Public-Private Partnerships for Purposes of Federal Real Property Management
Congressional research reportDec 31, 2014
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Public-Private Partnerships for Purposes of
Federal Real Property Management
-name redactedSpecialist in American National Government
-name redactedLegislative Attorney
December 31, 2014
Congressional Research Service
7-....
www.crs.gov
R43337
Public-Private Partnerships for Purposes of Federal Real Property Management
Summary
While public-private partnerships (PPPs) have long been used to manage real property,
congressional interest in PPPs has recently increased due to the large number of underutilized and
excess buildings owned by federal agencies, as well as sequestration and other spending
constraints. There is no single, accepted definition of public-private partnership, and PPPs can be
structured in many ways. However, for purposes of this report, a PPP is an agreement whereby a
nonfederal entity acquires the right to use a real property owned or controlled by a federal
agency—typically through a long-term lease—in exchange for redeveloping or renovating that
property (or other property). In many cases, the agency and the nonfederal entity share the net
cash flow or savings that result from the agreement. The term real property is defined by the
Federal Management Regulation as any interest in land under the control of a federal agency
except the public domain; lands reserved or dedicated for national forest or park purposes;
minerals in lands withdrawn or reserved from the public domain; other lands withdrawn or
reserved from the public domain; and crops separated from the land.
The process of forming a PPP typically begins when a federal agency identifies real property that
could provide greater benefits to the government if it were redeveloped or renovated. The agency
then works with nonfederal partners to see if a redevelopment strategy could be devised that
provides the agency with the benefits it seeks, and the nonfederal partner with financial returns
sufficient to cover the risk of investing in the property. The redevelopment strategy and method of
financing are closely linked. The former refers specifically to the work that the nonfederal partner
agrees to undertake, while the latter is a combination of the revenue generated from the improved
space and, in some cases, savings realized by reduced operating costs. Financial benefits to the
government may also include a division of property cash flows. Two common redevelopment and
financing structures entail (1) leasing property to a developer, which then constructs a new
facility on the land and subleases the facility; and (2) giving a developer excess real property in
exchange for the developer building a facility for the agency on other land that the agency owns.
Federal law is generally silent as to PPPs, per se, particularly PPPs for purposes of improving or
disposing of federal real property. A number of states have laws that define public-private
partnership, and expressly authorize one or more state agencies (often, the Department of
Transportation) to enter PPPs in general or for specific purposes (e.g., toll roads). With certain
narrow exceptions (e.g., P.L. 106-407), federal law has no comparable provisions. Instead, those
agencies which have, to date, entered agreements that could be characterized as PPPs have
typically done so under their authority (1) to lease, otherwise convey, or permit the use of federal
real property; or (2) to enter procurement contracts, particularly energy savings performance
contracts (ESPCs). While the authorities as to procurement contracts often apply to all executive
branch agencies, those as to leases generally apply only to specific agencies and properties, and
sometimes only to agreements entered into for specific purposes. Thus, there is considerable
variability in the types of PPPs that agencies may enter, and some uncertainties as to the legal
requirements to which such partnerships are subject.
When contemplating expanded use of PPPs, Congress may wish to consider the limited
information available about existing authorities that may permit landholding agencies to enter
PPPs, and whether and how these authorities are currently being utilized. Congress may also wish
to consider agencies’ capabilities to enter into and oversee performance of these arguably
complicated arrangements; agencies’ authority to retain and use any net proceeds from PPPs; and
the interplay between PPPs and current processes for disposing of excess property.
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Public-Private Partnerships for Purposes of Federal Real Property Management
Contents
Background ...................................................................................................................................... 2
Changes in Agency Missions, Changes in Property Portfolios ................................................. 2
“Standard” Disposal Process Can Be Cumbersome and Costly ................................................ 3
PPPs as Alternative Means to Develop or Dispose of Property ................................................ 4
Potential Benefits of PPPs ................................................................................................... 5
Potential Risks and Limitations........................................................................................... 6
PPP Structures.................................................................................................................................. 6
Key Elements of a PPP .............................................................................................................. 7
Examples of Common PPP Structures....................................................................................... 7
In-Kind Benefits ........................................................................................................................ 8
Legal Framework as to PPPs ........................................................................................................... 9
Legal Authority to Enter PPPs ................................................................................................... 9
Authority to Lease or Otherwise Convey Real Property ................................................... 10
Authority to Procure Goods or Services............................................................................ 12
Legal Requirements as to PPPs ............................................................................................... 12
Statutes Authorizing Leases or Other Agency Actions...................................................... 13
FAR Generally Inapplicable, but Regulations Could Impose FAR-Like Terms ............... 16
Applicability of Requirements Pertaining to “Contracts” or “Public Works” ................... 18
No Relevant Provisions in Federal Law ............................................................................ 20
Comparison to State Law .................................................................................................. 22
Considerations for Congress .......................................................................................................... 24
Limited Information about PPP Authorities and Their Use ..................................................... 25
Legal Uncertainties Could Deter Use of PPPs ........................................................................ 25
Questions about Agency Capabilities to Enter and Perform PPPs .......................................... 26
Potential Requirements to Develop Business Plans for PPPs ................................................. 27
Potential Requirements as to Congressional Notice or Approval ............................................ 27
Agencies’ Authority to Retain and Use Net Proceeds ............................................................. 28
Clarifying Interplay between PPPs and Current Disposal Process .......................................... 29
Conclusion ..................................................................................................................................... 30
Tables
Table 1. Tabular Comparison of Selected Leasing Authorities ...................................................... 15
Table 2. Sample Provisions in “Comprehensive” State PPP Statutes ............................................ 23
Contacts
Author Contact Information........................................................................................................... 30
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Public-Private Partnerships for Purposes of Federal Real Property Management
W
hile public-private partnerships (PPPs) have long been used to manage real property,1
congressional interest in PPPs has recently increased due to the large number of
underutilized and excess buildings owned by federal agencies, as well as sequestration
and other spending constraints. According to a report on federal real property holdings in
FY2010, the government’s portfolio included 71,000 underutilized buildings and 6,700 excess
buildings, which cost a combined $1.66 billion to operate and maintain.2 Disposing of these
buildings through the “standard” processes, described below, imposes its own costs—and can
take years—as agencies must comply with various statutory mandates pertaining to
environmental remediation, historic preservation, and “public benefit” conveyances. Moreover,
these costs in operating, maintaining, or disposing of property are currently being incurred at a
time when agencies generally have fewer appropriated funds at their disposal due to sequestration
and tightening budgets. Annual appropriations for real property activities at the General Services
Administration (GSA), for example, have decreased by more than half a billion dollars from
FY2010 ($8.54 billion)3 to FY2012 ($8.02 billion).4 Taken together, these factors have prompted
increased interest in PPPs, which generally rely upon nonfederal entities to finance
redevelopment and, in some cases, disposal of federal real property.
There is no single, accepted definition of public-private partnership, and PPPs can be structured
in many ways. However, for purposes of this report, a PPP is an agreement whereby a nonfederal
entity acquires the right to use real property owned or controlled by a federal agency—typically
through a long-term lease—in exchange for redeveloping or renovating that property (or other
property). In many cases, the agency and the nonfederal entity share the net cash flow or savings
that result from the agreement. The term real property is defined by the Federal Management
Regulation as any interest in land, together with any fixtures thereon, under the control of a
federal agency except: (1) the public domain; (2) lands reserved or dedicated for national forest or
park purposes; (3) minerals in lands withdrawn or reserved from the public domain that are
suitable for disposition under the public land mining and mineral leasing laws; (4) certain other
lands withdrawn or reserved from the public domain; and (5) any crops designated for disposition
by severance and removal from the land.5
This report provides an overview of key policy and legal issues pertaining to PPPs for purposes of
federal real property management. It begins by discussing the current processes whereby federal
agencies maintain and dispose of real property, as these processes help explain the appeal of
PPPs. The report then discusses how PPPs are commonly structured, agencies’ authority to enter
PPPs, and the legal requirements to which PPPs may be subject. It concludes with considerations
for Congress, such as agencies’ capabilities to enter into and oversee performance of these
arguably complicated arrangements.
Other CRS reports address the use of PPPs in other contexts, including CRS Report R43410,
Highway and Public Transportation Infrastructure Provision Using Public-Private Partnerships
1
See, e.g., Daniel B. Klein & John Majewski, Economy, Community, and Law: The Turnpike Movement in New York,
1797-1845, 26 LAW & SOC’Y REV. 469 (1992).
2
Federal Real Property Council, FY2010 Federal Real Property Report: An Overview of the U.S. Federal
Government’s Real Property Assets, September 2011, at pg. 6.
3
See generally Consolidated Appropriations Act, 2010, P.L. 111-117, 123 Stat. 3187 (Dec. 16, 2009).
4
Consolidated Appropriations Act, 2012, P.L. 112-74, General Services Administration—Real Property Activities—
Federal Buildings Fund—Limitations on Availability of Revenue, 125 Stat. 911 (Dec. 23, 2011).
5
See 41 C.F.R. §102-71.20.
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(P3s), by (name redacted); CRS Report R43308, Infrastructure Banks and Debt Finance to
Support Surface Transportation Investment, by (name redacted) and (name redacted); and CRS
Report R41880, Foreign Assistance: Public-Private Partnerships (PPPs), by (name redacted).
Background
Current interest in PPPs arises, in part, as a result of the “standard” processes agencies use to
dispose of real property that they no longer need due to changes in their functions and missions.
As a general rule, when agencies no longer need particular properties, they must dispose of these
properties through statutorily prescribed processes, described below, that can be cumbersome and
costly. Agencies frequently must spend appropriated funds to operate and maintain properties
they no longer need, and pay costs associated with their disposal. PPPs potentially enable federal
agencies to rely upon nonfederal entities to finance the operation and maintenance of such
properties, or to exchange these properties for other real property or services.
Changes in Agency Missions, Changes in Property Portfolios
Federal agencies acquire and maintain a range of real property assets to help them fulfill specific
functions and missions. The Department of Energy (DOE), for example, owns more than a dozen
laboratories which support its mission of promoting scientific and technological innovation
through research, and the Department of Veterans Affairs (VA) owns over a hundred hospitals
which support its mission of providing health care to veterans and their families. Agencies also
own thousands of properties they use for office space, barracks, family housing units, and
warehouses.6 In total, the government owned more than 306,000 buildings at the end of FY2012.7
Over time, agency portfolios change, sometimes significantly. Agencies may restructure their real
property portfolios, for example, as their needs change. The Department of Defense (DOD)
closed numerous bases over the past two decades as part of its effort to restructure America’s
military forces to meet national security threats in the post-Cold War environment.8 Agencies may
also consolidate their real property holdings in order to achieve operational benefits. The
Department of Homeland Security (DHS), for example, is currently in the process of
consolidating personnel from several locations in the Washington, DC, area, into a new
headquarters at the West Campus of St. Elizabeth’s Hospital—a move which DHS believes will
improve communication and coordination across its administrative components.9 Agencies may
also transfer personnel from one location to another in order to reduce costs. The Bureau of
Public Debt (BPD), for example, plans to relocate 450 employees from Hyattsville, MD, to
6
The six building predominant use categories as defined by the Federal Real Property Council are laboratories,
hospitals, office space, barracks, family housing, and warehouses.
7
Federal Real Property Council, FY2012 Federal Real Property Report: An Overview of the U.S. Federal
Government’s Real Property Assets, September 2013, at pg. 11.
8
U.S. Government Accountability Office, High-Risk Series: Federal Real Property, GAO-03-122, January 2003, at pg.
9.
9
U.S. Government Accountability Office, Federal Real Property: DHS Has Made Progress, But Additional Actions
Are Needed to Address Real Property Management and Security Challenges, GAO-07-658, June 2007, at pg. 30.
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Parkersburg, WV, potentially allowing BPD to realize an estimated $36 million in savings over
five years.10
When agency personnel are relocated, they leave behind empty space in the buildings their
employees once occupied. In some cases, entire properties may no longer be needed by an
agency, in which case those properties are designated as excess.11 In other cases, an agency may
choose to retain property that it only partially occupies, in which case the property is considered
underutilized.12 The frequent shifting of agency staff between buildings has left the government
with a substantial amount of excess and underutilized space, which can be costly to maintain. As
previously noted, according to a report on federal real property holdings in FY2010, the
government’s portfolio included 71,000 underutilized buildings and 6,700 excess buildings,
which cost a combined $1.66 billion to operate and maintain.13 Moreover, the number of excess
and underutilized buildings is not steadily declining, but fluctuates over time, sometimes
increasing by hundreds of properties a year. For example, the government ended FY2008 with
43,360 underutilized and 10,140 excess buildings in its portfolio, but ended FY2009 with 45,190
underutilized and 10,327 excess buildings—a net increase of 2,017 unneeded properties.14 The
ongoing cost of maintaining thousands of properties that are needed only in part, or not at all, is
one of the primary reasons the Government Accountability Office (GAO) has included federal
real property management on its “high-risk” list since 2003.15
“Standard” Disposal Process Can Be Cumbersome and Costly
One reason agencies hold so many unneeded properties is that the real property disposal process
can be cumbersome and costly. The steps in the “standard” disposal process are prescribed by
statute.16 Agencies must first offer to transfer properties they do not need (i.e., excess properties)
to other federal agencies, which generally must pay market value for excess properties they wish
to acquire.17 Excess properties that are not acquired by federal agencies (known as surplus
properties) must then be offered to state and local governments, and qualified nonprofits, for use
in accomplishing “public purposes” specified in statute, such as creating public parks or
providing services to the homeless.18 Agencies may convey surplus properties to state and local
governments, and qualified nonprofits, for public benefit at less than fair market value—even at
10
U.S. Department of the Treasury, Office of the Secretary, “Treasury Budget Supports Obama Administration’s
Efforts to Strengthen Economic Growth, Make Government More Efficient,” press release, February 13, 2012.
