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What's New: Public-Private Partnerships (P3s)

Federal Highway Administration Releases Model Contract for P3 Tolling Concessions

Thursday, September 11, 2014  

The Federal Highway Administration (FHWA) issued a final model contract for toll concessions under public-private partnerships (P3s). The contract was developed to implement the Moving Ahead for Progress in the 21st Century Act (MAP-21), which requires the U.S. Department of Transportation (DOT) and FHWA to develop model transactional contracts for common types of P3 transportation projects. The FHWA notes that the model contract is an educational guide rather than a prescriptive model, which was done in response to public input concerning whether the contract provisions would be mandatory. The model contract does not address bonding, but the FHWA’s notice states that it will be developing an addendum to this model contract to address secondary issues for P3s, including performance security requirements, among other issues.

SFAA previously submitted comments on the model contract and recommended that the FHWA include performance and payment security requirements in the model contract for the construction portion of the P3 project. We suggested an approach similar to the bonding requirements that the DOT uses for its Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments, which requires payment and performance bonds for 100% of the contract price on contracts exceeding the simplified acquisition threshold. FHWA also received comments from the American Road & Transportation Builders Association that the guide should address performance bonding requirements and the potential need for legislation to address performance security requirements for these concessions.

The model tolling concession contract addresses security for the handback of the project at the end of the concession agreement, which generally is for a term of 30 to 50 years. The contract states that the agreement should include a requirement for the developer to establish and fund a handback reserve account upfront to serve as security for the developer’s obligation to transfer the project back to the DOT in the agreed condition. The developer must deposit cash, a form of performance security or a combination of the two in amount equal to at least 100% of all costs necessary to meet the handback requirements at the end of the term, as reasonably determined by an independent consultant. The reserve account must be reviewed on an annual basis. Performance security may be used to meet the whole amount required for the reserve account. Letters of credit may be used to meet this requirement.

FHWA notice states that the future addendum will be less detailed than the model contract. Further, FHWA will be developing a P3 model contract for availability payment based contracts in which public sector revenues are the sources of payments to the private contractor. The notice states that many of the provisions for toll concessions will be germane to the availability payments guide
 


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