Exclusive Q&A on Infrastructure with Neal Sklar


Posted: 26th February 2016 11:01

Have there been any recent regulatory changes or interesting developments?

In December 2015 President Barack Obama signed into law the Fixing America's Surface
Transportation (FAST) Act which is a funding and authorization bill to govern United States federal
surface transportation spending. The FAST Act encourages the use of public-private partnerships
(P3s) as the preferred method to execute much needed transportation and infrastructure projects.
Although this is a start, more efforts will be required by Congress to push states and counties in this
direction.
 
As provided by the U.S. Transportation & Infrastructure Committee, the bill reforms and strengthens
transportation programs, refocuses on national priorities, provides long-term certainty and more
flexibility for states and local governments, streamlines project approval processes, and maintains a
strong commitment to safety. This is the first law enacted in over 10 years that provides long-term
funding certainty for surface transportation, where state and local governments can move critical
projects forward, including new highways and transit lines, with the confidence they will have a
federal partner over the long term.
 
Are there any compliance issues or potential pitfalls that firms need to be cautious about?
 
Despite overall cost benefits, the standard P3 procurement process can often be remarkably
expensive and time consuming, such that social infrastructure projects (often much smaller than the
transportation and utility infrastructure projects) are viewed by some as too small to warrant the P3
due diligence and transaction costs. This is largely due to the fact that bidders have no guarantee of
either capturing the project or recovering the bid and preparation costs, which can be substantial.
Moreover, the owner must delay both the design and the commencement of the work until the
conclusion of what can sometimes be a lengthy procurement process.
 
However, a Preliminary Development Agreement (PDA) is a dynamic procurement option that could
help streamline the selection process, minimize cost to both the owner and bidders, and maintain
competition. A PDA is a procurement method in which a competitively-selected bidder takes the
initial risk of developing a project, and, in exchange, receives the first right-of-refusal on a
negotiated basis once the project is deemed feasible. Project teams, both solicited and unsolicited,
propose a true partnership with the owner by determining, on an open-book basis, the cost and
technical features of project delivery for a certain government asset.
 
This arrangement is beneficial during the early stages of a P3 project when the scope and costs have
not been completely defined. Private bidders will often propose an array of innovative development
plans, and the owner, while retaining termination rights, selects the most feasible plan. The private
entity is then reimbursed for its bid and preparation costs.
 
We utilize PDAs to benefit the private sector as an excellent way to introduce an unsolicited
proposal to a government entity without having to incur significant costs. Moreover, PDAs are
looked upon favourably by governmental agencies in that PDAs employ conditions and establish
measures that help incentivize the private sector to develop projects and ensure sufficient
transparency and competition.
 
What markets are currently providing the best opportunities?

Water Infrastructure in the United States is an area poised for tremendous growth. As recently stated by United Water, no commodity is more precious, but the infrastructure to support water delivery and recovery is in serious need of repair - $263 billion according to one EPA estimate. Federal funding can help, but it is not a complete solution. An alliance between the public and private sectors is one of the most efficient and cost-effective options of providing safe water reliably in the face of aging infrastructure, growing demand and the increasing complexity of water management. Nearly 73 million Americans receive water services from a privately owned water utility or a municipal utility operating under a public-private partnership. By some estimates, more than $1 trillion in upgrades are needed to the vast system of mostly underground pipes. In FY 2016, the EPA announced that it was requesting $2.3 billion for the Clean Water and Drinking Water State Revolving Funds, continuing the funding levels provided in FY 2015. The agency’s FY 16 budget includes $50 million in technical assistance, training, and other efforts to help communities and states to plan and finance drinking water and wastewater infrastructure improvements.
 
Which countries are currently ripe for investment?

The Mexican government has increasingly turned to P3s to build infrastructure, but critics have said the country's system operates under a cloak of opacity and is plagued by the discretional use of funds. Mexico has earmarked approximately $300 billion dollars for P3s over the next three years. The Law on P3s, in effect since 2012 and amended in 2014, regulates long-term contractual arrangements by the public sector for the provision of services that use infrastructure partially or totally provided by the private sector. The law requires that the contracts be put out to tender, and gives the state the power to declare the works of public utility and to expropriate land, while setting a minimum timeframe of 40 years for the contracts.

Mexican authorities have reported that:
 
Which projects, already built or in the pipeline, constitute the best examples of completed or pending infrastructure?
 