11
See 40 U.S.C. §102(3) (defining excess property as “property under the control of a federal agency that the head of
the agency determines is not required to meet the agency’s needs or responsibilities”).
12
41 C.F.R. §102-75.50.
13
FY2010 Federal Real Property Report, supra note 2, at pg. 6.
14
Federal Real Property Council, FY2009 Federal Real Property Report: An Overview of the U.S. Federal
Government’s Real Property Assets, September 2010, at pg. 12.
15
U.S. Government Accountability Office, Federal Real Property: High-Risk Designation Remains Due to Persistent
Management Challenges, GAO-13-422, February 2013, at pg. 9.
16
Particular agencies may have express statutory authorization to dispose of particular properties without following the
“standard” process. See infra Authority to Lease or Otherwise Convey Real Property.
17
40 U.S.C. §§521-529.
18
40 U.S.C. §§541-559. See also 40 U.S.C. §102(10) (defining surplus property as any excess property that the head of
the General Services Administration determines is “not required to meet the needs or responsibilities of all federal
agencies”).
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no cost.19 Surplus properties not conveyed for public benefit are then available for sale, or are
demolished if the property cannot be sold due to its condition or location.20
Agencies have consistently argued that these statutory requirements slow down the disposition
process, compelling them to incur operating costs for months—sometimes years—while the
properties are being screened for disposal.21 Real property officials at the VA have said the
McKinney-Vento Act (P.L. 100-77)—which generally mandates that surplus property be screened
for use by organizations that assist the homeless—can add as much as two years to the disposal
process.22 Because public benefit conveyance requirements are prescribed by statute, agencies
generally may not skip screening, even for surplus properties that could not be conveyed
anyway.23 Statutes pertaining to environmental remediation and historic preservation can also add
time to the process. It may take agencies years of study to assess the potential environmental
consequences of a proposed disposal, and to develop and implement an abatement plan, as
required by law.24 Similarly, the National Historic Preservation Act requires agencies to plan their
disposal actions so as to minimize the harm they cause to historic properties, which may require
additional procedures, such as consulting with historic preservation groups at the state, local, and
federal levels.25 Agencies that wish to demolish vacant buildings face demolition and cleanup
costs that, at times, exceed the cost of maintaining the property—at least in the short run—which
may encourage real property managers to retain a property rather than dispose of it.26 Further,
some agencies have found their disposal efforts complicated by the involvement of stakeholders
with competing agendas. The Department of the Interior (DOI) has said that its efforts to dispose
of some of its unneeded real property can be complicated by the competing concerns of local and
state governments, and historic preservation offices, as well as by political factors.27
PPPs as Alternative Means to Develop or Dispose of Property
In an effort to reduce the government’s inventory of excess and underutilized properties,
committees held hearings during the 113th Congress on federal real property management and
Members introduced several bills that would have reformed the disposal process.28 While many
of these proposals had wide scope, there was also specific interest in expanding the use of PPPs.
Proponents of PPPs have identified a number of potential benefits of such agreements, including
that PPPs may enable agencies to finance real property activities—such as repairs and
19
See, e.g., 40 U.S.C. §550 (disposal of real property for certain purposes).
40 U.S.C. §545.
21
U.S. Government Accountability Office, Federal Real Property: Progress Made in Reducing Unneeded Property but
VA Needs Better Information to Make Further Reductions, GAO-08-039, September 2008, at pg. 39. The screening
process also has certain benefits, but these are outside the scope of this report.
22
Id.
23
U.S. Government Accountability Office, Federal Real Property: Progress Made toward Addressing Problems, but
Underlying Obstacles Continue to Hamper Reform, GAO-07-349, April 2007, at pp. 40-41.
24
U.S. Government Accountability Office, High-Risk Series: Federal Real Property, GAO-03-122, January 2003, at
pg. 41.
25
16 U.S.C. §§470 et seq.
26
U.S. Government Accountability Office, Federal Real Property: Progress Made toward Addressing Problems, but
Underlying Obstacles Continue to Hamper Reform, GAO-07-349, April 2007, at pp. 40-41.
27
Id., at pg. 16.
28
For more information, see CRS Report R43247, Disposal of Unneeded Federal Buildings: Legislative Proposals in
the 113th Congress, by (name redacted).
20
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renovations—they do not have the funds to undertake. The risks and limitations associated with
PPPs, in contrast, may be less well understood due, in part, to the various legal authorities that
agencies rely upon in entering PPPs, and uncertainties regarding the legal requirements to which
PPPs are subject.
Potential Benefits of PPPs
PPPs would appear to offer federal agencies numerous benefits, including reduced operating
costs; repaired and modernized space; decreased maintenance and repair backlogs; and increased
revenue. This is because, regardless of how specific PPPs are structured (see “PPP Structures,”
below), the contributions of each partner are generally the same: the federal government provides
real property—buildings, space within buildings, land, or structures29—and the nonfederal partner
provides capital for improvements to the property. The real property the government provides is
typically underutilized or excess, and may include undeveloped land. These properties are often
in suboptimal condition and in need of costly repairs. Their poor condition is due in part to their
age—underutilized and excess properties are often among the oldest properties in an agency’s
portfolio. Many unneeded DOD buildings were originally constructed in the 1940s and 1950s, for
example, in response to the military needs of World War II and the Cold War. Similarly, many
unneeded facilities held by VA were built to treat soldiers who served in the military many
decades ago, including buildings that date back to the Civil War. St. Elizabeth’s Hospital, the
“new” headquarters for the Department of Homeland Security (DHS), was built in 1855.
Underutilized and excess properties are also in poor condition because they have not been a
priority for reinvestment. Agencies do not have sufficient funds in any given year to meet all of
their real property needs, and when comparing the benefits of investing in expensive repairs of
aging buildings (e.g., replacing obsolete electrical systems, or repairing roofs that leak), or
acquiring new space that can help the agency better fulfill its mission, agencies generally
prioritize the latter. With the acquisition of new space, agency personnel move out of older
properties, rendering them even less valuable to the agency and less likely to receive needed
repairs. As a result, the government holds thousands of properties it does not need and cannot
afford to maintain, but which are in poor condition and therefore more difficult to dispose of. It
has been estimated, for example, that VA would need to spend about $3 billion to repair the
buildings in its portfolio rated in “poor” or “critical” condition—56% of which were vacant or
underutilized, and therefore might be candidates for disposal.30 Not surprisingly, underutilized
and vacant properties are often a net cost to the government. Operating expenses for unneeded
buildings continue to accrue, even if there are no tenants—and hence no revenue. When there are
tenants, aging, inefficient systems are costly to run. Energy costs in older buildings are higher, for
example, because such buildings have heating and cooling systems that are several generations
old.
Despite these factors, nonfederal partners may see an opportunity to generate a profit, and
therefore be willing to invest in a PPP. While underutilized and excess properties are often in poor
condition, they may be in desirable locations where rental rates are high. The nonfederal partner
29
Structures include a range of properties, such as parking lots, bridges, utility systems, storage facilities, and harbors.
For more information, see the Federal Real Property Council’s FY2010 Federal Real Property Report, supra note 2, at
Appendix C, at http://www.gsa.gov/graphics/ogp/FY_2010_FRPP_Report_Final.pdf.
30
U.S. Government Accountability Office, Federal Real Property: Progress Made in Reducing Unneeded Property,
but VA Needs Better Information to Make Further Reductions, GAO-08-939, September 2008, at pg. 5.
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may renovate the property and be able to recoup its costs through subleasing the improved space.
Similarly, the nonfederal partner may see opportunities in the market for a particular type of space
which it could provide through construction or renovation. There might be a strong demand for
hospital space in a local market, for example, and a nonfederal partner might conclude that it
would be a relatively low-risk investment to construct a new medical facility on undeveloped
federal land in that area. In other cases, a nonfederal partner might have expertise in a particular
type of renovation, such as installing energy efficient wastewater systems, and enter into an
agreement that pays for the costs of such renovations through the savings in operating costs. The
nonfederal partner might also be able to renovate unneeded space in an older building and make it
more mission-effective for the agency that holds it. For example, an agency may not have the
funds to upgrade the electrical system in an underutilized building in order to take advantage of
new technology. A nonfederal partner might upgrade the electrical system in the entire building as
part of its renovation and retain the rights to sublease the unoccupied space, while sharing the
revenue with the landholding agency. In short, nonfederal partners with access to capital and real
property expertise are often able to find ways to monetize assets that the government cannot,
particularly under current fiscal constraints.
Potential Risks and Limitations
Despite providing numerous potential benefits to federal agencies and their partners, PPPs are not
without their risks and limitations. These risks and limitations are, however, typically less
discussed than the potential benefits of PPPs, and can seem somewhat more abstract than the
benefits. This is partly because, as discussed below, federal agencies currently rely upon various
legal authorities in entering PPPs, and there can be some uncertainty as to whether particular
PPPs are subject to specific legal requirements. Relatedly, there are fewer “real world”
illustrations of these risks and limitations at the federal level, because federal agencies’ use of
PPPs for purposes of real property management has, to date, been fairly limited, particularly as
compared to that of state and foreign governments.31 Thus, this report generally discusses the
potential risks and limitations of PPPs below, in the context of either the “Legal Framework as to
PPPs” or “Considerations for Congress.”
PPP Structures
PPPs can be structured in many ways, depending, in part, upon the legal authorities under which
agencies enter and perform such agreements. However, despite this variability, PPPs—and
particularly PPPs formed pursuant to agencies’ authority to enter long-term leases of real
property—generally share certain key elements. These elements, and examples of common PPP
structures, are discussed below, as a way of illustrating the types of actions that agencies may
wish to take in entering or performing a PPP and, thus, paving the way for a discussion of the
“Legal Framework as to PPPs.”
31
See, e.g., Fernanda Kellner and Oliveira Palmero, Are Share-in-Savings Contracting and Public-Private Partnerships
Capable of Challenging Traditional Public Procurement Processes? 38 PUB. CONT. L.J. 633 (2009) (comparing the
legal frameworks for and use of PPPs by the Brazilian and U.S. governments); R. David Walker, Enabling the
Privatizing of Toll Roads: A Public-Private Partnership Model for New Jersey, 6 RUTGERS J. L. & PUB. POL’Y 623
(2009) (use of PPPs by states).
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Key Elements of a PPP
The process of forming a PPP typically begins when an agency identifies a property that could
provide greater benefits to the government if redeveloped or renovated. The agency then works
with a nonfederal partner to determine whether a redevelopment strategy would provide the
agency with the benefits it seeks, and the nonfederal partner with financial returns sufficient to
cover the risk of investing in the property. If an agreement is reached, the partners typically enter
into a master ground lease, which formally establishes the terms of the partnership, including (1)
the length of the master ground lease; (2) the redevelopment strategy; and (3) the method of
financing the redevelopment. Taken together, these three elements constitute the structure of a
PPP. Typically, the master ground lease is a long-term lease of 50 years or more. A long lease is
preferable to nonfederal partners because it provides them with more time to recoup their
investment and generate a profit. Generally, nonfederal partners seek a 15% return on their
investment, sometimes referred to as the internal rate of return (IRR). If the market is not strong
or the costs of the improvements are high—rendering a 15% IRR less likely—then the partner
may want a lease that exceeds 50 years as one way to mitigate the increased risk.
The redevelopment strategy and the method of financing are closely linked. The former refers
specifically to the work that the nonfederal partner agrees to undertake, while the latter is a
combination of the revenue generated from the improved space and, in some cases, savings
realized by reduced operating costs. A nonfederal partner might agree to renovate and modernize
an aging VA medical center, for example, and, in return, obtain the right to construct and lease
office space on the unused portion of the land. In this example, renovation and new construction
are the redevelopment strategy; and the work is financed by revenue generated from leasing new
office space on underutilized land.
Financial benefits to the government may also include a division of property cash flows. Under
some PPPs, the nonfederal partner leases space from an agency, renovates that space, and
subleases it at a rate higher than the rate it pays to the agency. The rental payments the nonfederal
partner receives are referred to as operating income. In order for the nonfederal partner to make a
profit, however, the sublease must generate sufficient income to exceed not only the cost of the
lease, but also operating costs and payments on debt incurred to finance the renovation. The
amount that remains after deducting lease payments, operating costs, and repayment of debt from
operating income is defined as the property cash flow. Typically, the nonfederal partner takes a
“preferred return” from the property cash flow, then divides the remaining revenue—known as
the net cash flow—into two shares, one of which the nonfederal partner keeps, and the other of
which it pays to the agency. The government has two revenue streams in this scenario: (1) lease
payments, and (2) net cash flow. The amount that the government receives from net cash flows
and the amount the nonfederal partner keeps are typically spelled out in the PPP agreement.
