p3

Leading the way in P3: DMR Positions Itself as Leader in Advocacy

Leading the way in P3: DMR Positions Itself as Leader in Advocacy 1275 925 DMR Architects

Legislation enacted in early 2019 revived the P3 (public-private partnership) conversation in New Jersey, with DMR, a longtime supporter of the model, leading the way through a variety of advocacy efforts, including published media, conference involvement, and webinars.

The P3 business model allows for public projects to be undertaken via a design-build-finance-operate-maintain methodology, rather than the traditional design-bid-build approach. Dating back as far as 2009, DMR encouraged the use of the P3 model, at the time through the Local Redevelopment and Housing Law. With the design-build construction approach a significant aspect of the model, and with a uniquely qualified staff of professionals with municipal government, real estate development, land use law, planning and financial budgeting and analysis experience, DMR is ideally qualified to help lead the way in P3 advocacy.

“As supporters of the model for more than 10 years, we are excited to finally have an enthusiastic audience to share our knowledge with,” Lloyd A. Rosenberg, AIA, President & CEO, said. “P3 legislation has been on our radar for years and we are excited to finally see its impact.”

A roundup of advocacy efforts includes:

  • A professional development seminar,  “Options for Capital Projects: P3, Redevelopment, LPCL,” at the Rutgers University Public Purchasing Educational Online Forum (April 2021)

 

 

  • A professional development seminar at the New Jersey League of Municipalities Annual Conference, “P3 and Municipal Projects, Perfect Together?” (November 2019).

 

 

 

  • A byline by Charles H. Sarlo, Esq., “Municipalities and P3,” published in New Jersey Municipalities. (March 2019)

 

  • A forecast from Lloyd A. Rosenberg, AIA in the ROI-NJ 2019 Real Estate Predictions that “Public-private partnerships and design-build programs will become more prevalent…and establish themselves as common, rather than exceptions, in the development realm, especially when it comes to public buildings.” (January 2019)

 

 

This post was originally published in March 2019 and will be periodically updated. 

New state law for public-private projects is an opportunity for design, construction firms

New state law for public-private projects is an opportunity for design, construction firms 960 540 DMR Architects

By Joshua Burd

A new state law could be a game-changer for municipalities, school districts and other government entities, allowing them to tap into private capital for new facilities or infrastructure.

It could also be transformative for New Jersey’s design and construction industry.

The law, which took effect in mid-February, expands the use of so-called public-private partnerships in the Garden State, allowing public entities and agencies to enter agreements with the private sector for building or infrastructure projects within their jurisdiction. As part of the arrangement, the private entity assumes the financial and administrative responsibility for the development, construction and other improvements tied to the project, while the public agency makes regular payments during the length of the agreement.

The agency or entity then assumes ownership at the end of the agreement period.

“This is the future,” said Lloyd Rosenberg, CEO and president of DMR Architects in Hasbrouck Heights. “This is a very important thing for our firm to embrace and to develop, so we’re putting all of that together to attract municipalities or counties to turn over some of their projects, instead of going the traditional way.”

The law also provides a new opportunity for companies like DMR that have experience with so-called design-build projects, a procurement method in which architects and contractors bid together from the beginning. Design-build, which allows for greater predictability and better efficiency, has long been a favorite of state agencies such as the Schools Development Authority, but could be more widely adopted under the public-private partnership law.

As Rosenberg noted, the statute allows for design-build procurement by municipalities, school boards and state agencies, but in an expanded form that also includes plans for financing and operating the project. That framework also allows towns and school districts to avoid voter referendums, which can derail large capital projects in spite of an overwhelming need.

And while the law still requires procurement, the public entity is not required to select the lowest bidder. That can minimize issues such as change orders and other delays.

“You eliminate the public referendum and you eliminate the low-bid contractor,” Rosenberg said. “And they are two of the obstacles that have always been in the way for many communities to get things done.”

The so-called P3 legislation, which Gov. Phil Murphy signed into law last summer, expands a popular law that has helped reshape several of the state’s college campuses in recent years. Public institutions such as The College of New Jersey, New Jersey City University and Montclair State University have partnered with developers to build new facilities on state-owned land, in an effort to modernize their campuses without added tuition hikes.

DMR is especially well-positioned to tap into the new statute. Its leadership team also includes Charles Sarlo, its general counsel, who is also vice chairman of the state Economic Development Authority and helped vet many higher education projects under the previous law. The firm’s director of business development, Colleen Mahr, is the longtime mayor of Fanwood and is the president of the New Jersey State League of Municipalities.

