The final minutes of the first meeting of a special State House commission to study Public-Private Partnerships (P3s) took the form of public comments from board members and questions and answers between the board members and presenters.
Commission Chair Sean O. Coffey started off by saying Rhode Island has been doing P3s for “the better part of 20 years if not longer, based largely on some very thin legislation with some very creative thinking to fill in some of the details.” Coffey had gathered, from what the speakers had presented so far, that the companies they represent would prefer legislation specific to the creation and protection of P3s. Coffey asked if he was correct in his assessment.
“The short answer,” said John Parkinson, executive director of AIAI (Association for the Improvement of American Infrastructure), “is yes.”
And of course, that’s the point of the commission. It was never about whether or not P3s represent privatization or are a path to privatization or whether privatization was a good idea: It was about establishing a system that will allow P3s to thrive and multiply throughout the state.
Without establishing legislation for P3s, said Parkinson, companies will be less excited about doing business in the state, for fear that existing legislation will not protect them.
“The thinner the legislative authority, the less protection there is. It’s almost a matter of how much of a safety net you want,” said Parkinson with a small smile. Yes, Parkinson just called for something like a social safety net, but for multi-billion dollar corporations instead of for people.
Chris Guthkelch of Skanska, an international company heavily invested in P3s around the world, agreed that establishing legislation was important, but he was also concerned with the kind of policy that will grow out of the legislation. Guthkelch recommended robust “procurement guidelines” that are “fair, transparent, objective and so on.”
Joseph Aiello, director of business development North America at Meridiam, who had previously compared democratic legislative bodies to a disease, chimed in that he wants what looks like a fair and open process because whatever company does business in the state will be here for decades, and they don’t want to appear to have gotten in through an unfair process. (Though of course, this doesn’t seem to slow down real-life companies with bad reputations already at work in Rhode Island, like Invenergy or the noxious Proccacianti Group.)
Coffey said that our present legislative authority concerning P3s rests on a few words, which he summarized as, “We can alternatively procure projects… based on the lowest evaluated bid price which is in the best interest of the procuring authority,” adding, “We’ve stuffed a lot into the term ‘evaluated.’”
Though John Smolen, of the National Council for Public-Private Partnerships (NCPPP), appreciates the legal nimbleness of RI lawyers in crafting bootleg P3s under current law, he is convinced that smart legislation that anticipates the problems corporations might face will embolden companies to invest in the state.
“It’s all about the confidence level,” said Coffey.
As a lawyer at Burns and Levinson, Coffey works on P3s for both the private and public sides of the partnership. In negotiations concerning P3s, Coffey tells the other side, “We need to sit on the same side of the table.”
It seems that establishing P3s does not blur the lines between where governments and corporations begin and end, it obliterates those lines, forming something that’s completely new. Once corporations actually start building a project as a governmental partner, they are for all intents and purposes part of the government. But unlike governments which are answerable, in theory, to the people and to democratic processes, corporations are answerable only to their stockholders, profits and legally contracted obligations.
Those speaking before the panel implied that being a good corporate citizen does not require laws to keep corporate power in check. A project out of touch with the local community does not make “good economic sense,” said Smollen.
“Only a fool would approach a P3 in a new jurisdiction without rounding his or her team out with local contractors and local businesses,” said Paul Pedini, vice president of operations and Boston regional manager at Skanska. “You have to have that local element in the process, both to keep touch with the political forces behind the project, keep touch with marketplaces, ensure labor tranquility – Make sure that your partner contractors get the sense that they are part of the project and not a victim of that.”
One way to ensure local buy-in and local support for a project is to invest government pension funds, such as those for fire and police personnel, into projects, suggested Aiello.
Under a P3 ensuring local hiring will have nothing to do with a law that mandates local hiring. Instead, a proposal will call for evaluative criteria that will rate a project in part on how much local hiring is planned. This allows a factor like local hiring to be weighed against other factors, that the right balance may be struck. Then, the actual local source hiring mandates will be cooked into the contract that forms the P3, and since every P3 is different, projects will vary as to how much local hiring will be done.
Here’s where the speakers were caught trying to mislead the commission. Starting at about 9:10 in the second video below, Parkinson cites a story about the rapid bridge replacement program in Pennsylvania, where, Parkinson maintains, a good local hiring clause made the “razor thin margin” between the winning and losing bids.