Examples of Common PPP Structures
There are many varieties of PPP structures, and the legal and policy ramifications of each are
unique. However, several common redevelopment and financing structures can be identified.
•
A federal agency holds underutilized land that includes four nearly vacant
warehouses. The property is in a market where there is a strong demand for federal
office space. The agency enters a PPP under which a developer leases the property
and constructs a new office building on the unused portion of the land. The developer
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subleases the warehouses and the new office space, which is partially occupied by the
lessor (i.e., the federal agency) and partially leased by other federal agencies.
•
A federal agency owns a historic building that is unoccupied and in disrepair. The
property is in a desirable location, and public and private entities are expected to be
interested in acquiring space. A developer leases the property and renovates it in
accordance with historic preservation requirements. The first floor is subleased by
retailers, and the city government subleases the office space on the floors above.
•
A federal agency owns land with a deteriorating office building and a small parking
lot. The property is in a market where there is moderate to strong demand for private
sector office space. The developer demolishes the existing building and constructs a
larger, modern office building in its place, which is partially occupied by the lessor
(i.e., the federal agency) and backfilled by businesses. The developer also replaces
the parking lot with a garage that has space for tenants and for public parking.
•
A federal agency holds family housing units that are in need of repair. The agency
wishes to retain all of the units due to a shortage of space. The developer repairs the
existing housing units and is able to add new units on underutilized land owned by
the same agency.
•
A federal agency’s utility costs are well above average due to antiquated heating and
cooling systems. A business installs new, more energy efficient equipment. In return,
the business is repaid for the cost of the equipment and installation, and receives 50%
of the energy savings.
•
A federal agency wants to add an annex to a multi-use facility it owns. A developer
builds the annex in exchange for several acres of excess property. The value of the
excess land is roughly equal to the cost of constructing the annex.
In-Kind Benefits
While the benefits obtained by agencies in the above examples generally consist of lease
payments from the developer and monetary savings through reduced utility costs and
maintenance backlogs, agencies may also receive “in-kind” benefits. As a rule, agencies are
required to obtain “fair consideration”—generally equivalent to fair market value—in exchange
for selling or leasing real property.32 However, agencies may accept non-monetary benefits as
consideration when expressly authorized by statute to do so. In-kind consideration can include the
provision of goods and services to the agency, or its personnel or clients. Examples of in-kind
consideration are illustrated below.
•
A federal agency wants new transitional housing for the clients it serves. A local
government agrees to build the new housing units on vacant land the agency owns.
The local government leases the land from the agency and uses part of the housing
32
Consideration refers to a performance or return promise that is the inducement to enter a contract, and a lease can be
seen as a type of contract. See infra note 87 and accompanying text. A legally binding contract requires, among other
things, consideration from both parties. Federal law generally requires that consideration for leases of federal real
property be in cash. See 40 U.S.C. §1302 (“Except as otherwise specifically provided by law, the leasing of buildings
and property of the Federal Government shall be for a money consideration only. The lease may not include any
provision for the alteration, repair, or improvement of the buildings or property as a part of the consideration for the
rent to be paid for the use and occupation of the buildings or property.”).
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complex for its own homeless programs. As part of the agreement, the federal
agency’s clients get priority placement for housing.
•
A federal agency needs renovated office space. A developer agrees to lease the
building, renovate it, and sublease space back to the agency. As part of the
agreement, agency personnel are allowed to use the child care center in the renovated
building at reduced rates.
•
A federal agency has unused space in a lightly utilized, deteriorating office building.
It leases a majority of the space in the building and permits the lessee to offset its rent
obligations by $1 million in exchange for building a water tower that could be used
by all of the building’s tenants.
Legal Framework as to PPPs
While many PPPs share the same key elements, discussed above (see “Key Elements of a PPP”),
there is considerable variation in the legal authorities under which federal agencies enter and
perform PPPs. This is largely because federal law is generally silent as to PPPs, per se,
particularly PPPs for purposes of improving or disposing of federal real property.33 Absent a
statute that generally authorizes the formation of PPPs, agencies seeking to enter such agreements
rely upon their authority to take the specific actions necessary to form and perform the
contemplated agreement (e.g., lease property for a specific period of time, receive consideration
in-kind). However, because individual agencies have differing authority to take such actions, the
nature of the PPPs they enter can vary. Relatedly, because agencies must rely on other
authorities—such as their authority to enter certain long-term procurement contracts—in forming
PPPs, it can sometimes be unclear whether particular legal requirements that generally pertain to
agencies’ exercise of these authorities apply to their PPPs.
Legal Authority to Enter PPPs
Unlike some state laws, federal law does not define the term public-private partnership,34 or, with
certain narrow exceptions,35 authorize agencies to enter PPPs, per se.36 Instead, those agencies
33
In a number of instances, federal law uses the term public-private partnership to refer to agreements that do not
involve the federal government, or real property. See, e.g., 20 U.S.C. §1153 (calling for federal grantees to
“demonstrate substantial public and private support” for the operation of certain facilities by implementing publicprivate partnerships between state or local public entities and private entities); 22 U.S.C. §2151b-2 (establishment and
operation of public-private partnerships within certain countries affected by the HIV/AIDS pandemic).
34
Maryland, for example, defines public-private partnership to mean a “method for delivering public infrastructure
assets using a long-term, performance-based agreement between a reporting agency and a private entity where
appropriate risks and benefits can be allocated in a cost-effective manner between the contractual partners in which (i) a
private entity performs functions normally undertaken by the government, but the reporting agency remains ultimately
accountable for the public infrastructure asset and its public function; and (ii) the State may retain ownership in the
public infrastructure asset and the private entity may be given additional decision-making rights in determining how the
asset is financed, developed, constructed, operated, and maintained over its life cycle.” MD. CODE ANN., STATE FIN. &
PROC. §10A-101(f)(1). Connecticut relies upon a similar definition that also requires the state’s partner to fund a
minimum percentage of the project’s cost. See CONN. GEN. STAT. §4-255(a)(3) (providing that “state support of a
partnership agreement shall not exceed twenty-five per cent of the cost of the project”).
35
See, e.g., Southeast Federal Center Public-Private Development Act of 2000, P.L. 106-407, 114 Stat. 1758 (Nov. 1,
2000) (authorizing the General Services Administration (GSA) to enter into leases, contracts, cooperative agreements,
limited partnerships, joint ventures, trusts, limited liability company agreements, and other agreements to provide for
(continued...)
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that have, to date, entered agreements that could be characterized as PPPs have done so under
their authority (1) to lease, otherwise convey, or permit the use of federal real property; and (2) to
enter procurement contracts.
A lease can be seen as a type of contract, whereby the owner of a particular property grants
another party the right to use the property for a certain period of time.37 However, under federal
law, a lease of real property is generally not a procurement contract. The Federal Acquisition
Regulation (FAR) defines a contract as a “mutually binding legal relationship obligating the
seller to furnish the supplies or services (including construction) and the buyer to pay for them”;
and supplies, to mean “all property except land or interest[s] in land.”38 Thus, contracts whereby
the federal government acquires leasehold interests in real property do not constitute procurement
contracts. Leases whereby the federal government disposes of interests in land are similarly
excluded because they do not involve a “seller” furnishing supplies or services to the
government.39
Authority to Lease or Otherwise Convey Real Property
Because the opportunity to acquire or use federal real property, and enjoy certain proceeds
therefrom, is typically what motivates prospective partners to enter PPPs with the government,
federal agencies have historically relied upon their authority to lease or otherwise convey real
property under their jurisdiction or control when entering PPPs.40 Many agencies have such
authority, notwithstanding the fact that GSA is commonly described as the federal government’s
“landlord,”41 and, as a rule, is responsible for the leasing and disposal of federal real property.42
Congress has enacted a number of statutes that authorize specific agencies, acting on their own
and without the involvement of GSA, to lease certain real property for particular purposes.43 For
(...continued)
the acquisition, construction, rehabilitation, operation, or use of a specific site within the District of Columbia).
36
See, e.g., ARIZ. REV. STAT. §41-2559(A) (stating that specified agencies “may enter into public-private partnership
contracts”); TENN. CODE ANN. §54-1-136(a) (“The department of transportation is authorized to undertake publicprivate partnerships with transportation fuel providers ... to install a network of refueling facilities, including storage
tanks and fuel pumps, dedicated to dispensing biofuels, including, but not limited to, ethanol (E85) and biodiesel
(B20).”).
37
See infra Applicability of Requirements Pertaining to “Contracts” or “Public Works”
38
48 C.F.R. §2.101.
39
See, e.g., Arcus Props., LLC, B-406189 (Mar. 7, 2012) (describing the transfer of certain federal real property to a
nonfederal entity as a “non-FAR real estate transaction”).
40
The terms convey and conveyance are not defined for purposes of federal property management law. However, these
terms are generally understood to encompass any transfer of ownership or interest in real property by a deed, lease, or
mortgage. Jurisdiction and control are similarly undefined for purposes of federal property management law, but
jurisdiction typically refers to the power or right to exercise authority, while control refers to power over something.
41
See, e.g., Gen. Servs. Admin., Getting Started Using GSA, available at http://www.gsa.gov/portal/content/104772?
utm_source=OCM&utm_medium=print-radio&utm_term=HDR_6_Help_new&utm_campaign=shortcuts (last
accessed: Oct. 19, 2013) (“GSA is the government’s landlord, providing office and other workspace services for the
federal government.”).
42
See, e.g., 40 U.S.C. §541 (“Except as otherwise provided in this subchapter, the Administrator of General Services
shall supervise and direct the disposition of surplus property in accordance with this subtitle.”); 40 U.S.C. §584 (“[T]he
Administrator ... may assign or reassign space for any executive agency in any Federal Government-owned or leased
building.”); 40 U.S.C. §3302 (“Only the Administrator ... may construct a public building.”).
43
Such conveyances are generally not subject to the regulations governing the disposition of federal real property
prescribed by GSA. See 41 C.F.R. §102-75.110 (“Transfers of real property must be made only under the authority of
(continued...)
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example, DOD has authority to lease nonexcess real property under its control for five or more
years in exchange for the maintenance, repair, or environmental restoration of the property or
facilities.44 This and other examples are described in Table 1. Commentators sometimes describe
agencies that have statutory authority to enter such “long-term” leases as having enhanced use
lease (EUL) authority.45 However, a number of statutes grant agencies authority that is tantamount
to EUL authority (i.e., authority to lease federal real property to public or private entities for a
number of years in exchange for cash or in-kind consideration), but do not use the term
“enhanced use lease.”46
Relatedly, some agencies also have authority to convey federal real property by means other than
leases, or to permit certain uses of such property, that they could potentially rely upon in entering
public-private partnerships. For example, Section 111 of the National Historical Preservation Act
(NHPA), as amended, authorizes federal agencies to
lease an historic property owned by the agency to any person or organization, or exchange
any property owned by the agency with comparable historic property, if the agency head
determines that the lease or exchange will adequately insure the preservation of the historic
property.47
Section 111 applies government-wide. However, some agencies have similar authority to
exchange one real property for another,48 or give away certain interests in real property.49 Other
agencies have authority to permit nonfederal entities to use their real property or facilities for a
fee,50 or subject to certain conditions. The President, for example, may permit nonfederal entities
to construct and operate international bridges, and require that these entities provide facilities or
services to federal agencies for free as a condition of their permit.51
(...continued)
Title 40 of the United States Code, unless the independent authority granted to [an] agency specifically exempts the
authority from the requirements of Title 40.”). These conveyances are also generally not subject to GSA’s regulations
regarding its own acquisition of leasehold interests in real property. See infra note 82 and accompanying text.
44
10 U.S.C. §2667. See supra note 11 for the definition of excess property.
45
See, e.g., U.S. Government Accountability Office, Federal Real Property: Authorities and Actions Regarding
Enhanced Use Leases and Sale of Unneeded Real Property, GAO-09-283R, February 2009; David S. Schuman, Space
Act Agreements: A Practitioner’s Guide, 34 J. OF SPACE LAW 277 (2008) (discussing NASA’s “EUL authority”).
46
See, e.g., 51 U.S.C. §20145 (authorizing NASA to lease any non-excess real property under its jurisdiction to any
person or entity for an unspecified term, and to accept in-kind consideration for leases entered into for the purpose of
developing renewable energy production facilities).
47
P.L. 89-665, 80 Stat. 915 (Oct. 15, 1966) (codified, as amended, at 16 U.S.C. §§470 et seq.). Historic property means
“any prehistoric or historic district, site, building, structure, or object included in, or eligible for inclusion on the
National Register.” 16 U.S.C. §470w(5).
48
See, e.g., 10 U.S.C. §18240 (authorizing the secretaries of military departments to acquire facilities needed to satisfy
military requirements for a reserve component by exchanging an existing facility with an executive agency, the U.S.
Postal Service, a State or local government, local authority, or private entity).
49
See, e.g., 38 U.S.C. §2404 (authorizing VA to convey to any state, or political subdivision thereof, in which a
national cemetery is located, all right, title, and interest of the United States in and to any government-owned or
-controlled approach road to such cemetery, provided certain conditions are met).
