CarolinasAGCHomeOf~~IBuild®

Public Private Partnership Commission Meeting9:30 a.m., Thursday, January 13,2011

Room 1228, Legislative Building

I'm Dave Simpson with Carolinas AGC - Associated General Contractors.I

Thank you to the Co-Chairs - Sen. Jenkins and Rep. Ross - and to all members of the PublicPrivate Partnership Commission for allowing Carolinas AGC to discuss Public PrivatePartnerships.

Carolinas AGC has nearly 2,300 members - building, highway-heavy and utility contractors aswell as specialty contractors, subcontractors, suppliers, service companies and others in thecommercial construction industry. We commend the commission for its good efforts to date inlooking at the issue of PPPs.

We also appreciate, at your last meeting, comments by some commission members, includingRep. Ross, about the need to look at ways to finance badly needed infrastructure projects forstate and local governments in North Carolina.

Carolinas AGC believes that Public Private Partnerships can be a good way to do someconstruction projects, including toll roads where there is an outside funding source to pay for theconstruction. Parking decks also can be another good use of PPPs, as they provide independent,self-liquidating funding that otherwise might not be there for the construction work to proceed.

In your past meetings, there has been much discussion about Senate Bill 822. That bill, whichwas introduced in 2009, would allow infrastructure procurement projects between public andprivate entities. Some proponents of the measure call it a Public Private Partnership bill.

But, since the bill would not involve new funding sources and the supporters of the legislationare not calling for any financial vehicles, the proposal, as we see it, simply would authorizedesign-build statewide. Supporters of the proposal also would like to have legislation authorizingunsolicited bids - that is, bids that would not be advertised by local or state government forbidding.

Instead, developers, for example, could propose an unsolicited bid to do construction work for anew library and public safety center without the traditional bidding process. We think unsolicitedbids would severely limit open, competitive bidding and severely restrict who could bid onpublic projects.

Carolinas AGC believes strongly in the concept of open, competitive bidding. We believe thatthe traditional bidding process is in the best interests of taxpayers. That's because the morecompetition there is for a construction job, the better the prices will be. In addition, open,competitive bidding allows for sunshine so that the public can see what the best deal is for stateand local governments as well as exactly how much it will cost.

In addition, Carolinas AGC believes that qualified bidders should have an equal opportunity tobe awarded public work.

It's important to note that providing state and local funds for construction work is an excellentway to stimulate the economy and provide jobs. Each $1 billion spent on construction generatesor sustains 28,500 jobs. There also is no better time than now, with all of the competition, to getvery competitive prices for construction work and good deals for taxpayers.

It's also important to note that the State of North Carolina already has numerous procurementtools for construction. The NC Department of Transportation, by law, can approve up to 25design-build projects each year. Design-build is nothing new, as it has been used by the DOTsuccessfully for about 10 years.

In addition, state and local government can use single-prime and/or multi-prime bidding as wellas at-risk construction management, all of which provide for competitive bidding. Thegovernments also can go to the State Building Commission on a case-by-case basis for approvalof other construction delivery methods such as design-build. Local legislation can be introducedfor the same purpose.

The bottom line for us is:

• We strongly support new revenue streams for construction at a time when theconstruction and design unemployment rate is around 20 percent. If you want to createjobs and boost the economy, construction funding is the way to go.

• If'Pf'Ps are used, they should involve new revenue streams. lfthe state, for example,needs a new road but does not have the funds to build it, and a private company can buildthe road without the state taking on debt by using toll roads, it's a win-win.

• Since we are talking about public work here, there should be open, competitive bidding,which will provide sunshine and the best deal for taxpayers.

• We also strongly support payment and performance bonds as well as participation byHistorically Underutilized Businesses (HUBs).

After the last commission meeting, Rep. Ross asked Carolinas AGC to look at PPPs and howthey are working in Virginia. Steve Vermillion, CEO of the AGC of Virginia, said that PublicPrivate Partnerships have been used in the Commonwealth for more than 15 years. When Iasked him for his thoughts on PPPs, he emphasized that the following comments were hisobservations --- not official policy of the AGC of Virginia.

Mr. Vermillion first noted that there have been many good projects completed under provisionsof the PPP law, especially by the Commonwealth itself. He said the system can work very well.He also said:

But the argument by some proponents that the process brings "new" money to the table by thePPP group isn't true in most cases, except possibly for some transportation projects.

One of the major problems with PPPs is the fact that they do, in effect, limit competition,especially from small to mid-sized jam ily firms. This is because of the fact that participation inthe process can be very expensive. For example, I've been told that it can cost more than$100,000 to prepare a proposal, plus the public body often charges afee oj$50, 000 or more toreview proposals - too much for smaller firms to absorb.

And with some of the traditional design-bid-build projects now being offered under the auspicesof PPP, the impact on smaller firms is even greater since their market is shrinking.

As to the claim that the PPP process saves money, I suspect that varies greatly from project toproject. The costs on some appear to be too high, while others appear to be in the proper pricerange.

Finally, Carolinas AGC would like to note that the construction industry is North Carolina is inwhat appears to be an all-time low and there is no end in sight in 2011. Please do what you can -in the face of a huge budget shortfall next year - to provide badly needed infrastructure fundingfor buildings, highways, transportation and utilities.

And please do not limit competition for qualified bidders at a time when thousands of folks inthe construction industry are trying to survive. Carolinas AGC would be very concerned if a PPPfor public work would divert existing funding resources from competitive bidding. This wouldfurther threaten the survival of many small and medium-sized construction firms here in NorthCarolina.

Thank you again very much for your time.

Carolinas AGC, P.O Box 30998, Raleigh, NC 27622, 919-781-3270dsimpson@carolinasagc.org; bjenkins@carolinasagc.org