Transit Public-Private Partnerships: Legal Issues (2014) / Chapter Skim
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13 nue risk and reward during the operating and maintenance phase of the project."127 5. Build-Transfer-Operate With a build-transfer-operate (BTO)
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14 Although SEPTA considers its return on investment, its "upfront cost outlay" is the primary factor.143 However, SEPTA stated that it has not undertaken many PPPs.144 Transit agencies may use a Value for Money (VfM) approach to assess whether a PPP offers greater value than a design-bid-build procurement.
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15 agencies did not respond specifically to the question.
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16 standards; performance guarantees; incentive payments; liquidated damages; performance and payment bonds; the effect of changed conditions or uncontrollable circumstances on the contract; revenue sharing, if any; identification and transfer of risks to be assumed by the private partner; acquisition of land by purchase or condemnation, if applicable; restrictions on the use of land that is to be acquired or that is otherwise subject to the agreement; the ability to dispose of land and other property; accounting requirements and procedures; responsibility of the private partner for certain taxes and related issues; the handling of intellectual property, including the use of proprietary technology or the transfer of know-how; and the consequences when performance standards or other contractual obligations are not met.167 As with any contract, the parties' agreement should address default, termination, liability, and the method of dispute resolution.168 It is suggested that an agreement should state whether a transit agency's approval is required of a capital improvement that is needed for the project to permit compliance with contractual obligations or with applicable law.169 A transit agency may want to provide that, with respect to any loan for a project, the agency will share in any savings resulting from a refinancing.170 One authority suggests that a PPP contract should state that the requirements of public law (e.g., accountability, transparency) apply to the agreement both required contractually to compensate the private partner (e.g., a concessionaire)
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17 transparency in environmental planning and mitigation.179 SARTA, SEPTA, and TriMet emphasized the importance of liability insurance and the inclusion of appropriate remedies and penalties if a project is not completed on time.
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18 vices for a development agreement.197 The Connecticut DOT stated that it has used outside specialists, whereas New Jersey Transit stated that it manages its own PPP projects with the objective of providing good customer service with "less reliance on the taxpayer." TriMet stated that it relied on its own staff for engineering and legal support.
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19 E Taxation 1.
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20 erated schedule" and to take advantage of the tax code's 15-year cost recovery.223 Because of the extended duration of such a lease, the IRS may consider the private lessee to be the constructive or de facto owner of the leased property. For example, because the service life of highways and streets is estimated to be 45 years, a private partner in a PPP project for a toll road would be regarded as the constructive owner if a lease exceeded 45 years.224 As for a transit facility, the service life probably is "equated" with the service lives of railroad equipment, replacement track, and structures, which are, respectively, 28 years, 38 years, and 54 years.225 When a private-entity lessee is deemed to be the constructive owner, it is subject to different treatment under the Internal Revenue Code.
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21 term of a lease of transit property.232 Whether a private party wants to be treated as the constructive owner rather than as a lessee may depend on the percentage of the asset that is depreciable and on the depreciation schedule that applies to the asset, as well as on the entity's other tax circumstances. It may be noted that no agency responding to the survey reported being aware of any federal or other tax issues affecting a private partner's participation in a PPP.
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22 quired by private investors) and disregard the availability of other forms of security."240 Flexibility may permit a private partner to furnish an alternative form of security such as a financial guarantee by a private patner's parent company.241 Because the requirements for performance bonds increase costs, a "public partner should assess this issue on a cost-benefit basis."242 Although FTA requires performance bonds for 100 percent of the contract price,243 there is a sliding scale for payment bonds based on the size of the contract, with payment bonds in the amount of $2.5 million required for all contracts of $5 million or more,244 requirements that have been waived for "larger design-build and DBOM projects."245 FTA Circular C 4220.1F on Third Party Contracting Requirements permits a grantee to seek FTA's approval of a grantee's bonding policy.246 Most states have "Little Miller Acts," similar to the Federal Miller Act, that require performance and payment bonds be obtained for the total amount of the contract.247 State statutes offer little or no flexibility based on the scale of a PPP project or "structural differences" that exist between PPPs and traditional public procurement.248 Small and mid-size construction companies have difficulty obtaining bonds needed to compete with large firms on DB projects or to back warranties 240 H.R.
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