Real Estate NJ spoke with Rosenberg, Sarlo and Mahr recently about the opportunity with the new legislation.

Real Estate NJ: This is a long-awaited expansion of the 2009 law that helped so many state colleges and universities. Who else do you think will share in those benefits under the new statute?

Charles Sarlo: It’s counties, school districts, municipalities, improvement authorities, housing authorities, fire commissioners (if they’re independent). It’s very broad — it’s anything that has a public purpose that can be used by the public. So it’s not only vertical infrastructure. It’s the roads and the bridges, but it could also be parks, it can be libraries, school buildings. It could be a boiler replacement for a school — it could be as simple as that. Someone may even stretch it and say senior housing, if the senior housing has a public purpose for particular municipality. Like any new law, there’s gaps in the law that could be tested in the courts, so we’ll see.

RENJ: When it comes to expanding beyond the design-build concept, how important is the added component of a private-sector entity being responsible for financing and maintaining a project?

CS: The theory there is, if you’re a public entity looking to do a project and it’s the typical design-bid-build, you may have a certain budget that you want to fit in initially to keep your bond issuance down. But maybe the quality of the project to fit in that budget may get you through a 10-year life cycle.

If you’re now the PPP developer and design team and you have to actually build into your cost a 30-year lifecycle or a 20-year lifecycle — whatever the financing works out to be — you don’t want to build it and in 10 years, you have to replace that floor or that system or that roof, because the margin to replace it is going to be inherently higher than at the time of construction. If it costs you 10 percent more for a better product, you’re going to put that 10 percent more in rather than going back in year 10 or 11 and ripping off the roof and putting a new one on. So that’s where the value proposition comes into play.

RENJ: For local officials who are skeptical about these types of partnerships, how can you leverage the success that colleges and universities had under the 2009 law?

CS: If you’re a mayor and council, you probably did not pay attention to what went on there. So I think those are good case studies that, as we talk about it, we have to talk about the successes and the private investment that it brought and the fact that those projects probably would not have gotten done without the PPP process.

RENJ: Let’s look at it from a developer’s perspective. Is there a cluster of developers out there that are already comfortable with these types of public-private projects?

CS: There are national players out there that do PPPs. The minimum threshold right now for them to do a project is $50 million. Now, in New Jersey, a lot of the infrastructure that municipalities and counties have are not $50 million projects — a police station (for instance, costs) $10 to $12 to $14 million. So I think initially those national PPP developers are going to be interested, but they’re going to say the projects are not large enough for us. So it’s going to create a void for the New Jersey entities to come together and deliver these projects.

RENJ: Do you see the typical private developer in New Jersey, who is building office or retail space, getting into this sector?

CS: They really have to have a fundamental shift in their business model before they go into that. I almost see it as more of the design firms like DMR and engineering firms that are in the public sector joining with general contractors that are in the public sector and bringing the financing piece to the table. I see that to be the team because, interestingly, the PPP law doesn’t say ‘developer.’ It just says ‘business entity,’ so it kind of leaves it open.

RENJ: So you don’t necessarily need a traditional developer to take the reins here.

Lloyd Rosenberg: You need the elements — you need the contractor and you need the money. So that’s what we’re doing. We’re putting that together.

RENJ: So in that scenario, it’s technically the architect and the contractor that own the property and are taking care of the properties for the duration of the agreement. Is that something that the architects and contractors are really accustomed to?

CS: (It’s a question of) whether or not their business starts to include that piece or is that another player in the mix? And that’s all going to be shaking out as the law develops.

RENJ: Have you started to have those conversations with banks?

LR: We have banks and institutions that have said, ‘Call me when you’re ready.’ So we’re getting ready.

CS: And it doesn’t necessarily have to be a bank or a financial institution. Depending on the size of the project and the type of project, just like the Opportunities Zones, it could just be a group of individuals that want to make a return. It could be corporate money sitting on the sidelines. … If you’re a manufacturer of gym floors, you’ve got a lot of cash on your balance sheet and a new gym needs to be done — well, why not be part of the team to finance that gym? You’re going to get your product installed, it helps your overall business, you’re going to make a return on the cash that was sitting on your books. So there are very creative ways to be able to finance this.

RENJ: Colleen, your background as a mayor must be especially helpful to both the firm and to prospective clients in the public sector. Can you elaborate on that?

