By Cassidy Rosenthal and Charlotte Turner McCoy
With passage of House Bill 309, Kentucky has joined the majority of states with public-private partnership (commonly referred to as “P3”) legislation. The legislation opens the door to public improvement projects in Kentucky at a time when funding for state and local projects has dwindled.
While P3 projects may traditionally have been thought of as being limited to large transportation and infrastructure projects, Kentucky’s legislation is much broader, with no particular limits on the type of project or service and allowing the use of P3 at the local community level. Accordingly, industries, such as the healthcare business community, where historically such legislation did not have much applicability to them, may now find new opportunities.
P3 Defined
P3 is a contractual agreement between a public owner (the state, a city or a county) and a private sector entity in which the private entity assumes financial, technical, and/or operational risk for the project. P3s allow public and private entities to share their resources and expertise in delivering a service or facility to the public. P3s provide state and local governmental entities alternative ways to finance needed projects when funding might otherwise not be available, allowing them to partner and share revenue with private entities.
Under Kentucky’s P3 legislation, state and local governmental entities may solicit proposals from the private sector for specific projects using traditional Requests for Proposals and bidding procedures. Additionally, the P3 legislation allows private entities to submit unsolicited project proposals. Also, combined local governments are permitted to jointly contract with private entities for projects that may benefit several cities or counties.
Examples of P3
Examples of successful P3 projects in other states include state park improvement and operation, schools, water and wastewater projects, highway rest areas and transportation infrastructure. The University of Kentucky is currently replacing all of its outdated student dormitories in phases using a public private partnership with a private entity.
Kentucky’s newly enacted legislation contains state oversight for state and local P3 projects.
State Projects
- The Secretary of the Finance Cabinet must promulgate regulations to detail the P3 process.
- Copies of Requests for Proposals must be submitted to the Legislative Research Commission’s Capital Projects and Bond Oversight Committee.
- State P3 projects over $25,000,000 must be authorized by the Legislature.
- The P3 contract must be submitted for review to the Legislative Research Commission’s Government Contract Review Committee.
Local Projects
- The Secretary of the Finance Cabinet must promulgate regulations for the local governments P3 process.
- A new board (the Kentucky Local Government Private Public Partnership Board) is created within the Finance Cabinet. Any local P3 for more than 30 percent of a local government’s general fund shall be evaluated and approved by the Board.
Kentucky’s Secretary of the Finance Cabinet must promulgate regulations for state and local P3 projects by December 31, 2016, and is directed by the legislation to consult with design-builders, construction managers, contractors, design professionals including engineers and architects, and other appropriate professionals in its development of the regulations.
Benefits of P3
Once finished, these regulations will provide more detail regarding requirements and oversight for these type of projects. The public will have an opportunity to comment on proposed regulations prior to their adoption and implementation.
P3 offers new opportunities to invest in Kentucky infrastructures, capital projects, and services. It offers opportunities for private enterprise to propose creative solutions to public problems and the flexibility for public entities to incorporate new and innovative ideas from the private sector.
The potential applicability of P3 is not limited to large capital and infrastructure projects and may be leveraged for smaller projects and for the delivery of services. This legislation gives Kentucky a tool that the majority of states have successfully employed.
-Cassidy Rosenthal and Charlotte Turner McCoy are members of Stites & Harbison in Lexington, Kentucky.
