Business Voices: A private role in public projects

By G. Roth Kehoe II and David R. Yates/ For the AJC

The Georgia Department of Transportation (GDOT) announced this fall the long-awaited resurrection of its public-private partnership (P3) initiative to address a number of key strategic transportation projects, primarily around the Atlanta area.

As has been well documented throughout the country, a funding shortfall has slowed many of the critical transportation projects at both the state and federal levels. Georgia has certainly not been immune. While funding shortfalls have stymied many of the transportation projects, it does not make those projects any less critical for the future of Atlanta and the state of Georgia.

GDOT has chosen to address a number of these critical projects by wisely leveraging private dollars, manpower and skill through P3s. A P3 is a venture whereby a traditional government service is funded and/or operated by a private company, which assumes certain substantial financial and operational risk in the project.

Usually, the benefits of these structures are three-fold: (1) public funding for the project is reduced or limited, (2) governmental operating capacity is not diminished as a result of the reduced need for public resources on the project and (3) the public may enjoy the benefits sooner than might have been achieved otherwise. Additionally, these projects can lead to the creation of new jobs in construction and other areas.

GDOT’s resumption of the P3 program is truly well-timed by capitalizing on the growth and prevalence of similar programs throughout the United States and the world. In recent years, a number of states have successfully negotiated concession agreements implementing P3s. Concession agreements allow a private entity to operate locally under specified terms with the government.

For example, the Connecticut Department of Transportation recently entered into a public-private partnership with a joint venture formed by The Carlyle Group (a global private equity firm), Doctor’s Associates, Inc. (the parent company of SUBWAY Restaurants) and Subcon Inc. (the development company for Subway restaurants in Connecticut and New York) to redevelop, operate and maintain 23 highway service areas across the state. The joint venture will invest approximately $178 million in renovations and upgrades to the service areas and will expand the food offerings to the travelling public. Meanwhile, the state of Connecticut receives the benefit of the improved facilities and services and at least a guaranteed stream of payments from the joint venture.

Connecticut also reported hundreds of jobs would be created through this arrangement. Additionally, the Connecticut DOT is required to work with one, global service provider – the joint venture – in connection with the service plazas, which permits the DOT to perform more efficiently. Earlier this Fall it was reported that GDOT was considering a similar approach with the rest areas throughout Georgia.

GDOT announced several projects under consideration at its recent P3 workshop: creating a set of two reversible managed lanes along the northwest corridor on Interstate Highways 75 and 575; providing improvements to the top end corridor of Interstate Highway 285; new construction along the Gwinnett Connector; and implementing a set of managed lanes along a 21-mile section of Georgia State Route 400 in north Fulton and Forsyth counties.

These projects will inevitably be heavily negotiated among GDOT and the various successful bidders for these projects. Fortunately, due to the continued success of P3 projects throughout the country, there are models that can be followed and a solid market has evolved in this arena. For example, Florida and Virginia have successfully negotiated and completed similar projects with the expansion of Interstate 595 in Broward County, Florida and the Capital Beltway HOT Lanes toll road project in Virginia.

Each of these successful projects prove that first, there is a viable market for private investment for these types of initiatives, and second, states have found a reasonable middle ground whereby the public receives a substantial benefit on terms which private parties are willing to invest. Most important, due to the complexity of the matter and the number of parties involved these are very heavily negotiated deals. Given the heavy reliance on and lessons learned by GDOT from the successful models of Florida, Virginia and other states, there is every reason to believe that GDOT will be successful with its initiatives.

With its systematic approach to implementing public-private partnerships to achieve the most critical projects, GDOT has built upon and improved its earlier P3 processes, learned from the success of other states and is willing to build on those lessons for the betterment of Atlanta and Georgia. Anyone who attended the recent P3 workshop witnessed GDOT’s commitment to the process and projects which is in turn necessary for the marketplace to do same.

G. Roth Kehoe II is a partner and David Yates is an associate in the corporate finance and mergers & acquisitions group in the Atlanta office of Hunton & Williams LLP.