Commission member Tim Scanlon, executive director of CIRI (Construction Industries of Rhode Island), called Parkinson on his story. “Doesn’t that follow federal highway regulations?” he asked.
In other words, didn’t the local hiring that Parkinson is referring to in the project he’s citing have to follow federal regulations? If so, the constraints of the project were set by federal law, not by contract and not because evaluative criteria favored hiring locally.
Smolen leaped to Parkinson’s defense, talking over Scanlon’s objection and said that local hiring laws and clauses are “tricky” depending on how you finance a project.
Michael McNally, a board member at Commerce RI, asked if NCPPP or AIAI give public training to help sell the concept of P3s to legislators and stakeholders. Smollen laughed and said yes, they do “intimate boot camps” where “everything I explained in about twenty minutes takes an hour.” There are also four other hours of boot camp that walks people through procurements and negotiations and so forth.
This would be one facet of a “3D training” envisioned by Smolen. Parkinson said that the level of intensity of the messaging is dictated by the audience. As a lobbying group interested in opening the privatization floodgates in Rhode Island, we can expect that to mean strong lobbying of our legislators.
Training can be as simple as this four-minute video from Skanska:
But of course, the video above is an advertisement, and gives no real information, except to explain P3s to the advantage of Skanska.
John Simmons, executive director of the Rhode Island Public Expenditure Council, asked a pragmatic question: Where does the private side of a Public-Private Partnership make its money, and what are the risk factors for the private entity’s profit?
Aiello said that private companies offer innovation, which makes projects cheaper, which wipes out the fiscal advantages of traditional procurement “in a second.”
At this point, I should take a moment to explain ATCs, Alternative Technical Concepts. This process, developed for highways, allows for contractors to “submit innovative, cost-effective solutions that are equal to or better than the State’s design and/or construction criteria.”
ATCs are the cost saving ideas private companies bring to the table. Traditional procurement for, let’s say, a road, would require the Department of Transportation to design the road, then a bidding process to see who can build the road cheapest, then a signed contract to get building started. Under a P3 said the presenters, you would tell companies that you need a road, but would not submit a design, only the criteria the road design must meet. Then companies would deliver designs potentially filled with ATCs, new ways of designing or building the road that will save money.
Gary Ezovski, advisor to The New England Coalition for Affordable Energy and regulations committee chair for the RI Small Business Economic Summit asked about model legislation or hints on what such legislation should look like. He wondered if a small state like Rhode Island has enough potential projects to stoke the interest of P3 investors.
The answer, of course, is that Rhode Island has plenty of infrastructure to offer corporations looking to privatize. Aiello suggested bundling small projects into big ones. One school is not of interest but a bunch of schools, say, a $100 million worth, would be a target. Or perhaps a collection of waste water treatment plants could be bundled into an appropriate project.
When Guthkelch is looking for opportunities, he starts with the “issues or the challenges” that a state faces. We ask, said Guthkelch, “is this going to create an opportunity? Every time I think of risk and the mitigation of risk, I think of the opportunity that gets unlocked.”
In other words, states and municipalities facing crises are places where Skanska may want to find opportunity; that is, underperforming public assets they can pick up and manage at a profit. Skanska and companies like it want to know where Rhode Island is hurting, where we are weak, so it knows where opportunities lie.
Smolen added that many states have P3 guidelines for an “unsolicited proposal process.” How much are you willing to sell your water for? Your public parks? Schools? Prisons? Fire departments?
“Here’s what we think you need,” said Smolen, acting the part of a corporation, “Have you thought about it?”
And of course, the presenters have model legislation ready upon request.
Richard Bernardo, manager of In-House Design at RIDOT, wanted to know how P3s bring more business to Rhode Island. He did not get a very satisfactory answer, other than that better roads may lead to more usage by trucks.
Scanlon asked how companies can plan 25 years into the future for a toll road if they don’t know how the legislature will decide on future toll increases. The answer, of course, is that toll increases are factored in contractually, and the legislature will have no control over toll rates. Smollen all but said that allowing the legislature control over toll rates will ensure that no company would be interested in the project.
Aiello said that the companies managing properties will “continue to innovate over the life-cycle of the property to increase earnings.” That is, they plan to continually look for ways to cut costs within the boundaries of its contract.
You can watch the full video of the question and answer portion of the P3 Commission here:
The second meeting of the P3 Commission took place last week, and I’ll be reporting that out later.
For now, here’s an excellent series on privatization from the site Talking Points Memo:
Absolutely essential reading.