By: Patrick F. Estill
Last year the Kentucky General Assembly passed a law officially paving the way for public-private partnerships (or P3s) in the Commonwealth. The new law puts a legal framework in place for private contractors to enter into contractual agreements with public agencies for financing or construction of capital projects or delivering services. The law applies to any projects for which the procurement process began after it became effective on April 8, 2016. The following are some updates on P3 issues in Kentucky since then.
The Statute’s Implementing Regulations Take Effect
The new P3 law made the Finance and Administrative Cabinet responsible for establishing criteria for public agencies to consider before beginning a P3 project. After a notice and comment period last fall, the final version of the Cabinet’s regulations became effective on January 6, 2017. They are codified at 200 KAR 5:355.
Some worried that new regulations on the books would only stifle P3s in Kentucky. However, the law specifically instructed the Cabinet to draft the regulations with an aim of promoting and encouraging P3s. True to this directive, the final version was only seven pages, clarifying the statutes rather than adding any new hoops to jump through.
The regulations clarify that a public agency or local government considering a P3 must make a “written determination” that this is the most advantageous way of awarding the contract. Certain “qualitative” and “quantitative” factors must be considered in this determination. The qualitative considerations concern the overall benefits of the project and the balancing of public and private responsibilities; the quantitative ones concern financial risk and cost.
The regulations also clarify that unsolicited proposals from the private sector must be independently developed, without government involvement. This is true whether the proposal is submitted to a state agency under KRS 45A.077 or a local government under KRS 65.028. Another point to consider is that performance and payment bonding requirements under statute or local ordinance remain in effect for P3 projects.
New Cleanup Legislation is Signed into Law on March 27, 2017
Legislation was recently introduced to make some changes to the P3 law passed last year. The cleanup legislation, HB 390, was by no means an overhaul of the existing framework. Rather, it cleans up a few parts of the existing P3 law. Governor Bevin signed the cleanup legislation into law on March 27, 2017.
One change in the P3 law concerns unsolicited proposals. As many know, the law allows private businesses to identify a potential public project and submit an “unsolicited proposal” for delivering that project as a P3. If the public agency decides to act on the unsolicited proposal, then there is a public posting period so that others can submit competing proposals.
Under HB 390, the public agency now has 90 (instead of 30) days to consider an unsolicited proposal before taking action on it. If the agency takes action and considers the proposal, the public posting period is now tied to the value of the proposal. It is now 30 days for proposals valuing below $5 million, 60 days for those from $5 to $25 million, and 90 days for those over $25 million (under the old law it was 90 days, regardless of value).
Note on Protection of Trade Secrets and Confidential Information
One of the biggest concerns among the industry has been the protection of intellectual property in submitting unsolicited proposals. Under the implementing regulations, unsolicited proposals eventually become available for public inspection. Many in the private sector have, understandably, expressed concern about sharing valuable trade secrets or ideas that could be posted for the public to see.
The P3 law meets this concern by protecting such information. Public agencies receiving an unsolicited proposal must refrain from posting the trade secrets, financial information, and other records of the business submitting the proposal (unless agreed otherwise). But, as the regulations make clear, those in the private sector must take certain steps to ensure that their information is properly identified and protected. Unsolicited proposals should be submitted in sealed envelopes. If a proposal contains trade secrets, financial records, or other information that would be exempt from public disclosure such as proprietary information (assistance of counsel may be required to determine what is exempt and what is not), the business should include a cover letter notifying the public agency of this fact. Then, all parts of the proposal that contain exempt information should be marked “confidential” or “proprietary.” Finally, a second public copy of the proposal should be submitted with all confidential or proprietary information redacted.
Another concern has been that submitting an unsolicited proposal might give away a business’s ideas for implementing a new project. However, from the few proposals the state has determined to take to the notice stage for further consideration, it appears that this risk is slight. Thus far, public notices have described the proposals only in the most general terms. One was described as a proposal for the “assumption and management of the golf facilities” at a state park’s golf course—requesting competing proposals for “a long term contract to successfully operate and maintain the existing golfing enterprise with remuneration to [the Department of Parks].” Another noticed proposal for a catering partnership at the Kentucky Horse Park was just as generic: “for the management of food, beverage and catering operations for the Kentucky Horse Park.”
Protection of intellectual property and business ideas is always a concern in the private sector. But as long as businesses stay informed and take the appropriate steps to protect their information, it appears that the P3 law will strike an acceptable balance between promoting competition and protecting those who take advantage of the unsolicited proposal process.