50
See, e.g., 51 U.S.C. §50504 (authorizing federal agencies to allow nonfederal entities to use their space-related
facilities provided certain conditions are met (e.g., the facilities will be used to support commercial space activities)).
51
33 U.S.C. §§535-535i. See also Buffalo & Fort Erie Public Bridge Auth. v. United States, 106 Ct. Cl. 731, 744
(1946) (government permitted to use facilities associated with bridge for free for immigration inspections); Julián
Aguilar, Dispute over Border Security Could Cause Delay for Bridge to Mexico, N.Y. TIMES, Oct. 20, 2013, available
at http://www.nytimes.com/2013/10/20/us/dispute-over-border-security-could-cause-delay-for-bridge-to-mexico.html?
(continued...)
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Authority to Procure Goods or Services
Procurement contracts are generally not as well suited to the formation and performance of PPPs
as leases, because procurement contracts typically have shorter durations than leases,52 and
generally contemplate the agency paying the contractor for maintaining or operating federal real
property.53 However, there are certain provisions of federal law which authorize “long-term”
procurement contracts that provide for the contractor to finance performance and then share in
any savings that the agency may realize as a result of the contractor’s performance. Perhaps the
best known of these is Section 801 of the National Energy Conservation Policy Act (NECPA) of
1978, as amended, which permits agencies to enter long-term contracts “solely for the purpose of
achieving energy savings and benefits ancillary to that purpose.”54 Such energy savings
performance contracts (ESPCs) may, “notwithstanding any other provision of law, be for a period
not to exceed 25 years,” and
shall provide that the contractor shall incur costs of implementing energy savings measures,
including at least the costs (if any) incurred in making energy audits, acquiring and installing
equipment, and training personnel, in exchange for a share of any energy savings directly
resulting from implementation of such measures during the term of the contract.55
In other words, Section 801 of NECPA contemplates third parties financing the costs of
modifications to the infrastructure of federal buildings in exchange for a share in any savings in
operating costs that may result from these modifications. Previously, federal agencies had similar
authority to enter into “share-in-savings” contracts for information technology, which provided
for the contractor to share in any savings acquired through “solutions” that it provided for
improving the agency’s mission-related or administrative processes, or accelerating the
achievement of agency missions.56 However, share-in-savings authority expired in 2005.57
Legal Requirements as to PPPs
Federal agencies’ general practice of relying on various leasing authorities when forming PPPs
can lead to questions regarding the legal requirements to which such partnerships may be subject.
(...continued)
_r=0 (permit calling for the bridge builder and operator to relocate certain machinery).
52
The prototypical federal procurement contract is for one year’s requirements of goods or services, but its term could
potentially be extended for up to five years through the incorporation and exercise of options provided for in the
contract. See 48 C.F.R. §17.103. However, agencies do have some authority to enter into multiyear procurement
contracts—often of five years’ duration—in certain circumstances. See, e.g., 10 U.S.C. §§2306b-2306c (procurements
of defense agencies); 41 U.S.C. §3903 (procurements of civilian agencies).
53
See, e.g., 48 C.F.R. §2.101 (defining acquisition to mean “the acquiring by contract with appropriated funds of
supplies or services (including construction) by and for the use of the Federal Government”) (emphasis added).
54
P.L. 95-619, 92 Stat. 3206 (Nov. 9, 1978) (codified, as amended, in relevant part, at 42 U.S.C. §8287). See infra note
65 and accompanying text for the definition of energy savings for purposes of Section 801 of NECPA.
55
42 U.S.C. §8287(a)(1).
56
10 U.S.C. §2332 (procurements of defense agencies); E-Government Act of 2002, P.L. 107-347, tit. II, §210(b), 116
Stat. 2934 (Dec. 17, 2002) (procurements of civilian agencies).
57
Agencies do not appear to have made extensive use of their authority to enter share-in-savings contracts. See U.S.
Government Accountability Office, Federal Contracting: Share-in-Savings Initiative Not Yet Tested, GAO-05-736,
July 2005, available at http://www.gao.gov/new.items/d05736.pdf (noting various reasons for agencies’ non-use of this
authority).
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Some have wondered, for example, whether agencies must issue solicitations for proposed PPPs
and whether partners are competitively selected;58 as well as whether workers on partnership
projects must be paid locally prevailing wages and fringe benefits under the Davis-Bacon and
related Acts.59 In some cases, the statute that authorizes the lease also answers some of these
questions by imposing specific requirements upon agencies’ use of its leasing or other authorities
(e.g., competitive selection of vendors). As previously discussed, the FAR60—which people
generally look to for the requirements pertaining to federal contracts—does not apply to leases of
real property, because the FAR governs procurement contracts, and leases of real property are not
procurement contracts.61 However, some agencies have adopted regulations which impose
requirements analogous to those of the FAR upon their own acquisition (if not disposal) of
leasehold interests in real property. Also, some federal statutes implemented, in part, through the
FAR could potentially be found to apply to PPPs on the grounds that a lease is a contract,62 or on
similar grounds. In yet other cases, federal law does not appear to provide any guidance on
certain questions likely to arise in the context of PPPs (e.g., selection of projects), or on the use of
specific terms that potential partners are likely to seek in any partnership agreement (e.g., noncompete provisions). Some states, in contrast, have comprehensive guidance that addresses these
and other requirements as to the PPPs of state agencies or local governments.
This section discusses various legal requirements that can apply to PPPs, including requirements
deriving from (1) the specific statutes authorizing leases of federal real property or other actions
that agencies rely upon in forming PPPs; (2) agency regulations that could be similar to the FAR;
and (3) generally applicable statutory provisions pertaining to “contracts” or “public works.” The
section also discusses situations where federal law appears to be silent on particular issues
relevant to the formation of PPPs (e.g., selection of projects, non-compete agreements). It
similarly surveys the range of requirements addressed in certain—arguably comprehensive—state
laws regarding PPPs to illustrate the various provisions that could potentially be made regarding
agencies’ formation and performance of PPPs.
Statutes Authorizing Leases or Other Agency Actions
As previously noted, agencies frequently rely upon specific statutes authorizing them to lease or
otherwise convey real property, enter energy savings performance contracts, or take other actions
when entering and performing PPPs. There are a number of such statutes. Few of these statutes
apply government-wide, and those that do often apply only to specific properties, or for specific
purposes. For example, as previously noted, agencies may rely on the authority of Section 111 of
58
See, e.g., Parkridge 6 LLC v. U.S. Dep’t of Trans., No. 1:09cv1312, 2010 U.S. Dist. LEXIS 34182 (E.D. Va. 2010)
(plaintiffs alleging, among other things, that various government entities violated the Virginia Public-Private
Partnership Act by “engineering a sole-source noncompetitive contract with a private entity” without requiring that
entity to put up capital or share risks, and seeking to have the project rebid on a competitive basis).
59
For more on the requirements of the Davis-Bacon Act, see infra notes 95-102 and accompanying text.
60
For more information on the FAR, see generally CRS Report R42826, The Federal Acquisition Regulation (FAR):
Answers to Frequently Asked Questions, by (name redacted) et al.
61
See supra note 38 and accompanying text.
62
Whether the government is the lessor or the lessee of the property could potentially play a role in determining the
applicability of particular requirements. See, e.g., Res. Conservation Grp. LLC v. United States, 597 F.3d 1238 (Fed.
Cir. 2010) (finding that certain requirements pertaining to contracts to acquire goods or services were inapplicable,
because the Naval Academy sought to dispossess itself of an interest in real property, not acquire one, when it leased
the land).
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the NHPA, to lease historic property only in order to insure its preservation.63 Similarly, agencies
may enter long-term contracts under the authority of Section 801 of the NECPA, “solely for the
purpose of achieving energy savings and benefits ancillary to that purpose.”64 Further, NECPA
defines energy savings specifically to mean reductions in the cost of energy, water, or wastewater
treatment in existing federally owned buildings or facilities as the result of specified actions (e.g.,
improvement, lease or purchase of operating equipment), among other things.65
More commonly leasing and other authorities pertain to individual agencies and, often, to specific
properties and purposes, as the examples in Table 1 illustrate. Such agency-specific statutes may
regulate certain aspects of any PPPs entered by the agency, most commonly (1) the duration of
the agreement;66 (2) the type67 and amount68 of consideration received by the agency; (3) the
terms under which conveyances may be made to different types of partners (e.g., state and local
governments as opposed to commercial entities);69 and (4) the retention and use of any funds
received by the agency as a result of the agreement.70 Other guidance sometimes appears in
statutes—such as guidance regarding the selection of projects and partners,71 the terms and
conditions of agreements,72 and whether agencies must notify Congress or the public of proposed
or finalized agreements73—but with less frequency. Conversely, in some cases, statutes expressly
authorize agencies to take certain actions vis-à-vis real property “notwithstanding any other
provision of law,”74 or on such terms and conditions as the agency may determine.75
63
16 U.S.C. §470h-3.
42 U.S.C. §8287(a)(1).
65
42 U.S.C. §8287c(2). See Appeal of Honeywell Int’l, Inc., No. 57779, 2013-1 B.C.A. ¶ 35,380 (Aug. 7, 2013)
(finding, among other things, that the challenged contractual arrangement was void because proceeds from the sale of
renewable energy certificates do not constitute energy savings under this definition). For more on the Honeywell
decision and the meaning of energy savings for purposes of Section 801 of NECPA, see CRS Legal Sidebar, Contract
Board Decision Could Change the Way That Federal Agencies Structure Energy Savings Performance Contracts, by
(name redacted), available at http://www.crs.gov/legalsidebar/details.aspx?ProdId=739&source=FeatureTopic.
66
See, e.g., 10 U.S.C. §2667 (authorizing leases of non-excess real property for five or more years); 38 U.S.C. §§81618169 (authorizing enhanced use leases of up to seventy-five years for purposes of “supportive housing”).
67
51 U.S.C. §20145 (generally requiring that NASA receive cash consideration for leases of non-excess real property,
but permitting it to accept in-kind consideration for leases for developing renewable energy production facilities).
68
Compare 10 U.S.C. §2854a (consideration equivalent to the fair market value of the property) with 38 U.S.C. §8201
(leases “for such consideration and under such terms and conditions as [VA] deems appropriate”).
69
See, e.g., 10 U.S.C. §18240 (exchanges of certain facilities under the control of military departments with other
federal agencies, the U.S. Postal Service, or a State, local government, or local authority); 51 U.S.C. §50913
(encouraging the acquisition by state governments of launch or reentry property that is excess or otherwise not needed).
70
See, e.g., 38 U.S.C. §§8162-8163, 8165 (any funds remaining after the deduction of an amount sufficient to pay for
expenses incurred in connection with the lease are to be deposited in a specified fund); 51 U.S.C. §20145 (NASA may
use any cash consideration received to cover its full costs in connection with the lease).
71
See, e.g., 38 U.S.C. §316 (VA authorized to lease and lease-back real property for purposes of the relocation of
regional offices and medical centers, but such authority may be used “at no more than seven locations”).
72
See, e.g., 10 U.S.C. §2667 (lease entered into under this authority may give the lessee the first right to buy the
property if the lease is revoked to allow the United States to sell the property); 51 U.S.C. §30303 (authorizing the
construction of facilities for use in tracking and data relay satellite services on government-owned lands, so long as the
contract includes a provision whereby the government may acquire title to the facilities when the contract expires).
73
See, e.g., 38 U.S.C. §§8164-8165 (VA to notify congressional committees of its intent to dispose of property subject
to an enhanced use lease not less than 45 days in advance, and publish a notice in the Federal Register).
74
See, e.g., 38 U.S.C. §316(b) (authorizing VA, notwithstanding any other provision of law, to lease, with or without
compensation, for a period of up to 35 years, certain property under VA’s jurisdiction).
75
See, e.g., 38 U.S.C. §8201 (authorizing leases “for such consideration and under such terms and conditions as [VA]
(continued...)
