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Public-private partnership (P3) projects present unique challenges in determining which rules and regulations apply. A 2016 court case provided some guidance to determining the underlying nature of the project and the applicability of certain rules.

What Is a P3 Project?

While the term “P3 project” is used regularly, there is still some confusion as to what exactly constitutes a P3 project and how it is actually classified. P3s are rapidly increasing in popularity, and continue to take over a larger piece of the construction project landscape. In short, a P3 project is one in which public and private entities invest together and both may have some "property rights" or ownership. In this project type, a public entity strikes an agreement with a private entity for some combination of funding, construction, operation or maintenance on a project.

P3 projects are popular for numerous reasons, one of which is the ability for a public body to alleviate public cost (and associated taxpayer burden) by allocating some of the financial risk and subsequent reward to private companies. This structure not only allows the public entity to incur reduced costs, but also bring in greater expertise in overseeing the project itself.

However, there is no structure for P3s that is routinely used, and the nature of the individual project is defined by a specific agreement and contract between the parties. Indeed, in some situations there may be no public involvement at all other than the fact that the project is located on public property (that the public body leased to the applicable private developer/operator). Because of this, the underlying structure of the contract can have a significant impact on the nature of the project and the applicable rules, regulations and remedies.

Is a P3 Project Public, Private Or Both?

This question is the most important and most outwardly ambiguous. Because the underlying project type defines the applicable rules, and potential remedies for non-payment, it is extremely important to be able to determine the “actual” project type. While there can be numerous factors in determining what kind of project a P3 project actually is, and what the relationship between the contracting parties means for the requirements that control the project, the U.S. Court of Appeals for the District of Columbia circuit recently provided some helpful insight.

Project Type, Prevailing Wage and Things to Look For

In a relatively recent case, the court was examining the question of whether the Davis-Bacon Act, which requires that contractors and subcontractors working on federal and D.C. projects of more than $2,000 pay their laborers at least the local prevailing wage, applied to the CityCenterDC project. In doing so, the court had to determine whether the project, which was nominally a P3 project, was a public project or a private project underneath, because the Davis-Bacon Act doesn’t apply to private projects.

In the project at issue, all construction contracts and agreements appeared to be private (entered into by the developer); however, the one wrench was that the project was located on public land, which the District of Columbia leased to the developer for 99 years. So, the underlying ownership of the land itself was public, while the development, construction and subsequent management of the project was private. In this case, the court determined that the mere lease of the underlying property did not make D.C. a party to the work and that the project was a private project for the purposes of the Davis-Bacon Act applicability.

An interesting and potentially helpful test for parties trying to determine the underlying nature of a P3 project was set forth by the court. In the test, the court determined that in order for a project to be considered a public work (at least for these purposes):

  • a project must involve public funds; or
  • the project must be subject to government ownership or operation of the completed facility.
Here neither prong of the test was met.

Although helpful to some extent, it seems that this test provides a relatively low bar to a project being classified as “public.” While the project in this case didn’t meet the requirements, as the sole connection was a lease and there was no involvement on the project at all by the public entity, it appears from this case that any minimal involvement of the public entity in terms of construction funds would be enough. This is an interesting result for parties attempting to determine the security rights applicable to the project, and for general contractors working on such projects. If the addition of any amount of public funds means that the rules related to public projects apply, that means any such project would necessarily incur the mandated bonding requirements of the Miller Act or the various states’ Little Miller Acts.

The decision provides guidance for P3 projects in D.C., but raises other interesting and potentially valuable questions. As always, the takeaway is that parties working on P3 projects must be diligent in examining what rules apply and what any potential remedy might be.

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