Public-Private Partnerships

Some people characterize Public-Private Partnerships as an alternative project delivery method for public works projects. Others point out that this isn’t really a project delivery method, but a method for financing projects that benefits the public.

What are Public-Private Partnerships? They may take a variety of contractual terms, but involve contracting for construction that benefits the public and a private entity, but isn't paid for through the typical methods where an owner pays a contractor directly for constructing a project. They may involve leases, purchase of condominiums, tax incentives, land arrangements, and other financing and purchase tools. They are generally viewed as an economic development tool that benefits both the private entity and the government agency.

In Washington State, there is significant interest from labor unions and subcontractors to require that prevailing wages be paid on these Public-Private Partnership projects. The Capital Projects Advisory Review Board (CPARB) will be discussing the matter more to determine if they have authority to develop recommendations to the Legislature on this topic.

Washington State law addresses only one instance of when prevailing wages apply for these types of projects. RCW 39.04.260 requires payment of prevailing wages if a public agency “causes to be performed” work for a building or facility in which the public agency will rent, lease, or purchase at least 50% of the project. But there are many other types of projects in which a public agency and a private entity cooperate for the development of a facility that doesn’t meet the 50% threshold noted in RCW 39.04.260.

During the 2008 Legislative session, Senate Bill 6938 was introduced that would have required payment of prevailing wages on these public-private partnership projects related to tax incentives, loans, sales for less than fair market value, and leases. The legislation stated that:

“Projects covered by this chapter [39.12 RCW – Prevailing Wages] include, but are not limited to, any work, construction, alteration, repair, or improvement other than ordinary maintenance that involves tax incentives established by the state or any county, municipality, or political subdivision created by its laws; loans provided by the state or any county, municipality, or political subdivision created by its laws; sales of public land or property to a private entity for less than fair market value by the state or any county, municipality, or political subdivision created by its laws; or leases of public land or property to a private entity by the state or any county, municipality, or political subdivision created by its laws.”

The issue needs to be addressed carefully in the State since the application of prevailing wages to some of these projects may mean that the project may not be financially feasible, and thus the public would not benefit. This is a classic case of “policy collision” in which two equally valid policies conflict: the public interest in economic development and the payment of prevailing wages. The Legislature will need to carefully examine the potential negative ripple effects of adopting any legislation that would require payment of prevailing wages on a broad range of public-private partnerships.