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Table 1. Tabular Comparison of Selected Leasing Authorities
10 U.S.C. §2667
10 U.S.C. §2812
38 U.S.C. §2412
38 U.S.C. §§8161-8169
Agency
DOD
DOD
VA
VA
Properties
Non-excess real
property under
DOD’s control that
is not presently
needed for public
use
Military installations
under DOD’s
jurisdiction
“Undeveloped land,” or
any “unused” or
“underutilized” facilities,
which are part of the
National Cemetery
Administration
Property under VA
jurisdiction or control
Purposes
Includes, but is not
limited to,
maintenance, repair,
or environmental
restoration of the
property or facilities
Development of troop
housing or energy
production facilities,
utilities, child care
centers, and certain
other facilities
Maintenance, protection,
or restoration of the
property
Development,
maintenance, and
operation of “supportive
housing”
Maximum
lease term
5 years (or longer, if
a longer period will
promote the national
defense or be in the
public interest)
32 years
10 years
75 years
Considera
tion
Cash or in-kind, in an
amount that is not
less than fair market
value, as determined
by the Secretary
Not directly
addressed in statutea
Leases to public or
nonprofit organizations
may provide for in-kind
consideration
VA may enter leases
without receiving
consideration; however,
any consideration must
be cash at “fair value” as
determined by the
Secretary
Terms for
different
types of
partners
Certain unique terms
and conditions apply
when community
support facilities and
services are involved
Not directly
addressed in statutea
Certain unique
conditions apply when
the lessee is a public or
nonprofit organization
Not directly addressed in
statutea
Retention
and use of
proceeds
Proceeds are
generally deposited
in a specific account
in the Treasury, and
are generally
available, in such
amounts as provided
in appropriations
acts, for specified
purposes (e.g.,
construction)
Not directly
addressed in statutea
Proceeds from lease of
land or buildings under
38 U.S.C. §2412, and
certain other funds, are
deposited in a specified
fund in the Treasury, and
are available until
expended to cover costs
incurred for national
cemetery operations
Funds received under an
enhanced used lease
remaining after the
deduction of certain
expenses pertaining to
such leases are deposited
in the VA Medical Care
Collections Fund
Selection
of
partners
Lessees generally
must be
competitively
selected (with
narrow exceptions)
Not directly
addressed in statutea
Not directly addressed
in statutea
Secretary may select
lessees using “such
selection procedures as
[he] considers
appropriate”
Lease
Lease must generally
Lease must provide
Not directly addressed
Lease may not provide
(...continued)
deems appropriate”).
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10 U.S.C. §2667
10 U.S.C. §2812
38 U.S.C. §2412
38 U.S.C. §§8161-8169
for any acquisition,
contract, demonstration,
exchange, grant,
incentive, procurement,
sale, other transaction
authority, service
agreement, use
agreement, lease, or
lease-back by VA or the
federal government
terms
permit the Secretary
to revoke it at any
time, and may grant
the lessee first right
to buy the property
if the lease is
revoked. Lease may
not provide for a
leaseback by the
Secretary with an
annual payment in
excess of $500,000
or otherwise commit
the government to
annual payments in
excess of that
amount
that, at the end of the
term, title to the
facility shall vest in the
United States, and
include terms and
conditions “necessary
or desirable to
protect [U.S.]
interests.” Lease must
also condition
obligation to pay upon
availability of
appropriations
in statutea
Notice to
Congress
& public
Generally not
required, although
notice as to waivers
of certain
requirements
pertaining to
community support
facilities and services
is requireda
Lease may not be
entered until DOD
submits a justification
and economic analysis
to Congress, and a
certain period of time
has passed
VA must give
“appropriate” public
notice of intention to
enter lease in general
circulation newspaper in
community where lands
or buildings are located
VA must conduct public
hearing in community
where the property is
located before entering
into lease, and notify
Congress, among other
things
Other
provisions
Interest of lessee
may be taxed by
State or local
governments
n/a
n/a
VA may not enter lease
unless Office of
Management & Budget
certifies in writing that it
complies with these
requirements.
Improvements &
operations on land
subject to taxation
Source: Congressional Research Service, based on various sources cited in Table 1.
a.
Other provisions of law, beyond those authorizing the lease or other conveyance, could potentially be
found to apply. See infra Applicability of Requirements Pertaining to “Contracts” or “Public Works”.
FAR Generally Inapplicable, but Regulations Could Impose FAR-Like Terms
The FAR is arguably the best known feature of federal contracting. Even those who know little
else about federal contracting are generally aware that the FAR exists, imposes specific
requirements on agencies, and prescribes “standard” terms for inclusion in certain contracts. The
FAR provides specific—often detailed—guidance on a range of topics, from planning
acquisitions and conducting market research for purposes of identifying potential suppliers, to
tendering and acceptance of performance, to contract payments and close-out. For example, the
FAR requires agencies to make information about proposed contract actions available on
FedBizOpps (https://www.fbo.gov/),76 and imposes limits upon agencies’ ability to award
contracts noncompetitively based on unsolicited proposals (which are particularly likely in the
76
See 48 C.F.R. §5.201.
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context of public-private partnerships).77 The FAR also establishes the framework whereby
agencies comply with the statutory requirement to “Buy American” when procuring supplies and
construction services,78 and prescribes the use of specific contract terms granting the government
the right to terminate contracts for default or the government’s convenience.79 However, as
previously discussed, because the FAR only governs the acquisition of supplies and services and
defines supplies to exclude interests in real property, its applicability to many federal agency
PPPs is limited.80 Only where an agency relies on its authority to enter a procurement contract—
such as an ESPC—in forming a PPP will the FAR typically apply.81
On the other hand, there could potentially be cases where the FAR itself does not apply, but the
agency has imposed certain requirements like those provided for in the FAR upon itself through
the promulgation of regulations, or as terms of its contracts. Perhaps the most notable example of
this involves the regulations governing GSA’s own acquisition of leasehold interests in real
property.82 These regulations could potentially come into play in certain PPP arrangements, and
frequently require GSA to comply with the FAR, absent exceptional circumstances. For example,
these regulations require GSA to include “provisions or clauses that are substantially the same as
the FAR provisions and clauses” regarding contract disputes in its leases.83 The regulations
similarly require that GSA generally obtain “full and open competition” through the use of
“competitive procedures” when awarding contracts to obtain leasehold interests in real property,84
and that GSA contracting officers comply with the FAR when requiring oral presentations for
acquisitions of leasehold interests.85 It is important to note, however, that GSA’s regulations
regarding the acquisition of leasehold interests in real property do not parallel the FAR in all
ways, and other agencies may not have similar regulations regarding the acquisition or
conveyance of leasehold interests in real property under their own governing statutes.
77
See generally 48 C.F.R. Subpart 15.6. An unsolicited proposal is “a written proposal for a new or innovative idea
that is submitted to an agency on the initiative of the offeror for the purpose of obtaining a contract with the
Government, and that is not in response to a request for proposals ....” 48 C.F.R. §2.101.
78
See generally 48 C.F.R. Subparts 25.1 and 25.2.
79
See generally 48 C.F.R. Part 49.
80
See supra note 38 and accompanying text.
81
See generally 48 C.F.R. §23.205.
82
See generally 48 C.F.R. Subpart 570.1. These regulations are part of the General Services Acquisition Regulation
(GSAR) and thus apply only to GSA, and only in cases where GSA is the lessee. See 48 C.F.R. §501.101(a) (“The ...
GSAR contains agency acquisition policies and practices, contract clauses, solicitation provisions, and forms that
control the relationship between GSA and contractors and prospective contractors.”); 48 C.F.R. §570.101 (similar).
GSA also has regulations, codified in Title 41 of the Code of Federal Regulations, regarding the disposition of real
property. However, these regulations generally do not apply to leases or other conveyances of real property authorized
under specific statutes. See generally 41 C.F.R. §102-75.110 (“[T]he provisions of this section shall not apply to
transfers of real property authorized to be made ... by any special statute that directs or requires an Executive agency to
transfer or convey specifically described real property in accordance with the provisions of that statute.”).
83
48 C.F.R. §570.701(a).
84
See C.F.R. §570.104 (“Unless the contracting officer uses the simplified procedures in subpart 570.2, the competition
requirements of FAR part 6 apply to acquisition of leasehold interests in real property.”).
85
See 48 C.F.R. §570.107 (“The contracting officer may require oral presentations for acquisitions of leasehold
interests in real property. Follow the procedures in FAR 15.102.”).
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Applicability of Requirements Pertaining to “Contracts” or “Public Works”
In some cases, other statutes—beyond those that authorize the lease, conveyance, or other action
that the federal agency took in entering the PPP—could impose certain requirements upon
agencies’ partnership activities. Often, these are statutes which are implemented, in part, through
the FAR, but which could be construed as applicable outside the procurement context because
they refer to “contracts” or “public works.” How particular PPP projects are structured can also
help determine the applicability of such requirements.86
For example, insofar as leases of real property are deemed to be contracts,87 they could potentially
be subject to a range of statutory requirements that pertain to contracts,88 as illustrated by the
GAO’s 2012 decision in The Argos Group.89 In this case, GAO relied upon Supreme Court and
other precedents holding that leases are contracts for purposes of the Anti-Deficiency Act and the
CDA90 in finding that GSA is required to accord “price evaluation preferences”91 to Historically
Underutilized Business Zone (HUBZone) small businesses when acquiring leasehold interests in
real property. GSA had argued that such preferences are required only in procurements of supplies
and services (i.e., procurements subject to the FAR), and a lease of real property is not a
procurement contract.92 However, GAO rejected this argument on the grounds that the relevant
provisions of the Small Business Act—which requires price evaluation and other preferences for
HUBZone small businesses—“do[] not limit the type of contract to which they apply.”93 Rather,
86
The jurisdiction in which the project is performed could potentially also help to determine the outcome in such cases.
For example, subcontractors on federal construction contracts cannot maintain mechanic’s liens—which are legal
devices commonly used to secure payment on private construction projects—against federal property because the
government has not waived sovereign immunity as to such claims. See, e.g., F.D. Rich Co. v. United States for Use of
Indust. Lumber Co., 417 U.S. 116, 122 (1974) (“Ordinarily, a supplier of labor or materials on a private construction
project can secure a mechanic’s lien against the improved property under state law. But a lien cannot attach to
Government property, … so suppliers on Government projects are deprived of their usual security interest.”). However,
courts in some jurisdictions have permitted subcontractors to maintain mechanic’s liens against leasehold interests in
federal property specifically. See, e.g., J.J. Sweet Co., Inc. v. White Cty. Bridge Comm’n, 714 N.E.2d 219 (Ind. Ct.
App. 1999) (lien attached to the leasehold despite the land being owned by the federal government); Basic Refractones,
Inc. v. Bright, 298 P.2d 810, 815 (Nev. 1986) (same); Tropic Builders, Ltd., v. United States, 475 P.2d 362, 366 (Haw.
1970) (same). Others have not. See, e.g., North Bay Constr., Inc. v. City of Petaluma, 49 Cal. Rptr. 3d 455 (Cal. Ct.
App. 2006) (declining to distinguish between property owned by the city for “government purposes,” and property used
“for proprietary purposes”); Hempstead Resources Recovery Corp. v. Peter Salamandre & Sons, Inc., 428 N.Y.S. 2d
146 (N.Y. Spec. Term 1980) (mechanic’s lien cannot be placed on a leasehold interest in public land being improved
for use as a solid waste disposal system because encumbering the leasehold would encumber the land).
87
See, e.g., Appeal of Robert J. Di Domenico, GSBCA No. 5539, 80-1 B.C.A. ¶ 14,412 (Apr. 23, 1980) (noting that
“[a]lthough leasehold interests have, over the years, developed some of the incidents of real property, such interests
remain personal property except where statutes have modified the common law rule,” and “the modern trend has been
to consider leases as contracts rather than conveyances of real property”).
88
Such leases would not, however, generally be subject to requirements pertaining to agencies’ contracts to acquire
supplies or services if they involve the dispossession of real property. See supra note 62.
89
The Argos Group, B-406040 (Jan. 24, 2012).
90
See, e.g., Leiter v. United States, 271 U.S. 204, 206-07 (1926) (Antideficiency Act); Forman v. United States, 767
F.2d 875, 879 n.4 (Fed. Cir. 1985) (Contract Disputes Act).
91
For purposes of the HUBZone program, a price evaluation preference generally works as follows: the procuring
agency adds a factor of 10% to all bids or offers (except those from HUBZone small business that have not waived the
evaluation preference and otherwise successful bids or offers from other small businesses) in determining which bid or
offer is the lowest price or represents “best value” for the government. See 48 C.F.R. §19.1307(b)(1)-(2).
92
The Argos Group, B-406040 (Jan. 24, 2012), at ¶ 13.
93
Id. at ¶¶ 9-10 (quoting, among other things, 15 U.S.C. §657a(b)(3)(B) (“[I]n any case in which a contract is to be
awarded on the basis of full and open competition, the price offered by a qualified HUBZone small business concern
(continued...)
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according to GAO, the Small Business Act “broadly applies to all federal contracts that involve
full and open competition.”94
Similar logic could potentially cause public-private partnerships to be found to be subject to
certain statutory requirements pertaining to “public buildings” and “public works,” as illustrated
by recent litigation regarding the CityCenterDC project. Although the most recent decision in this
case found that CityCenterDC is not a public work,95 the U.S. Department of Labor (DOL) has
appealed this decision and sought to reaffirm its earlier determination that CityCenterDC is a
public work and, thus, subject to the Davis-Bacon Act’s requirements as to the payment of
prevailing wages and fringe benefits on public buildings and works.96 The Davis-Bacon Act
applies, in part, to the “construction, alteration, and/or repair ... of public buildings and public
works of the [federal] Government [and] the District of Columbia.”97
In the CityCenterDC case, both the project developer and the District of Columbia have
consistently asserted that the project—which calls for the construction of several types of
buildings on land that had been variously conveyed by the city to the developer pursuant to
special warranty deeds, 99-year ground leases, and 20-year licenses—is not a public building or
work. In making this argument, the developer and the city have noted, among other things, that
the developer, not the city, contracted with the builders on this project; “no public funds” will be
used to pay for construction; none of the buildings will be constructed for use or occupancy by
the city; and the benefits the city would realize from the project are the same as those it realizes
from purely private developments (e.g., employment opportunities for residents, increased tax
base).98 However, DOL has taken the opposite view, in part, because it considers the work to have
been carried on under the city’s authority, given that “the terms of the ground leases, the
development agreements, and the Master Plan collectively provide the District with authority
over what will be built and how it will be maintained during the lease terms.”99 DOL has similarly
noted that the work entails “substantial and continuing economic gains to the District,”100 and that
certain buildings will become the District’s property at the expiration of the lease, or at an earlier
date, if the developer fails to meet specified conditions.101
(...continued)
shall be deemed as being lower than the price offered by another offeror (other than another small business concern), if
the price offered by the qualified HUBZone small business concern is not more than 10 percent higher than the price
offered by the otherwise lowest, responsive, and responsible offeror.”) (emphasis added)).
