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8/30/2012 | Construction Blog, Kaplin Stewart Blog

This summer, Pennsylvania became another in a lengthening list of states to pass legislation relating allowing public entities to enter agreements with private developers to manage the public entity’s interest in public projects. In essence, public transportation projects like toll roads can now be turned over to private entities to build, manage, and care for in return for a profit. The difference between this and the more traditional approach is that while the state or local governmental entity still owns the property in a technical sense, a private entity is the practical owner.

toll-booths-thumb-450x338-13434In summary, the new law works as follows. PennDOT or another public entity will enter into a “public-private transportation partnership agreement” (also called a P3 agreement) that transfers the rights for use or control, either in whole or in part, to a development entity of some kind. The P3 agreement will entitle the development entity to receive all or a portion of the revenue generated by the transportation facility in return for providing transportation-related services like operations and maintenance, design or construction work, or collection of fees and revenue. From a construction standpoint, this means private entities may now control public projects from how they are bid to how they are managed and built.

One important question was not addressed by the language in the legislation though. What happens when construction work is performed on a road managed by a private entity under a P-3 agreement? Because the property is still technically – and legally – owned by a public entity, it may not be subject to a mechanic’s lien claim. However, the developer entity with whom the contractor would likely enter an agreement to perform the work would seemingly be something more than a tenant and less than an owner. Because this classification affects the right to file a mechanic’s lien, it also impacts other issues like bonding, payment clauses, and other aspects of the contractor’s deal.

The answer will remain unclear until either the legislature addresses it or the Courts decide a case on the issue. For now, it leaves contractors at all levels in the dark about one of their possible remedies on these types of projects.