This article is part three of a series of three articles by the author regarding public-private partnerships.
In the United States, public contracts are generally subject to the competitive bidding process as a matter of public policy. This is considered the best way to serve the public interest, if for no other reason than to save the taxpayer money by securing construction services at the lowest possible cost. With the growth of P3s, however, local governments are more likely to apply alternative approaches for procurement, which in turn face criticism, and challenges in court.
In American Recycling Company, for example, the county procurement code allowed for an exception to the standard competitive bidding process, such that at the county’s discretion, a contract could be entered into by a competitive proposal method.[1] In the proposal method, the contract would be awarded to the offeror whose proposal was most advantageous to the county, and not necessarily the one who presented the lowest bid price.[2] The developer in American Recycling submitted a proposal to the county for a design-build-operate project, was awarded the position of lowest proposal, but then was not awarded the contract. The developer sued the county for breach of contract and on due process claims, challenging the county’s discretionary procurement method. The court upheld the method, and stated that no contract existed where, as in this case, the code specifically distinguished between an award of a bid and award of a contract; "by accepting the bid, the . . . county, as a matter of law, is not accepting the bidder’s offer."[3]
One of the criticisms of procurement methods that differ from the competitive bidding process, such as competitive proposals or single-source procurement[4] that are frequently used in P3 arrangements, is that they give too much discretion to the government entity.[5] Where price is not a controlling factor, there is concern that the government is less accountable for its decisions, more open to favoritism or corruption in the award of "discretionary" contracts.[6] The benefit of such alternative procurement methods, however, is that they permit the execution of a single contract for multiple phases of the design-build process, rather than requiring a series of competitively bid contracts, thus shortening the procurement process.[7] Additionally, design and construction can proceed concurrently, which shortens project duration.[8] And importantly, discretionary contract awards allow the government to consider other factors than price, such as the experience and expertise of the various design-build team members and how they relate to each other, all of which is crucial in putting together a productive and efficient design-build team, and one that will best serve the needs of the public.
Conclusion
With many states experiencing infrastructure deficits, P3s are one tool governments may use to create public infrastructure projects. They are attractive in that they allow for streamlining of the procurement process by bringing together all facets of a project into one team; they shift construction and financial risks to the private sector, while allowing the public to maintain control of the project; and, in some cases, they may be structured to avoid the liabilities that could arise from purely public works. Criticisms of P3s include that they may allow public entities to avoid regulations specifically imposed on public works as a matter of public policy, such as prevailing wage laws; and that discretionary or single-procurement contract awards may leave government bodies open to corruption and favoritism, leading to increased costs to the taxpayer. These arguments appear to be based on policy or politics, rather than legal defects. It appears that the trend toward more P3 projects nationwide continues. More than half the states now have P3-enabling legislation, and P3s are being considered as the structure for a greater variety of infrastructure projects.[9]
To read Part I of this series please click here. To read Part II of this series please click here.
Authored By:
Edward B. Lozowicki
(415) 774-3273
ELozowicki@sheppardmullin.com
Edward B. Lozowicki is a partner in the Business Trials Practice Group in Sheppard Mullin’s San Francisco office. He has over 35 years’ experience in construction law and litigation, renewable energy cases, and complex commercial litigation, on diverse public and private projects.
[1] American Recycling Co. v. County of Manatee, 963 F. Supp. 1572 (M.D. Fla. 1997).
[2] Id. at 1574.
[3] Id. at 1582.
[4] See, e.g., Sloan v. Greenville County, 590 S.E.2d 338, 343 (S.C. Ct. App. 2003).
[5] Id. at 344 ("Critics espouse that design-build vests too much discretion with the governing body regarding when and to whom public contracts are awarded.").
[6] Id.
[7] Id. at 343.
[8] Id.
[9] Deloitte at 7.