94
Id. at ¶ 10 (emphasis added).
95
District of Columbia v. Dep’t of Labor, No. 13-0730, 2014 U.S. Dist. LEXIS 43194 (D.D.C. Mar. 31, 2014). For
further discussion of this decision, see generally CRS Legal Sidebar WSLG962, CityCenterDC Decision Could Affect
How Federal Agencies Structure Public-Private Partnerships, by (name redacted).
96
See Application of the Davis-Bacon Act to Construction of the CityCenterDC Project in the District of Columbia,
ARB Case Nos. 11-074, 11-078, 11-082 (copy on file with the authors).
97
40 U.S.C. §3142(a).
98
The developer and city continued to maintain these arguments when appealing the administrative decision in federal
court. See CCDC Office LLC v. U.S. Dep’t of Labor (filed May 21, 2013, D.D.C.) (copy on file with the authors);
District of Columbia v. U.S. Dep’t of Labor (filed May 20, 2013, D.D.C.) (copy on file with the authors).
99
Application of the Davis-Bacon Act to Construction of the CityCenterDC Project, supra note 97, at 12 (quoting 29
C.F.R. §5.2(k)).
100
Id. at 13-14.
101
Id. at 3-4.
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Regardless of the eventual outcome of this litigation, CityCenterDC illustrates how a publicprivate partnership could potentially be seen to involve a “public building” or “public work”
because of how the partnership is structured. DOL’s particular focus upon the “public
entanglement” in various aspects of the development102 suggests that DOL, at least, might have
taken a different view had the PPP been structured in such a way that the District did not have the
same authority over what is built and how it is maintained during the course of the lease, or if the
economic gains to the city had been less “substantial” or “continuing.”
The structure of the particular PPP in question played a similar role in a 2007 federal district court
decision finding that housing units and other infrastructure constructed and maintained on Marine
Corps land by a private developer are not subject to local taxation.103 Here, the government had
conveyed the housing units, along with the “income stream from military personnel renting those
... units” to the developer under a 50-year ground lease.104 Two local governments asserted that
this was tantamount to a sale, and thus transferred title to the developer and subjected the project
to local taxation.105 The court found otherwise, noting that the “level of control retained” by the
United States under the project indicated that “the [federal] government still holds the land
subject to its ‘primary jurisdiction and control.’”106 However, the court expressly indicated that
the outcome could have been different had the government sectioned off a portion of the land,
effectively severing it from the military installation, and the developer then put the property to
non-military uses.107
No Relevant Provisions in Federal Law
In other cases, neither the statute that the agency relied upon in entering the PPP, nor other
provisions of law, provide guidance on certain topics, including topics that are likely to be
particularly relevant in the formation and performance of PPPs. One such topic is the selection of
projects. The primary constraints upon agencies’ determinations as to which supplies or services
to procure, and which properties to acquire leasehold interests in, are arguably based in
appropriations law. Agencies generally cannot obligate funds in excess or advance of an
appropriation;108 and appropriations may only be used for their designated purposes109 to meet
102
Id. at 3.
Atlantic Marine Corps Communities, LLC v. Onslow Cty., 497 F. Supp. 2d 743 (E.D. N.C. 2007).
104
Id. at 748. The federal government retained title to the land, and the lease provided that title to the housing and
related improvements would be transferred back to the government (or other owner of the land) upon the expiration or
termination of the lease. Id.
105
Id. at 756.
106
Id. at 758. The finding of “jurisdiction and control” here is significant because the U.S. Constitution, in what is
commonly referred to as the Enclave Clause, grants Congress the power “[t]o exercise exclusive Legislation in all cases
whatsoever, over ... all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for
the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings.” U.S. Const., art. I, §8, cl. 17.
107
497 F. Supp. 2d at 758. Cf. Baltimore Shipbuilding & Dry Dock Co. v. Baltimore, 195 U.S. 375 (1904) (company’s
fee interest subject to state taxation where the United States conveyed land to a private dock company with instructions
to construct and maintain a dry dock and grant the United States free use, and the property was to revert to the United
States if these conditions were not met); Palmer v. Barnett, 162 U.S. 399 (1896) (finding that exclusive federal
jurisdiction over certain property which it had leased to a city had terminated, at least during the term of the lease,
because the state had ceded jurisdiction to the federal government “for the use and purposes of a navy yard and navy
hospital,” and the federal government had leased a portion of the land to the city of Brooklyn “for market purposes”).
108
See 31 U.S.C. §1341(a).
109
See 31 U.S.C. §1301(a) (prohibiting the use of appropriations for purposes other than those for which they were
(continued...)
103
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bona fide agency needs.110 Because the totality of agencies’ needs typically exceed their
appropriations, their ultimate decisions as to what to procure or acquire by lease typically depend
upon their conceptions of their missions and the public interest. The same logic would not
necessarily apply in the case of PPPs, at least insofar as these projects rely solely upon private
financing.111 Because of this potential disconnect between agency missions and the interests of
potential private partners,112 some states have enacted legislation that requires agencies to
consider potential PPPs within the context of their broader priorities, and prohibits them from
giving special consideration to forming and performing partnerships just because they have
private financing.113 There do not appear to be any comparable provisions in federal law.
Another example involves “noncompete agreements,” or provisions which bar the government
from taking certain actions that could interfere with its partner’s ability to obtain the
contemplated return on its investment during the term of the partnership. Such agreements are not
standard features of federal procurement contracts or leases of real property, although certain
requirements contracts could potentially be found to have been breached if the agency were to
hire another vendor to perform these requirements (or perform the requirements itself).114
However, a number of commentators have called for the inclusion of non-compete agreements in
at least some PPPs, particularly those where a developer builds a facility and then operates it,
relying on the revenue generated from the facility’s operations to pay off the costs of
construction.115 In such situations, developers are likely to want an agreement whereby the
(...continued)
appropriated).
110
See, e.g., Funding for Air Force Cost Plus Fixed Fee Level of Effort Contract, B-277165 (Jan. 10, 2000) (fiscal year
appropriation may be obligated only to meet a legitimate—or bona fide—need arising or, in some cases, continuing in
the fiscal year for which the appropriation was made). This is commonly known as the “bona fide needs rule.”
111
In some cases, agencies have express authority to use appropriated funds in performing agreements that could be
characterized as PPPs. For example, Section 801 of the National Energy Conservation Policy Act was amended in 2007
to authorize agencies to use appropriated funds to partially finance energy savings performance contracts. Energy
Independence and Security Act of 2007, P.L. 110-140, §512, 121 Stat. 1658 (Dec. 19, 2007) (codified at 42 U.S.C.
§8287c(2)(E)(i)-(ii)).
112
See, e.g., Ellen M. Erhardt, Caution Ahead: Changing Laws to Accommodate Public-Private Partnerships in
Transportation, 42 VAL. U.L. REV. 905, 948-49 (2008) (“By allowing the private sector to enter an unsolicited bid,
many projects may become potential PPPs which would otherwise not be considered.”); Karen J. Hedlund & Nancy C.
Smith, “SAFETEA-LU Promotes Private Investment in Transportation,” Aug. 1, 2005, available at
http://www.transportation1.org/aashtonew/docs/pabs.doc (“Solicited bids enable the responsible public entity to
communicate its transportation project priorities. Unsolicited proposals, by contrast, enable the private sector to
propose projects that the public entity might not otherwise have considered.”).
113
See, e.g., CAL. ED. CODE §81004(b)(1) (“If a community college requests state funding for an education building or
education center constructed through a public-private partnership, funding for that facility shall not supersede
community college facilities that have been previously prioritized by the board of governors and are awaiting state
funding. These facilities shall be subject to the board of governors’ annual prioritization process and shall not receive
higher priority for state funding solely because the facilities are constructed through a public-private partnership.”).
114
See, e.g., Torncello v. United States, 681 F.2d 756 (Fed. Cl. 1982) (agency obtaining goods or services from another
vendor); Kalvar Corp. v. United States, 543 F.2d 1298 (Ct. Cl. 1976) (termination in bad faith so as to use an alternate
source); Maya Transit Co., ASBCA 20186, 75-2 BCA ¶ 11,552 (1975) (agency’s developing additional in-house
capacity to perform certain work breached requirements contract which entitled the contractor to supply those goods or
services “in excess of the quantities which the activity may itself furnish with its own capabilities”). A requirements
contract is one “by which one party, the seller, agrees to satisfy all of the agency’s requirements for services and/or
items for a specified period of time.” Aviation Specialists, Inc., DOTBCA 1967, 91-1 BCA ¶ 23,534 (Dec. 30, 1990).
115
See, e.g., Emilia Istrate and Robert Puentes, Moving Forward on Public Private Partnerships: U.S. and International
Experience with PPP Units, Brookings-Rockefeller Project on State and Metropolitan Innovation, Dec. 2011, at 13,
available at http://www.brookings.edu/~/media/research/files/papers/2011/12/
(continued...)
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agency promises not to develop or operate other facilities whose existence could cut into the
revenue that the developer receives from operating its facilities, and commentators sometimes
point to PPPs that have “failed” because they lacked such agreements.116
In such situations, federal agencies are currently generally left to their own devices in
determining whether to take particular actions (e.g., undertake particular PPPs, consent to noncompete agreements). They are also responsible for drafting any contractual terms on their own,
without the benefit of “standard” contract clauses, such as those provided in the FAR.117 As a
result, there could potentially be wide variation between agencies in terms of their willingness to
enter PPPs, and the terms of any partnerships that they might perform. This variability could
potentially limit parties’ willingness to commit to PPPs, as well as public acceptance of PPPs, as
discussed below. See “Legal Uncertainties Could Deter Use of PPPs.”
Comparison to State Law
Federal law’s general lack of guidance regarding the legal requirements governing agencies’ PPPs
is in marked contrast to state law. As of June 2014, at least 29 states had statutes which not only
define public-private partnership or expressly authorize state agencies or local governments to
form PPPs, but also provide guidance regarding specific aspects of their use.118 In some of these
states, as Table 2 illustrates, the guidance can arguably be characterized as “comprehensive,” in
that it (1) addresses the powers of the state agency and its partner in such agreements; (2)
generally requires the completion of feasibility studies before a partnership is undertaken; (3)
prescribes procedures for the competitive selection of partners; (4) provides certain protections
for offerors (including those whose proposals are not selected); (5) calls for the inclusion of
specific terms in any partnership agreements; (6) establishes a framework for setting any userfees; and (7) provides for the termination or expiration of the agreement. In other states, the
guidance is more limited, and addresses only some of these topics.119
(...continued)
08%20transportation%20istrate%20puentes/1208_transportation_istrate_puentes.pdf (noting that the “existence of
some type of non-compete clause is attractive to the private sector because it lowers the risk of competition from
substitute assets,” and reporting that only five states expressly prohibit the use of such clauses).
116
See, e.g., Christopher D. Carlson, Public-Private Partnerships in State and Local Highway Transportation Projects,
THE FEDERAL LAWYER, Nov./Dec. 2008, at 34, 37 (noting that, after the State of Virginia improved a “competing” road
ahead of schedule, the developer on the Dulles Greenway project defaulted on its payments in 1996; the project had to
be refinanced in 1999; and the project generated only 35% of its projected revenue in its fifth year). But see id. (noting
that, in the case of the California State Route 91 project, the state had to purchase the road from its private partner, at a
cost of $81.9 million more than the cost of building the road, in order to make improvements to non-tolled lanes of the
road).
117
Because they have been reviewed by multiple people and used in various contexts, “standard” clauses may be better
drafted than clauses specially drafted for inclusion in particular contracts. Some commentators have noted that well
drafted contracts are essential for ensuring performance under PPPs, and that agency contracting personnel may be illprepared to oversee the formation and performance of PPPs. See, e.g., Peter C. Halls, Issues for Designers,
Contractors, and Suppliers to Public Private Partnership Projects, 30 CONSTR. LAWYER 22 (2010); David W. Gaffey,
Outsourcing Infrastructure: Expanding the Use of Public-Private Partnerships in the United States, 39 PUB. CONT. L.J.
351 (2009/2010).
118
See generally CRS Congressional Distribution Memorandum, State Laws Regarding Public-Private Partnerships
for Property Management, by (name redacted), June 3, 2014 (copy available by request from the author).
119
Other states having “comprehensive” type guidance include Arizona, California, Connecticut, Florida, Georgia,
Illinois, Louisiana, Missouri, and Virginia. States with more limited guidance, addressing only specific issues, include
Alabama, Alaska, Arkansas, Massachusetts, Maryland, Minnesota, New Hampshire, New Jersey, North Carolina,
(continued...)
