P3s Created by Contract, Not Statute
Public Private Partnerships (P3s) can be incredibly beneficial, especially in financing large construction projects. Frequently, a P3 assists public entities with improving public infrastructure by teaming up with a private entity for funding.
Generally, a P3 is an agreement between a private entity & public entity for the construction of a project, whereby the private entity provides the funding which is often lacking in the public sector.
An article from the Associated General Contractors of America (AGC), includes a definition of P3 from The National Council for Public-Private Partnerships. A P3 is a:
“contractual arrangement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.”
Yes, P3s are Created by Contract, Not by Statute
In Would Broader Use of P3s Benefit Subcontractors, attorney James Rohlfing states all P3s are different “Because P3s are created by contract, they vary greatly from one state and one project to another. For that reason, to protect the public, many states have enacted broad enabling legislation that describes the potential uses of P3s as well as the restrictions on their use.”
Not only is P3 legislation broad, it’s still quite young; the industry should anticipate and participate in future proposed legislative changes. Rohlfing points specifically to subcontractors and key factors they should be watchful of –
“Subcontractors should be watchful that any proposal for a law enabling the broad use of P3s not undercut the rights of subcontractors under existing laws and contracts to:
1) secure payment for work and materials furnished for a project;
2) protect subcontractors and others under public procurement restrictions;
3) mandate prompt payment of invoices; and
4) recognize flow-down responsibilities from higher tier participants in the construction chain.”
Mechanic’s Liens or Bond Claims on P3s?
That’s a great question! The answer, unfortunately, may not be as great. “P3s are a hybrid between public and private, neither liens nor bonds are assured as a means to secure payment.” writes Rohlfing.
If you are furnishing (or will be furnishing) to a P3 project, you must carefully review the state’s statute. Always request a copy of a payment bond as the bonds are often required by statute. You may even want to consult with legal counsel to confirm whether you are covered by statute, your contract, or if it’s in your best interest to obtain alternative security like credit insurance.
Kristin’s Credit Corner
Perhaps I should call it “Kristin’s go-to advice” instead, since I seem to say this often – but hey, at least I’m consistent: Know who you are doing business with and take steps to secure your right to payment.
- Complete a job information sheet, make sure you know who is within the ladder of supply.
- Don’t wait until the last minute to inquire about whether the project is bonded & if it is bonded, obtain a copy of the bond as soon as possible.
- Embark on each project with the intention of keeping the lines of communication open and flowing.
To echo a sentiment from Rohlfing’s article, don’t assume you can rely on mechanic’s lien statute or bond claim statute, and NEVER assume you will be timely paid.
P3s have seemingly infinite potential! But you must be your own advocate.
Advocate for your rights to payment protections and if managing the process becomes too cumbersome, partner with companies like NCS – let someone with the expertise carry the burden so you can keep doing what you do best!
If reducing your DSO, mitigating your risk and improving working capital aren’t reason enough to file UCCs, I’ve compiled a list of a few more reasons. Check out The Top 5 Reasons to File UCCs!
- March 19: Implementing a Lien/Bond Claim Program – Overcoming Obstacles
- April 2: UCC Remedies Upon Debtor’s Default
- April 16: Understanding Lien Waivers
- April 30: UCCs Offer Security for Many Business Transactions
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