Colleen Mahr: Working here gives us that unique perspective to bring to our clients and the municipalities. We’re under a 2 percent cap (as municipalities), so we are constantly getting pressured and our infrastructure is worn and tired. So we see a need to invest, but raising that capital or raising it through the tax levy or through taxation is a very difficult conversation to have. The PPP gives that confidence of where the number is going to be. You know the team is going to have a certain responsibility to do it and you’re going to get a product at the end that you had a lot of say in. So the timing, I think, is really good for this new industry to start and there’s a lot of interest, but first we’re going to educate.

This interview has been edited and condensed for clarity.

This article originally appeared in Real Estate NJ

Public Infrastructure Procurement: A Whole New Ball Game?

Public Infrastructure Procurement: A Whole New Ball Game? 960 540 DMR Architects

by Charles H. Sarlo, Esq., General Counsel/Partner

Recently enacted legislation has revived the P3 (public-private partnership) conversation in New Jersey, with DMR, a longtime supporter of the model, leading the way through a variety of advocacy efforts. In addition to the below blog post, DMR’s public advocacy has included other published media, webinar and conference involvement. For a complete roundup, please click here.

The below blog post originally appeared in the April 2019 New Jersey Association of Counties newsletter. 

New Jersey’s public contracts laws date back to 1917 at the time when Ty Cobb was the highest paid major league baseball player with an annual salary of $20,000.   While there has certainly been revisions to the law, as to how public projects are procured, the underlying basis over the last 100 years has remained the same, that being a low bid, competitive process.

In the last two months, we have a whole new ball game.  Mike Trout opted not to pursue free agency and signed one of the largest contract extensions, worth $430 million, and public entities in the State now have an alternate public infrastructure procurement path in the form of the Public Private Partnership (PPP) Law, which became effective on February 10, 2019 (L.2018, c 90, s1; N.J.S.S. 40A:11-52 et seq.).  The PPP Law provides for a design-build-finance-operate-maintain business model.

As with any new law, there is certainly unbridled excitement especially with the private sector eager to provide its innovative intellect and financial vigor to craft and implement proposed solutions to the public sectors’ backlog of unfunded infrastructure projects.  Is the PPP Law a game changer?  From a limited historical context, the State saw the commitment of just under one billion dollars of private investment for eleven, capital infrastructure projects in higher education, from 2010 through 2015, under the PPP provision within the 2009 Stimulus Act, which has sunset.  It is certainly anticipated that not every public project will be done under the PPP Law, as the anticipated Treasury regulations will require, in-part, proof that the proposed project is sufficiently complex in terms of the technical and / or financial requirements to effectively leverage private sector innovation and expertise.   However, once the public sector becomes more familiar with the regulatory process and the benefits of performing a project via a public-private-partnership, it is expected that this business model will certainly change the game, just as we recently saw with Mike Trout not only getting free agent type money, but being able to stay with the team that drafted him rather than opting for free agency.

Municipalities and P3

Municipalities and P3 960 540 DMR Architects

Diving into the innovative economy

By Charles H. Sarlo, Esq.

Municipalities have the ability to be innovative and creative in addressing their infrastructure capital needs as a result of the newly enacted Public Private Partnership Law (PPP or P3), which became effective February 10 (L.2018, c.90, s.1; N.J.S.A. 40A:11 -52, et seq.). In order to ensure that a municipality’s economic decisions are financially prudent, the P3 law has built-in safeguards in the form of competitive solicitation, transparency in the form of public hearings, and checks and balances in the form of the State Treasurer making specific findings in connection with the approval of PPP projects.

The simplest definition of a Public Private Partnership is a contractual arrangement between a public entity and a private entity that allows for greater private sector participation in the delivery and financing of capital projects with the objective of shifting risk to the private sector. The P3 law allows for a design-build-finance-operate-maintain methodology to deliver capital projects and is an alternative project delivery method, to the traditional procurement pursuant to the Local Public Contracts Law (LPCL), which is recognized as a design-bid-build approach.

Broad applicability

The P3’s statutory applicability in New Jersey is broad, as it allows the P3 project delivery model to be used for any building, local or county road, vertical structure, or facility constructed or acquired by a local government unit (defined to not only be municipalities, but also other public entities that are subject to the LPCL or Local Redevelopment and Housing Law) to operate local government functions, including any infrastructure or facility used or to be used by the public or in support of a public purpose or activity.

