The line between public works and private projects continues to blur. Innovative contracting methods and partnering arrangements allow public money to subsidize for-profit projects, while representing those public-purpose projects as private. Sometimes this is driven by financial imperative; sometimes by political considerations.
The most recent example comes from the Pennsylvania Supreme Court. A pre-development lease to a publicly funded charter school was treated as a private project even though: (1) the building’s interior was custom designed for the school; (2) the school paid a $1.6 million “security deposit” to the developer to pay for the interior fit-out, using public funds; and (3) the school could purchase the building after only five years.
The distinction between public and private manifests itself in many contexts: project funding, competitive bidding requirements, payment and performance bonds, prevailing wage laws, and claims administration and remedies, to name a few. Yet the dividing line is becoming more and more difficult to discern.
What is your opinion? Is the process being abused to avoid or subvert safeguards applicable to the expenditure of taxpayer dollars? Or is this merely an innovative response to constrained public budgets, an inevitable wave of the future? I welcome your comments.
Featured in Next Week’s Construction Claims Advisor:
- Change Order Costs Caused by Shoddy Government Review of Submittal
- Client’s Remedy Against Engineer Limited to Contract
- Correction of Price Premium Did Not Mandate New Tradeoff Evaluation
In middle of a lawsuit in Missouri on case of first impression on whether a building being constructed on real estate conveyed to the county as part of an IRB (Industrial Revenue Bond) financing, is a "public work" requiring a "payment bond" or if the lease back to the developer with option to purchase is mechanic's lienable and no payment bond is required. Case pending.
Posted by: Craig A. Smith | 12/09/2011 at 11:44 AM
In Massachusetts, this would constitute a public project. Several avoidance strategies have been tried (and tested in court), but they have consistently failed, and the projects have been deemed subject to public bidding laws.
Posted by: Eden Milroy, President, Pilot Development. | 12/09/2011 at 11:55 AM
This is redicious all states and cities should have there own independent review af all drawings and specs. before any contracts are awarded... this will reduce all this so called overruns I myself do exactly that.
In the puplic sector this is not done because they are to lazy and do not care about the publics money.Because of this we pay the price.
Posted by: Christopher Godwin | 12/09/2011 at 01:37 PM
These public-private partnership arrangements seem to be having some success in proceeding by providing a "space" between the public source of funds and its expenditure. One argument voiced by some is as you mention, getting out from under prevailing wage laws in the state. Privatization of what were formally public services is the enabler.
Posted by: Andre Larroque | 12/09/2011 at 03:54 PM
The way I see it is, if it's taxpayer money then it is public and should be subject to competitive bidding. No exceptions.
Posted by: john | 12/20/2011 at 02:16 PM
Ultimately, the use of public taxpayers dollars for private interests, and access to tax subsidy for private development, provide a bypass to what the public expects, accountability and transparency in the expenditure of public funds, and in control of public lands. It may be a wave of the future since the 1% are taking so much of what used to flow into public funding, and not paying taxes.
Posted by: Denis Mosgofian | 12/27/2011 at 11:24 AM