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Table 2. Sample Provisions in “Comprehensive” State PPP Statutes
Examples Taken from the Indiana Code Annotated
Topic
Selected Provisions
Powers of
agency
State agency may take certain actions in developing, financing, or operating PPPs, and may use
revenues arising out of PPPs to develop, finance, or operate such partnerships, or “as otherwise
considered appropriate by the department” (IND. CODE ANN. §8-15.7-3-1).
Powers of
agency partner
Partner may develop, finance, and operate qualifying projects, and impose user fees in connection
with the use of such projects (IND. CODE ANN. §§8-15.7-3-2 to 8-15.7-3-4). Operator may also
own, lease, or acquire any property interest or other right in order to develop, finance, or operate
qualifying projects (IND. CODE ANN. §8-15.7-3-3), as well as make any user classifications permitted
in the PPP agreement, and enforce “reasonable rules” to the same extent that the agency may
make and enforce rules with respect to similar projects (IND. CODE ANN. §8-15.7-3-4).
Facilitating
participation
Agency required to establish a program to “facilitate participation” in qualifying projects by small,
minority, Indiana, and women-owned businesses, as well as businesses treated as disadvantaged
business enterprises under federal or state law (IND. CODE ANN. §8-15.7-3-5).
Feasibility
studies
Agency generally must have preliminary feasibility studies and economic impact studies conducted
by one or more firms internationally recognized in the preparation of such studies on any parts of
the project consisting of tollways, and must conduct public hearings on these studies in the county
seat of the county where the proposed project would be located (IND. CODE ANN. §8-15.7-35(b)(1)). Feasibility study must be based upon a public-private financial and delivery structure, and
the economic impact study must, at minimum, include an analysis of impacts on employment and
commercial and industrial development (IND. CODE ANN. §8-15.7-3-5(b)(2)). After the feasibility
and economic impact studies are complete, agency must schedule another public hearing on the
project in the county seat of any county that is an “affected jurisdiction” (IND. CODE ANN. §8-15.73-5(b)(3) & (4)). Thereafter, the studies must be submitted to certain legislative committees for
review before commencement of the project (IND. CODE ANN. §8-15.7-3-5(b)(5)).
Competitive
proposals
Agency may pursue a competitive proposal procedure using requests for qualifications (RFQs), or
proceed directly to a request for proposals (RFPs) (IND. CODE ANN. §8-15.7-4-2(b)). Qualifications
must be evaluated based on requirements and criteria set forth in the RFQ (IND. CODE ANN. §815.7-4-2(d)). If there is no RFQ, agency must provide public notice of the RFP, and submit a copy
to the budget committee for review before its issuance (IND. CODE ANN. §8-15.7-4-2(f) & (g)).
Agency must determine the evaluation criteria appropriate for each project, include these criteria
in the RFP, and evaluate proposals based on the criteria (IND. CODE ANN. §8-15.7-4-2(h)-(i)).
Agency must also hold public hearings on the preliminary selection of the operator and the terms
of the proposed agreement (IND. CODE ANN. §8-15.7-4-2(l)).
Selection of
offer
Agency’s decision as to operator is to be submitted to the governor and budget committee for
review, and once the governor accepts the agency’s determination, the agency may execute the
agreement (IND. CODE ANN. §8-15.7-4-3). Agency may also withdraw the RFQ or RFP, decline to
make an award and interview offerors, among other things (IND. CODE ANN. §8-15.7-4-5).
Protections for
offerors
Agency may pay stipulated amounts to unsuccessful offerors who submit responsive proposals in
exchange for work product contained in that proposal (IND. CODE ANN. §8-15.7-4-4). Contents of
proposals may not be disclosed during discussions or negotiations with potential offerors, and all
records relating to such discussions or negotiations may be treated as confidential (IND. CODE
ANN. §8-15.7-4-6).
Terms of the
agreement
Agreement must require the completion of any obligatory environmental analysis; ownership by
the state of the property on which the project is located; and an expedited method for resolving
disputes (IND. CODE ANN. §8-15.7-5-1.5). Agreement must also incorporate the duties of the
(...continued)
Oklahoma, South Carolina, Tennessee, Texas, Utah, Washington, and West Virginia. The relevant provisions of these
and other states’ laws can be found in CRS Congressional Distribution Memorandum, State Laws Regarding PublicPrivate Partnerships for Property Management, supra note 120.
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Public-Private Partnerships for Purposes of Federal Real Property Management
Topic
Selected Provisions
partner, and any other terms and conditions that would serve the public interest, and may include
provisions for notice of default and cure rights (IND. CODE ANN. §8-15.7-5-4). Agreement may
provide for the delivery of performance and payment bonds or other security; review of plans for
development or operation; maintenance of public liability insurance policies or self-insurance;
monitoring of the partner’s maintenance practices; reimbursement to the agency for services it
might provide; filing of appropriate financial statements and reports; compensation or payments to
the partner or others for specified purposes (e.g., development fees); compensation or payment to
the agency in the form of concession or lease payments, etc.; date and terms of the termination of
the partner’s authority and duties; reversion of the project to the agency; and the agency’s rights
and remedies if the partner defaults (IND. CODE ANN. §8-15.7-5-1). Agreement may not provide
that the state or agency is responsible for any debt incurred by the partner in connection with the
delivery of the project (Id).
User fees
Agency may fix and revise amounts of user fees that the operator may charge (IND. CODE ANN. §815.7-5-2).
Financing of
project
Agency may make grants or loans for development or operation of qualifying projects (IND. CODE
ANN. §8-17.7-5-3). For purposes of financing qualifying projects, agency may propose to use all or
part of available revenues, enter into grant agreements, access any designated transportation trust
funds, access any other funds available, and accept grants (IND. CODE ANN. §8-15.7-8-5). May also
enter into agreements to take specified actions (e.g., issue bonds) (IND. CODE ANN. §8-15.7-8-6).
Public funds may be aggregated with private funds (IND. CODE ANN. §8-15.7-8-7).
Distribution of
payments
If agency receives any payment or compensation, it must be distributed to the “major moves”
construction fund; the state highway fund; the alternative transportation construction fund; or the
operator for debt reduction (IND. CODE ANN. §8-15.7-5-5).
Termination or
expiration of
agreement
Upon termination or expiration of agreement, department may take over the project and succeed
to all rights, titles, and interests in it, and may take specified actions if it does so (e.g., impose,
collect, retain, and use any user fees) (IND. CODE ANN. §8-15.7-5-6).
Standards for
plans and
specifications
Any plans and specifications developed under agreement must comply with department’s standards
for other projects of a similar nature, and any other applicable state or federal standards (IND.
CODE ANN. §8-15.7-6-1).
Treatment as
public works,
and otherwise
Partner need not comply with certain provisions regarding state procurements and public works
(IND. CODE ANN. §8-15.7-6-2). Projects are considered part of state highway system for purposes
of maintenance and enforcement (IND. CODE ANN. §8-15.7-6-3).
Tax treatment
Partners or others purchasing tangible personal property for incorporation into or improvement
of a structure constituting or becoming part of land included in a project are exempt from gross
retail and use taxes (IND. CODE ANN. §8-15.7-7-2), but income received by a partner is subject to
taxation in the same matter as other income (IND. CODE ANN. §8-15.7-7-3).
Resolution of
claims
Agency must establish an expedited method for resolving disputes between and among parties
(IND. CODE ANN. §8-15.7-12-2).
Nonimpairment
Agency may not take any action under this chapter that would impair the partnership, nor may
political subdivisions of the state (IND. CODE ANN. §§8-15.7-14-6, 8-15.7-15.1).
Source: Congressional Research Service, based on various sources cited in Table 2.
Considerations for Congress
In considering whether to expand federal agencies’ ability to enter PPPs, or overseeing the use of
existing PPP authorities, Congress may want to pay particular attention to certain topics, such as
(1) the limited information currently available regarding agencies’ PPP authorities and their use
thereof; (2) the degree to which legal uncertainties may deter agency use, or public acceptance, of
PPPs; (3) agencies’ capabilities to enter and perform PPPs; (4) whether agencies should be
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Public-Private Partnerships for Purposes of Federal Real Property Management
required to develop business plans for their partnership activities; (5) whether agencies should be
required to notify Congress, or obtain its approval, when entering into PPPs; (6) agencies’ ability
to retain and use net proceeds from PPP agreements; and (7) the interplay between PPPs and the
current disposal process. Other issues could potentially arise in specific contexts, depending upon
the nature of the partnership and the authorities under which it is entered and performed.
However, the foregoing seven issues would appear to be common regardless of the context.
Limited Information about PPP Authorities and Their Use
Currently, there does not appear to be any comprehensive source of information about the various
PPP authorities of different landholding agencies. GAO has issued reports on particular types of
real property authorities that may permit agencies to enter PPPs (e.g., enhanced use lease (EUL)
authority),120 and it has conducted in-depth analyses of PPP activities at particular agencies.121
However, GAO does not appear to have conducted a comprehensive analysis of all agencies’ PPP
authorities and practices.
Absent a more comprehensive picture of agencies’ PPP authorities, it is difficult to compare
various agencies’ authorities, or evaluate how particular authorities have been applied, and what
effect they may have on reducing excess and underutilized space. Information about existing PPP
authorities could be particularly useful if paired with feedback from real property managers at
landholding agencies. GAO’s report on EUL agreements, for example, included comments from
agency officials regarding the benefits and limitations of particular authorities, as well as opinions
on what types of authorities they would like to have and how the ability to exercise such
authorities would improve real property management. One agency told GAO auditors, for
example, that “budget scorekeeping rules under OMB Circular A-11 limit [its] ability to
maximize usage of its EUL authority.”122 Further information of this type could help Congress
draft legislation which meets specific real property needs—as identified by practitioners—and
whose application is not limited by unanticipated factors, such as budget scoring rules.
Legal Uncertainties Could Deter Use of PPPs
The lack of detailed legal requirements can have certain benefits, particularly where PPPs are
concerned. Some have noted that such partnerships differ from “standard” procurement contracts
in that they require the parties to work together much more closely to achieve shared goals.123
120
See, e.g., U.S. Government Accountability Office, Federal Real Property: Improved Cost Reporting Would Help
Decision Makers Weigh the Benefits of Enhanced Use Leasing, GAO-13-14, Dec. 9, 2012.
121
U.S. Government Accountability Office, Defense Infrastructure: The Enhanced Use Lease Program Requires
Management Attention, GAO-11-574, June 30, 2011; U.S. Government Accountability Office, VA Real Property: VA
Emphasizes Enhanced-Use Leases to Manage Its Real Property Portfolio, GAO-09-776T, June 10, 2009; U.S.
Government Accountability Office, NASA: Enhanced Use Leasing Program Needs Additional Controls, GAO-07306R, Mar. 1, 2007.
122
U.S. Government Accountability Office, Federal Real Property: Authorities and Actions Regarding Enhanced Use
Leases and Sale of Unneeded Real Property, GAO-09-283R, February 2009, at pg. 15. OMB Circular A-11 guides the
preparation and submittal of budget estimates.
123
See, e.g., Chem Sev., Inc. v. Envir. Monitoring Sys. Lab.—Cincinnati of the U.S. Envir. Protection Agency, 816 F.
Supp. 328 (E.D. Pa. 1993) (characterizing one type of public-private partnership agreement—a cooperative research
and development agreement (CRADA)—as “much more flexible and subtle” than a procurement contract because
success with a CRADA depends upon shared goals and the parties’ ability to work together with a high degree of trust
toward those goals, while parties to a procurement contract often lack common interests and goals).
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Thus, it has been suggested, flexibility as to the terms and conditions of such agreements is
optimal because the agency and its partner(s) can devise an instrument that is best tailored to meet
their needs.124
On the other hand, an argument could be made that, insofar as lack of detailed legal requirements
results in uncertainty about what requirements apply to particular projects, it may limit parties’
willingness to commit to PPPs, as well as public acceptance of PPPs. Both government agencies
and prospective partners may be less likely to enter PPP agreements if they perceive there to be
significant uncertainties about their rights and responsibilities under these agreements.125
Similarly, the public could remain skeptical of PPPs if the agreements are seen as being entered
into or performed in ways that contradict public expectations about how government activities are
to be conducted. For example, there is a widespread expectation that the government selects its
business partners competitively and impartially, after publicly advertising its needs. This
expectation could potentially be thwarted if an agency enters a PPP based on an unsolicited
proposal with an entity that happens to be politically well connected.126
Questions about Agency Capabilities to Enter and Perform PPPs
PPPs can be complicated arrangements, requiring knowledge of a range of disciplines: real
property, architecture, civil engineering, procurement, and law, to name a few. An agency that
lacks a staff with expertise in these disciplines may be at risk of entering into an agreement that
does not represent the best value for the government, and of making costly mistakes when
implementing the agreement. According to GAO, agency expertise is one of the five key factors
in the successful implementation of PPPs. Specifically, GAO reported that the “agencies we
reviewed also told us that they established organizational structures and acquired the necessary
expertise to interact with private-sector partners to ensure effective partnership.”127
The monetary consequences of arguably inadequately trained staff entering into real property
contracts were illustrated in 2010 when the Securities and Exchange Commission (SEC) entered
into a $556 million lease for 900,000 square feet of office space in Washington, DC—600,000
124
See, e.g., Avoiding the Pitfalls of Public Private Partnerships: Issues to be Aware of When Transferring
Transportation Assets, 35 TRANS. L.J. 25, 25-36 (2008) See also Panel Discussion: Public Oversight of Public/Private
Partnerships, 25 FORDHAM URBAN L.J. 1357, 1371 (“One person’s oversight is another person’s red tape.”) (statement
of Wayne Hawley, Deputy Counsel to the New York City Conflicts of Interest Board).
