers from submitting any proposals. At the same time, MDOT should consider the “carrot approach” and for successful unsolicited proposals consider reimbursing the fee. In the end, MDOT will determine whether Maryland benefits from private sector innovation as other states have done.

A well-documented example of how unsolicited proposals can be beneficial is the Virginia Capital Beltway “Hot Lane” project. There, the state did an initial analysis using its own resources only to conclude that the project would be cost prohibitive. Enter a private operator, whose unsolicited proposal not only lowered the cost of the project, but also reduced residential displacements and the impact on the environment. The Virginia Department of Transportation could not match the private operator’s innovative approach in designing the project, and, thankfully, decision makers in Richmond were willing to see its potential.

In the same way, Maryland should consider the private sector its ally as it enters this new arena, and take its cue from other states, like Virginia, Pennsylvania and Florida, that actively encourage private operators to submit unsolicited proposals.

Earl Adams Jr., is of counsel in the Baltimore office of DLA Piper and was formerly the chief of staff to Lt. Governor Anthony G. Brown. He can be reached at earl.adams@dlapiper.com.