Lesson

Develop procurement procedures for public-private partnership projects that address partnership issues.

A Virginia Department of Transportation experience in procuring ITS through a public-private partnership.


July 1997
Virginia,United States


Background (Show)

Lesson Learned

Virginia's Procurement Act and the standard contract vehicles developed to comply with the Act include several perceived and actual barriers that impede the procurement of ITS through public-private partnerships. For example, Virginia state law requires that property purchased with public funds be owned by the State. Furthermore, existing procurement procedures and requirements include a number of provisions to protect the State's interest and are not designed to address the concept of sharing both risks and rewards within the private sector.

VDOT was able to overcome a number of barriers in the Act by designing a procurement contract that addressed the inherent nature of a partnership. The issues that VDOT faced in the procurement of ITS through a public-private partnership and how the contract addressed the issue are outlined below:
  • Address intellectual property rights – ITS relies on specially designed software to integrate and operate the system. Under Virginia law, contractors developing software on projects that include or State funds retain ownership of the intellectual property, but a license must be provided to the public sector so that they may use the software for their purposes. This language implies that software can be distributed by the public sector to any party if it meets their purposes. Contractors are concerned that, even if only private sector moneys are used to develop software for a public-private partnership, a license must be granted to the public. If the software rights are in the public domain, this might discourage some firms from competing for projects, reducing competition and incentive to partner. However, without such rights, the public sector could be constrained to using a single contractor to operate and maintain specific software products. Licensing agreements can be a good resolution to this issue.
Under the WMTIS contract no public monies will be used to develop software. Any software developed will remain the property of the private partner and a license will be provided to VDOT to ensure open access to the software.

  • Make dispute resolution mechanisms compatible with State law – Because Virginia is a "Right to Work State," binding arbitration is not allowed under the Virginia Procurement Act for dispute resolution. The WMTIS contract does not allow binding arbitration.

  • Consider the disposition of surplus property – State laws require that property purchased using public funds be owned by the State. This can be an issue in ITS partnerships (like the WMTIS) that are meant to create private sector business opportunities. In addition, hardware is often needed for short periods during system development. Many agencies have overcome ownership difficulties by purchasing short-term leases instead of the equipment itself.
The WMTIS project involves the installation of a number of pieces of equipment. The contract calls for VDOT to evaluate the issue of ownership of WMTIS infrastructure near the end of the contract. Ownership of the Traveler Information Center, exclusive of any tangible personal property purchased with public funds, will revert to the private party at the conclusion of the first 36 months of the contract.

  • Share risk – VDOT typically includes a "hold harmless" clause in all of their professional services agreements in which the State is held harmless from all acts, whether negligent or not, performed by the contractor.
The WMTIS contract includes liability language that holds the State harmless from all negligent, unlawful, or intentional harmful acts of the contractor. However, liability for all other acts of the contractor may be shared by the private contractor and the State.

  • Consider making private partner audit records open to the public – Although not required, a contractor audit may be performed during the life of this contract. To protect confidential records during an audit, the contractor must complete a form requesting exemption from the Virginia Freedom of Information Act (FOIA). Even though the contractor can protect data provided for an audit, the audit reports are public information under the State of Virginia FOIA. Such information may threaten the competitive position of the public partner in the market. Because this is a partnership, both the public and private partner may be damaged. It would be detrimental to both if the private partner's ability to make a profit is damaged.
The private partners in the WMTIS project chose to take on the risks associated with having audit information open to the public.

  • Protect repackaged data – The second Virginia FOIA issue has to do with the traveler information itself. VDOT and the other public partners will provide raw transportation data to the private partner for them to repackage and sell. The raw data is publicly owned and can be requested by anyone. The repackaged data is private because of the repackaging and is only available if purchased. However, VDOT has included a provision in the contract that the repackaged data will be provided to VDOT at no cost. It is not clear if the repackaged data, because it is returned to the public sector, would then become public domain and accessible without cost via the Virginia FOIA. This remains an open question.
Under the WMTIS contract, the private partner reserves all rights to value added data and the distribution of such data without the written consent of the private partner is prohibited; however, participating State Agencies my use the data exclusively within the agency. The participating state agencies retain ownership of all raw data they generate.

  • Be prepared for difficulties receiving and disbursing revenues to partners – Unlike many states, Virginia State law allows VDOT to bring in and disburse funds directly via the Transportation Fund (most states require all revenues be deposited into the General Fund). However, the accounting processes to track the public partner's WMTIS revenues would be cumbersome. In addition, developing monetary revenue-sharing formulas that each public partner would agree are equitable may be difficult.
The WMTIS contract calls for the public partner's shared revenue to be reallocated to system upgrades, expansion of the coverage area and other WMTIS-related services.

  • Be aware of the private match value – In the WMTIS project the private contractor is providing matching funds in the form of services and software. The contract outlines that software developed using Federal monies in the past cannot be used, nor can the software developed under this contract be used in the future to provide a Federal match on any other contract. Furthermore, the contract grants VDOT the right to terminate the contract if the Federal match requirements cannot be met.

  • Provide a detailed scope of work – The WMTIS project does not have as detailed a project scope as required under the Virginia Procurement Act, because the project was advertised to allow each private respondent to develop their own unique solution. Rather than a detailed scope the contract's scope of services includes a "Task 1" under which the project details will be developed.

  • Be aware of performance recourse considerations – Typically, VDOT contracts include strong language to enforce contract completion. The WMTIS contract was written in a unique manner regarding contract termination. It states that if VDOT terminates the contract without the consent of the private partner, then VDOT will not venture to complete the work using any other means. This clause recognizes the unique nature of the partnership, and the sharing of risks and benefits.

In the absence of State guidelines to develop public-private partnership agreements, VDOT was able to successfully develop a procurement contract that addressed the unique nature of the partnership while at the same time protecting the State's interest. The successful development of the agreement was due in a large part to the full comprehension by VDOT staff that the foundation of a public-private partnership is the sharing of risks and rewards, resources, and that both parties have a reason to enter the agreement as a partner. In order to facilitate the development of future public-private partnership agreements VDOT is developing new guidelines so that bidders and VDOT staff have common expectations about the process. These guidelines will be provided in the final version of the report.


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Source

Virginia Department of Transportation Public-Private Procurement: Issues and Accomplishments and Interim Report

Author: Brian Stearman, Booz-Allen & Hamilton

Published By: Virginia Department of Transportation

Source Date: July 1997

URL: http://ntl.bts.gov/lib/11000/11500/11530/vdot.pdf

Lesson Contacts

Lesson Analyst:

Gina Filosa
Volpe National Transportation Systems Center
617-494-3452
gina.filosa@volpe.dot.gov


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Notes

Lesson of the Month for April, 2008 !


Application Areas

None defined

States

Virginia

Countries

United States

Systems Engineering

Show the V

Concept of Operations

Focus Areas

None defined

Goal Areas

None defined

Keywords

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Lesson ID: 2008-00432