Legislation encouraging the use of public-private partnerships (P3s) to address Maryland’s growing infrastructure needs has been passed by the General Assembly and signed into law by Governor O’Malley with bipartisan support. The 2013 P3 law, based on legislation introduced by the O’Malley-Brown administration on January 30, 2013, followed momentum from similar legislation that was nearly enacted last year. The 2013 P3 law takes effect on July 1, 2013.
Efforts to pass P3 legislation in Maryland in 2012 gained national attention as a dialogue about the growing need for more innovative infrastructure financing evolved. Like many states across the country, Maryland has infrastructure needs that exceed the State’s ability to pay for them with traditional resources. The potential to leverage private sector resources and share the risks involved in development has become increasingly attractive. The O’Malley-Brown administration recognizes the potential to attract private sector resources to address infrastructure needs and is leading the State’s efforts to establish an open and competitive process that would encourage P3s.
The P3 law places Maryland among a growing list of states that have recently enacted laws that seek to encourage innovative types of infrastructure financing. While the use of P3s is not a new concept in Maryland, this approach has been limited by the absence of comprehensive legislative and regulatory guidance. The law provides Maryland’s first statewide policy on P3s, formalizes the process for evaluating both solicited and unsolicited proposals, and clarifies the requirements for any P3 agreement. It offers increased transparency, efficiency, and predictability in an effort to attract private investors.
The P3 law promises not only to strengthen Maryland’s infrastructure, but also to create new jobs. The O’Malley-Brown administration estimates that increased use of P3s “could contribute between 6 and 10 percent of Maryland’s $3.1 billion annual capital budget and create up to 4,000 jobs.”
P3 Projects Authorized Extend Beyond Transportation
The law extends statewide guidance on P3s beyond transportation projects for the first time, and offers a mechanism that balances the need to incentivize private sector investment with the need for oversight and transparency.
Maryland’s law affects any sale or lease agreement between the State and a private entity that involves either of the following:
- The private entity assuming control of the operation or maintenance of a State asset
- The private entity constructing, financing, or operating a State asset or facility for the State’s use and collecting fees in connection with the use of the asset
Traditionally, transportation assets have been the focus of P3 discussions, but Maryland’s P3 law includes any capital facility or structure. The law allows P3 projects to be financed with any combination of federal, State, or local funds, loan debt, or other public funding sources, as well as private funding or financing sources.
State Agencies Affected
The 2013 P3 law applies to a number of State entities, including the Department of General Services, the Maryland Department of Transportation, the Maryland Transportation Authority, the University System of Maryland, Morgan State University, St. Mary’s College of Maryland, and the Baltimore City Community College (collectively, the Agencies). Each Agency must adopt regulations and establish processes for the development of P3s. The 2013 P3 law does not apply to local governments.
By January 1 of each year, each Agency is required to submit to the Senate Budget and Taxation Committee, the House Committee on Ways and Means, and the House Appropriations Committee (the Budget Committees):
- A report concerning each P3 project under consideration that has not been reviewed or approved previously by the General Assembly
- A status report concerning each existing P3
The law sets forth a detailed process for the solicitation of P3 projects in Maryland.
- Pre-Solicitation Reports
First, pre-solicitation reports must be submitted by an Agency to the Budget Committees and the Department of Legislative Services for review and comment (non-transportation P3 projects must also be submitted to the State Comptroller and the State Treasurer). The Budget Committees have 45 days to review and comment on the pre-solicitation reports. If the total value of the proposed P3 exceeds $500 million, the Budget Committees may request an additional 15 days to review and comment on the pre-solicitation report.
The pre-solicitation reports are required to include the objectives, anticipated value, and potential risks and benefits of the P3, and to the extent possible, a preliminary analysis on debt affordability, a preliminary summary of the proposed solicitation process, and a statement of intention to use any permitted exemption, each prepared by the Agency in consultation with the DBM. Pre-solicitation reports will be made publicly available and must accompany any request for approval of a public notice of solicitation.
- Official Designation
After the Budget Committees have reviewed the pre-solicitation report, an Agency is then required to seek the official designation of the project as a P3 from the Board of Public Works (the Board) and seek approval of the solicitation method. The Board is comprised of the Governor, the State Comptroller and the State Treasurer.
- Procurement Process
After the Budget Committees have reviewed the pre-solicitation report and the Board has approved the project as a P3, the Agency may issue a public notice of solicitation for the P3 project. A private entity may be qualified as a bidder through a request for qualifications (RFQ). Once a bidder is qualified, an Agency may engage in discussions with such qualified bidders to obtain comments and revise solicitation documents and obtain the best value for the State. The Agency will make a determination regarding capacity, integrity, and reliability for each private entity responding to a public solicitation notice.
Agencies are permitted to consider unsolicited proposals but Agencies must establish a process for determining whether an unsolicited proposal meets the need of the Agency. An Agency may establish an application fee for submitting an unsolicited proposal.
If an Agency determines that the unsolicited proposal meets its needs, it must then conduct a competitive sealed bid or a competitive solicitation process, protect proprietary information included in the unsolicited proposal, and comply with all other requirements under the P3 law, including the solicitation process described above and the requirements for specific provisions in P3 agreements. The private entity that submitted the unsolicited proposal may participate in the competitive process.
The P3 law establishes a number of specific requirements for P3 agreements, including provisions related to the terms of transferring interests in the P3 agreement, the method of establishing rates or fees related to the public asset, the terms of any revenue-sharing agreements, minimum quality standards, operation and maintenance standards, the State’s inspection rights, compensation events for both parties, provisions for oversight, handback requirements, and performance security.
The Board may not approve a P3 agreement for a transportation asset until the proposal is submitted to the Budget Committees and the Department of Legislative Services. The Board may not approve a P3 agreement for a non-transportation asset until the proposal is simultaneously submitted to the State Comptroller, the State Treasurer, the Budget Committees, and the Department of Legislative Services. The State Treasurer will then analyze the project’s impact on the State’s capital debt affordability limits. This review process must not exceed 30 days.
A P3 agreement may also call for providing compensation for competing infrastructure projects that are not in the State’s Capital Improvement Program or Consolidated Transportation Program planning documents that result in a loss in revenue for the private entity. The P3 law specifically prohibits any non-compete clause for P3 projects involving road, highway, and bridge assets, however.
The term of a P3 agreement is limited to 50 years, provided that the Board may extend the term if it determines that the Agency has demonstrated sufficient reason for a longer one.
State Law Requirements
The P3 law contains a number of State laws and regulations that will apply to a P3 project.
- Any P3 agreement must provide that State employees will retain all of the protections in State law, regulations, and policies that are in effect at the time the Board approves such an agreement.
- P3 agreements must contain minority business enterprise participation goals and procedures, which are to be established by an Agency, the Office of the Attorney General, and the Governor’s Office of Minority Affairs.
- P3 projects must comply with the State’s prevailing wage act, anti-collusion laws, living wage laws, environmental laws, and nondiscrimination laws.
The new law serves as one of several examples of P3 laws across the nation that seek to balance growing infrastructure needs and private sector incentives with a solicitation process that provides transparency and oversight. Other states that struggle with tight budgets and growing infrastructure needs might benefit from similar legislation.