Public-Private Partnerships Come to North Carolina

“The health of a democratic society may be measured by the quality of functions performed by private citizens” – Alexis de Tocqueville, Democracy in America, 1835.

In August of 2013, Governor McCrory signed into law House Bill 857 (codified as G.S. 143-128.1C) which authorized governmental agencies to utilize Public-Private Partnerships (often referred to as “P3s”) as a delivery method for construction projects.  Generally speaking, P3s are contractual relationships between a governmental agency and a private sector business, in which the private sector business becomes heavily involved in the financing and delivery of a public construction project (such as a school, public building or public roadway).  Occasionally, the private sector’s involvement can even extend beyond delivery of the construction project and into the operations and maintenance of the public facility.  Benefits of the P3 delivery system are thought to include: accelerated project delivery, increased return-on-investment for the governmental agency, reduction in cost to the governmental agency, and the transfer and reallocation of risk to the private sector business in exchange for revenue generated from the public project.

Prior to House Bill 857 becoming North Carolina law, North Carolina had required that non-traditional delivery methods, such as a P3, be approved by the State Building Commission.  However, with the passage of House Bill 857, local governments and state agencies are now at liberty to utilize the P3 delivery system if it is determined that there is “a critical need for a capital improvement project”.  The administration of P3s are now monitored by the Secretary of Administration, to whom the governmental or state agencies are required to report and justify the preference of the P3 system, over a more traditional procurement/delivery process.

Once the state or governmental agency establishes their need for a P3, the public unit must publish to interested private developers, via “a newspaper having general circulation”, the contract terms and request that interested private businesses submit their qualifications (which include considerations such as financial stability, experience, projected project timeline, etc.).  Following 30 days’ publication of the contract terms, the governmental agency must then award the contract at an open meeting.  Upon award of the P3, the private contractor must undertake a good faith effort to include HUBs (historically underutilized businesses) on the project.

Although the broad application of P3s are in their infancy in North Carolina, there are instances where P3s have been previously utilized in North Carolina, and beyond.  North Carolina witnessed North Carolina State University’s Centennial Campus and the University of North Carolina at Chapel Hill’s Horace Williams Campus succeed as a result of P3s.  Beyond North Carolina, large scale P3 projects such as the $2.2 billion Hudson-Bergen light rail project in New Jersey and the $1.9 billon JFK Air Train rail system in New York City have thrived, in part, as a result of successful partnerships between private industry and governmental agencies.

Public construction, and its interplay with the private sector, continues to be an ever-evolving landscape in North Carolina.  If you have additional questions regarding public construction or public-private partnerships, please contact our office.

– Cody R. Loughridge