125
Cf. David W. Gaffey, Outsourcing Infrastructure: Expanding the Use of Public-Private Partnerships in the United
States, 39 PUB. CONT. L.J. 351, 359 (2009/2010) (“[T]he expansion of PPPs is significantly hindered by lack of a clear
and comprehensive regulatory framework governing the[ir] use.”). The author here specifically notes the lack of
comprehensive regulations for determining whether proposed partnerships are in the public interest, or how national or
local interests might be affected by particular projects.
126
See, e.g., Eden Township Healthcare Dist. v. Sutter Health, 135 Cal. Rprt. 3d 802 (2011) (declining to void two
contracts due to alleged conflicts of interests involving two health care district officials who had ties to the contractor);
Ellen M. Erhardt, Caution Ahead: Changing Laws to Accommodate Public-Private Partnerships in Transportation, 42
VAL. U.L. REV. 905, 949 (2008) (noting the appearance of impropriety, and the possibility of misconduct, if “stringent”
competition requirements are lacking).
127
U.S. Government Accountability Office, Public-Private Partnerships: Key Elements of Federal Building and
Facility Partnerships, GAO/T-GGD-99-81, April 29, 1999, at pg. 5. The other key elements were: (1) responding to a
catalyst for changing agency real property management policies and practices; (2) having express statutory authority to
enter into PPPs; (3) developing detailed business plans to assist in PPP decision-making (discussed below, “Potential
Requirements to Develop Business Plans for PPPs”); and (4) having stakeholder support.
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square feet more than the amount of space the agency needed.128 Among the factors that
contributed to this “misguided leasing decision” was the fact that the SEC had only established a
leasing office in 2009, and did not put leasing policies into place until 2010.129 As this example
illustrates, the lack of a solid real property organization within an agency can lead to poor
decision making and costly mistakes. Congress may wish to evaluate the internal structure of
landholding agencies, to ensure that they have the requisite expertise, before providing them with
PPP authority.
Potential Requirements to Develop Business Plans for PPPs
The likelihood of developing a PPP that results in maximum benefits to both partners may be
enhanced by the use of business plans. The U.S. Postal Service (USPS) has developed and
executed business plans as part of its PPP management process for years.130 The business plans
include information about the “division of risks and responsibilities between the Postal Service
and its private-sector partner.”131 According to USPS officials, business plans are critical to the
successful implementation of PPPs, in part due to the fact that they are drafted jointly with the
private partner.132 Based on USPS’s experience, other agencies might benefit from being required
to develop business plans prior to entering a PPP. At a minimum, the development of a business
plan should help ensure that the agency and its nonfederal partner(s) engage in ongoing
discussions about how to structure the agreement to the benefit of both partners. The process of
developing business plans may also facilitate the sharing of market information and thereby
improve decision-making as the agreement is being negotiated. In addition, business plans
provide a road map for PPP implementation, which may help the partners meet milestones and, if
made public or shared with Congress, could potentially facilitate oversight.
Potential Requirements as to Congressional Notice or Approval
One of the ways Congress maintains oversight of real property decisions that are made by GSA—
which is one of the government’s largest landholding agencies—is through the prospectus
approval process. Congress has enacted legislation that purports to prohibit appropriations from
being made for certain property management purposes unless the House Committee on
Transportation and Infrastructure (T&I) and the Senate Committee on Environment and Public
Works (EPW) have “adopted resolutions approving the purpose for which the appropriation is
made.”133 GSA is further required, in order “[t]o secure consideration for [this] approval,” to
transmit to Congress a prospectus of the proposed facility that includes a brief description of the
building to be constructed, altered, or acquired, or the space to be leased, among other things.134
In addition, GSA’s annual appropriations acts have frequently provided that “funds available to
128
Securities and Exchange Commission, Office of Inspector General, Improper Actions Relating to the Leasing of
Office Space, Case No. OIG-553, May 16, 2011, at pg. 3.
129
Id.
130
U.S. Government Accountability Office, Public-Private Partnerships: Key Elements of Federal Building and
Facility Partnerships, GAO/T-GGD-99-81, April 29, 1999, at pg. 5.
131
Id.
132
Id.
133
40 U.S.C. §3307(a)(1)-(3)).
134
40 U.S.C. §3307(b)(1)-(7).
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[GSA] shall not be available for expenses for any ... acquisition project for which a prospectus, if
required by the Public Buildings Act of 1959, has not been approved.”135
While these “requirements” are probably not legally binding,136 GSA has historically complied
with them on the grounds that “[t]he relationship between GSA and its authorizing committees is
paramount.”137 Similar provisions could potentially also lead to compliance, as a matter of
comity, in other contexts, and requiring agencies to seek authorization before entering into PPPs
could provide Congress with an opportunity to monitor agency PPP activity and evaluate the
soundness of proposed partnerships. Alternatively, agencies could be required to provide
Congress with, at a minimum, advance notice of proposed PPPs, as some states require.138
Agencies’ Authority to Retain and Use Net Proceeds
Real property disposals, such as leasing federal space to nonfederal partners, often generate
sufficient revenue that agencies may realize positive net cash flow. Should Congress consider
expanding PPP authorities, one issue that may arise is whether agencies should be permitted to
retain net proceeds, and, if so, with what limitations. Federal agencies generally say that the
authority to retain net proceeds from the disposal of real property—and to use those proceeds as
they see fit—is a strong incentive to lease or sell unneeded space.139
135
See, e.g., Consolidated Appropriations Act, 2010, P.L. 111-117, 123 Stat. 3189 (Dec. 16, 2009).
There are two interrelated reasons for questioning whether prospectuses are required to be submitted or approved in
all situations contemplated by the authorities cited in footnotes 135 through 137. First, absent a constitutional
amendment, one Congress cannot bind future Congresses. See, e.g., United States v. Winstar Corp., 518 U.S. 839, 872
(1996) (“[O]ne legislature may not bind the legislative authority of its successors.”). Thus, although Section 7(a) of the
Public Buildings Act purports to bar Congress from enacting appropriations for public building projects whose
purposes have not been approved by the committees of jurisdiction, Congress can nonetheless enact measures that
permit the construction, alteration, or lease of space whose purposes have not been so approved. Perhaps most
commonly, Congress appropriates funds to GSA for the construction, alteration, or lease of space for which a
prospectus has not been submitted or approved, an action which is generally taken to reflect Congress’s intent to fund
the project notwithstanding the provisions of Section 7(a). See GSA, Public Building Services Leasing Desk Guide, last
revised Sept. 2, 2011, at 11-2 (expressing the view that GSA, “[a]s a matter of strict interpretation of fiscal law, ... may
obligate funds ... regardless of whether the Committees have adopted resolutions approving the project”). GSA then
uses this appropriation, in conjunction with its statutory authority to acquire real property under the Federal Property
and Administrative Services Act (FPASA), to undertake the project. Second, and relatedly, in situations where an
appropriation has been made, GSA takes the view that the language in its appropriations acts barring it from using
funds for projects for which prospectuses have not been approved constitutes a “legislative veto that violates the
separation of powers provisions of the U.S. Constitution.” Id. The term legislative veto is commonly used to describe a
provision that authorizes one House (or committee) of Congress, acting alone, to invalidate an executive branch action.
In Immigration and Naturalization Service v. Chadha, the Supreme Court found that legislative vetoes violate the
constitutional requirement that legislative acts be passed by both houses of Congress and presented for the President’s
approval. 462 U.S. 919 (1983). GSA asserts, arguably correctly, that a provision that effectively permits one committee
of Congress to disapprove (by declining to adopt a resolution of approval) a project the executive branch is undertaking
pursuant to authority delegated to it by Congress (through FPASA and an appropriation) constitutes a legislative veto.
137
GSA, Public Building Services Leasing Desk Guide, last revised Sept. 2, 2011, at 11-2 (“The Committees expect
that GSA will not award any projects over the threshold unless approved, and, as a matter of comity, GSA honors that
expectation. GSA’s policy is not to enter into [projects] above the prospectus threshold unless the Committees adopt
resolutions approving the project.”).
138
See, e.g., MD. CODE ANN., STATE FIN. & PROC. §10A-101(c)(1) (“Not less than 45 days before issuing a public
notice of solicitation for a public-private partnership, the Authority shall submit to the budget committees [of the state
legislature], in accordance with §2-1246 of the State Government Article, a report concerning the proposed publicprivate partnership.”).
139
U.S. Government Accountability Office, Federal Real Property: Authorities and Actions Regarding Enhanced Use
(continued...)
136
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While permitting agencies to retain net proceeds may result in an increased willingness to use
PPPs, some stakeholders believe that congressional oversight may suffer if agencies have too
much latitude. Congress has many options for addressing these concerns. PPP legislation could
require agencies to deposit net proceeds in the general fund of the Treasury as miscellaneous
receipts, or to reduce the debt. This would establish complete congressional control over net
proceeds, but could remove the primary incentive some agencies have for entering into PPPs.
Alternatively, legislation could require agencies to deposit net proceeds into a fund designated for
agency real property activity, and specify whether withdrawals require congressional approval
through an appropriation law.140 Requiring re-appropriation of net proceeds would add an
additional layer of oversight, but might deter some agencies from pursuing PPPs since they would
have limited control over the funds. Yet another option would be authorize agencies to use net
proceeds for any real property activity they deem appropriate, without requiring congressional
approval—an option which would provide agencies with considerable autonomy—or permit them
to expend net proceeds for any function that the agency is authorized to perform. As this last
option provides the least direct oversight, Congress could potentially also require agencies to
report on how they spend their net proceeds.
Clarifying Interplay between PPPs and Current Disposal Process
As discussed earlier in this report, the real property disposal process is prescribed by statute.141
Once a property has been declared as “excess,” it enters the disposal process and the agency that
controls the property must follow the required steps unless the agency has specific statutory
authority to bypass them. Congress may consider whether underutilized and vacant properties
should be evaluated as candidates for PPPs prior to being declared excess. Doing so would
essentially establish a screening process whereby unneeded space was first considered for a PPP,
and only if deemed unsuitable would it enter the statutory disposal process. This might result in a
larger number of underutilized and vacant properties being redeveloped, but it would also reduce
the number of such properties that could be offered to other federal agencies, conveyed to serve a
public purpose, or sold outright. PPP legislation may also provide agencies with specific authority
to bypass statutory disposal requirements. Doing so may increase the amount of interest
nonfederal entities take in PPP options, because such entities know that agencies can keep a
property out of the disposal process, where it might be tied up for months. It may also be the case
that systematically screening properties for PPP suitability and offering them for redevelopment
and renovation might take just as long as the “standard” disposal process. In the absence of data
on the length of time it takes to finalize a PPP and the financial benefits that accrue to the
government as a result, it is not clear whether giving agencies special authorities to dispose of
unneeded space through PPPs would yield greater returns than disposing of the same properties
through the existing process.
(...continued)
Leases and Sale of Unneeded Real Property, GAO-09-283R, February 2009, at pg. 4.
140
See, e.g., 10 U.S.C. §2607 (proceeds from the sale of certain property received as a gift shall be deposited in the
Treasury and be available for disbursement to the extent provided in annual appropriation acts).
141
See supra “Standard” Disposal Process Can Be Cumbersome and Costly.
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Conclusion
Congressional interest in PPPs for purposes of federal real property management seems likely to
persist—and may increase—given the constraints of the current real property disposal process
and of the fiscal climate. A number of potential benefits of PPPs have been identified, and the
common elements of such partnerships are widely recognized. The legal framework governing
federal agencies’ use of PPPs, in contrast, is less clear. Federal law does not define the term
public-private partnership; nor, with certain narrow exceptions, does it authorize agencies to
enter PPPs, per se. Instead, federal agencies have historically relied upon their authority to lease,
otherwise convey, or permit the use of federal real property, or their authority to enter certain
long-term procurement contracts, when forming PPPs. However, because individual agencies
have different authority to lease real property or take other actions in forming PPPs, there is often
considerable variability in the types of PPPs they may enter. In addition, there can also be
uncertainty as to the legal requirements governing agencies’ use of leasing and related authorities
in the PPP context. In legislating to expand agencies’ authority to enter PPPs, or in overseeing
their use of existing PPP authorities, Congress may wish to consider, among other things,
agencies’ capabilities to enter and perform PPPs; whether agencies should be required to develop
business plans for PPPs; and the relationship between PPPs and the current real property disposal
process.
Author Contact Information
(name redacted)
Specialist in American National Government
[redacted]@crs.loc.gov, 7-....
Congressional Research Service
(name redacted)
Legislative Attorney
[redacted]@crs.loc.gov, 7-....
30
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