June 07, 2022

Colorado Expands Use of P3s in Public Sector Projects

Colorado Governor Jared Polis recently signed into law expanded public-private partnership (P3) enabling legislation following the Colorado General Assembly’s passage of SB22-130. The law permits state public entities, including the executive, legislative and judicial branches of the state government, to enter into agreements with private companies to develop and/or operate public projects.

P3s are an increasingly popular method of delivering infrastructure projects in the U.S., primarily based on benefits they offer in terms of cost and schedule savings, risk-shifting and innovation. Under the traditional design-bid-build approach to public infrastructure projects, a public entity pays for a new project with a combination of public funds and borrowed funds. The public entity then handles all aspects of the project itself or works with private companies to design or construct the project through the use of competitive bidding. The public entity retains significant project risk for cost overruns, delays and unforeseen challenges under the traditional approach. It also can be constrained in terms of options to maximize competition and incorporating industry leading innovations in financing, designing, and operating assets that serve the public interest.

Under the P3 project delivery method, a public entity enters into a long-term arrangement for a private company to design, construct, finance, operate and maintain a public asset. P3s involve the transfer of the public asset to the private company, at which point the private company finances the project, designs and constructs the project, operates and maintains the asset for a set period of time, and then hands it back to the public sector. In return, the private company may receive the right to fees generated by the public project, periodic payments based on project milestones or performance metrics, or other funding sources to support the initial improvements. One of the primary benefits of the P3 project delivery method is that it transfers much of the project risk to the private sector. What’s more, as noted in SB22-130, P3s have a proven history of better allowing public projects to be completed on time and at a lower cost than the traditional design-bid-build project delivery method.

P3s are not new to Colorado. Legislation passed prior to the new Colorado P3 law allows the Colorado Department of Transportation (CDOT) to utilize the P3 project delivery method. One high-profile P3 in recent years has been the Central 70 project, which involved reconstruction of a 10-mile stretch of I-70 in northeastern Denver.  E-470 Public Highway Authority's E-470 toll road project is another significant Colorado P3 project. Furthermore, the Colorado General Assembly created the High-Performance Transportation Enterprise (HPTE) in 2009 to explore public-private partnerships for the purpose of completing surface transportation infrastructure projects.

The new Colorado P3 law specifically allows a state public entity to “initiate solicitations, review any private partner-initiated proposals, execute public-private partnership agreements, or execute public-private agreements to develop or operate a public project[.]”

The new Colorado P3 law sheds light on the type of projects that may take advantage of the new enabling legislation, as it notes Colorado will seek to use the P3 project delivery method to address its most “pressing and foundational needs, such as increased behavioral health capacity, broadband deployment, affordable housing development, and child care services.”

P3s are an increasingly necessary and utilized project delivery solution that can offer significant upside to the public sector. While proven to be effective, P3s are complicated and must be implemented thoughtfully. Stay tuned for more updates and analysis — and for insights to help your organization identify opportunities and navigate next steps — as Colorado’s new P3 legislation goes into effect.

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