The state of Florida has become a hot bed for Infrastructure projects. Now that Florida has expanded its P3 legislation to allow local government to use P3s to construct infrastructure projects, numerous projects are being proposed by several county and state agencies using a P3 procurement method in addition to traditional methods.
 
At a recent P3 Institute event, Miami-Dade County Mayor Carlos A. Gimenez issued a memorandum listing 51 projects where there may be a viable interest for private industry to respond to a potential P3 solicitation. Among the projects put forward by county officials as either in the works or potentially well-suited for P3 treatment are a new Royal Caribbean cruise terminal recently granted preliminary approval by the County Commission; expansion plans for Miami International Airport; the Baylink rail connection between downtown Miami and Miami Beach; and new civil and criminal courthouses and jail facilities throughout South Florida.
 
Additionally, the South Florida Water Management District has identified P3 projects as strengthening their efforts to meet the water needs of the environment as well as the state's economy. As part of their strategic plan for 2012-2017, key multi-year projects include bank stabilization along the Hillsboro Canal, maintenance of the East Coast Protective Levee and structure refurbishments throughout the Kissimmee Basin.
 
Miami-Dade Transit is the largest transit agency in Florida and has several transportation projects proposed for entering into P3 agreements including the Beach Corridor Transit Connection project, passenger rail service along State Road 836 and transit-oriented development projects.
 
These are all examples of infrastructure projects taking place in many jurisdictions across the United States
 
Are there any exciting technological developments on the horizon?
 
The transportation construction industry is moving towards cloud collaboration platforms. These platforms connect owners, contractors and their project teams in the construction, infrastructure, and energy sectors, providing project-wide visibility and control between the many different organizations collaborating across their projects.
 
Recently, the Colorado Department of Transportation (CDOT) and the High Performance Transportation Enterprise (HPTE) have agreed to use cloud collaboration platforms to manage information and processes for multiple CDOT highway infrastructure projects, including the US 36 Express Lanes, I-25 North, I-70 East, and C-470. All of these projects fall under the HPTE's mandate to pursue more efficient ways of financing infrastructure projects, such as public-private partnerships (P3), design-build contracting and other methods of alternative delivery. Proponents of this information sharing technology state that large government projects stand to benefit significantly from these platforms in several respects including the ability to streamline processes and procedures through facilitating real time communications among all project participants. Additionally, these systems help organize and maintain accurate project records.
 
Another exciting technological development in infrastructure construction is the use of Cable Propelled Transit (CPT) systems a/k/a Urban Gondolas in the United States. Already in use in many cities around the world, CPT systems are being examined to assist in alleviating congestion domestically. Long considered as a means of transportation to get up and down a mountain at a popular ski resort, Gondolas are now integral parts of public transit systems in major metropolitan areas around the globe including Singapore, La Paz Bolivia, Caracas Venezuela, Rio de Janiero Brazil, Medellin Colombia and several parts of Europe and Asia.
 
The benefits of CPT systems make them attractive for use in American markets. From a financial perspective, CPT systems are a more cost effective option than traditional transit systems with a cost of $12 million per mile as opposed to $100 million per mile when compared to light rail systems. Where real estate is at a premium, CPT systems are quite attractive when considering the need to tear out lanes used by cars and purchasing land by eminent domain which would be needed by light rail systems. Since Urban Gondolas don't stop at train stations, large real estate costs are eliminated. Gondolas run constantly and only slow down to walking speed enough for passengers to get on or off. If you miss one, you just wait 30 seconds to get on the next one. CPT systems are also much easier to design and install with less moving parts dramatically speeding up the design, construction and installation of these transit systems when compared to other transportation systems such as light rail. As a result, we see CPTs/Urban Gondolas as the next big thing in urban transportation in the United States.
 
Neal Sklar's primary area of practice is focused on the representation of general contractors, construction managers and infrastructure contractors in a variety of construction related matters. These matters include providing counsel on state and federal government projects as well as Public Private Partnerships (P3s) involving transportation, commercial, heavy and social infrastructure, energy and multifamily residential projects. Mr. Sklar's services include the preparation and negotiation of construction contracts as well as the negotiation, mediation, arbitration and litigation of construction contract disputes, construction lien claims, construction-defect claims, design-defect claims, bond claims, insurance claims and related matters. 

Neal can be contacted on 305.358.2600 x 5248 or by email at NSklar@pecklaw.com

 

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