Today, the private sector’s innovative intellect and financial vigor can craft and implement proposed solutions to a municipality’s infrastructure needs. The theme of private sector innovative intellect is front and center in New Jersey’s P3 law, which allows the private sector to submit an unsolicited roposal in the form of a “project playbook” that includes certain statutory requirements.

Should the municipality elect to proceed, it must seek competitive proposals via a public procurement process that must also meet the minimum statutory requirements that that satisfy the same basic purpose and need of the unsolicited proposal. In the alternative, the municipality can issue a public procurement request-for-qualifications. Upon a determination of the qualified respondents, based, in part, on minimum standards to be promulgated by the State Treasurer, the municipality is required to issue a request for proposals.

Regardless of whether the unsolicited proposal or the solicited proposal pathway is applied, the municipality would rank the proposals received in order of preference based, in part, on minimum standards to be promulgated by the State Treasurer. Thereafter, the municipality is required to make specific determinations of the top-ranked proposals and hold a public hearing at which the specific findings must be made in order to find that the project is in the best interest of the public.

Subsequent to the public hearing, the municipality is required to submit a P3 application to the State Treasure for review and approval. The statute requires the submission of specific items, including: full description of the proposed P3 agreement, a full description of the project, description of any agreement for the lease of a revenue-producing facility related to the project, the estimated costs and financial documentation for the project showing the underlying financial models and assumptions that determined the estimated costs, timetable for project completion, evidence of the public benefit in advancing the project as a P3, and the municipality’s findings during it proposal review and the public hearing.

For municipal projects, the State Treasurer, in consultation with the New Jersey Economic Development Authority (NJEDA) and the Department of Community Affairs (DCA), is statutorily charged with approving P3 applications. In order to validate that the proposed P3 project is in the best interest of the public, the State Treasurer must make specific findings for a P3 project approval.

If the P3 project is approved, the municipality can then enter into a P3 agreement with the private sector, which needs to include certain provisions, such as a completion date guarantee, liquidated damages, maximum rate of return to private entity, and a provision for the distribution of excess earnings to the local government or the private party for debt reduction, a project labor agreement, performance and payment bonds, prevailing wage, and the establishment of a construction account with a third-party financial institution to act as a collateral agent.

As with any newly enacted law, one can certainly anticipate litigation involving the P3 law in which a party seeks to clarify the intent of certain provisions, reconcile inconsistencies or challenge the Law’s applicability.

Understandably, the initial inquiry by a public official will invariably be “Why?”

Why chose to undertake a capital infrastructure project on a path that appears to be complex, burdensome, and untested–while it may also be assumed to be more costly and potentially fraught with a litigation challenge–rather than the time-tested procurement under the Local Publics Contract Law. For each initial negative reaction, P3 advocates and P3 case studies can illustrate a positive counter. Generally, it has been proven that there is a role for the private sector to foster solutions for public sector challenges. A well-designed P3 is intended to be performance-based and outcome-focused with a risk-sharing approach where asset performance is optimized for the long term.

Qualifying considerations

Notwithstanding that some who have had firsthand experience undertaking a capital project under the LPCL would certainly express concerns that they experienced regarding project cost overruns, claims, and missed project completion dates, it should be recognized that the P3 law should not be considered a blanket replacement to capital project procurement under the LPCL, as not every project is appropriate for a P3 arrangement.

National P3 players will advise that a project cost of $50 million is the minimum project threshold for a P3 project. The New Jersey P3 law prohibits the bundling of projects (i.e., two or more projects considered as one for a P3 arrangement). However, there are many infrastructure needs of municipalities and other local government units with project costs less than $50 million.

Notwithstanding this industry threshold, it is fully expected and anticipated that the New Jersey local know-how of the private sector will adeptly be able propose P3 arrangements to the public sector pursuant to the P3 law, for many of a municipality’s capital infrastructure projects regardless of project size. The public sector should embrace the imagination of the private sector as related to its capital infrastructure needs and base its procurement decisions on sound economic analysis, which supports beneficial fiscal and social impacts as required by the P3 law.

The dawn of Public-Private-Partnerships in New Jersey is now. As may be applicable, it would certainly be prudent for public officials, who are charged with balancing the needs for public funds while developing, upgrading or replacing public infrastructure, to certainly consider the Public-Private-Partnership business model as an alternative procurement process, notwithstanding its embryonic stage.

This article originally appeared in New Jersey Municipalities.