AJCL - Public-Private Partnerships

Public-Private Partnerships
Author(s): DOMINIQUE CUSTOS and JOHN REITZ

Source: The American Journal of Comparative Law, Vol. 58, Supplement: Welcoming the World:
U. S. National Reports to the XVIIIth International Congress of Comparative Law (2010), pp. 555584
Published by: American Society of Comparative Law
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CUSTOS*
DOMINIQUE
Public-Private
In U.S.
law,
& JOHN REITZ**
Partnerships!
the term "public private
partnership"
is a
term that
began to be used in the late 1990s and early 2000s in twodistinct but
senses.
related
the term is used to denote government

contractor
takes on more responsibility
In both cases,
in which
the private
contracts
than has been customary in thepast for the delivery of the services
contracted
for. With
to transportation
respect
infrastructure,
such as
highways and bridges, the term refers to a family of relatively new

contract types,activelypromoted by thefederal government for use by
state governments,
such
as Operations
and Maintenance
by which
Build-Finance-Operate-Maintain,
the government
or Design
is able to
shiftmuch of thefinancing, maintenance, and lor operating cost for
public
infrastructure
to recoup their costs
to private
through
contractors, who may then be allowed

tolls or other user payments,
thus ena
bling thegovernment touse themarket toaccomplish itspurposes and

to relievepublic budgets of thefinancial burden associated with infra
structure
upgrading
and
maintenance.
By
extension,
the term has
been applied broadly to all typesof contracting out of importantgov

ernment
such
and prisons,
including
things as schools
care, and even the administration
of state welfare
rescue of the economy. In neither case are the
and financial
is an extensive history of
types in question
really new. There
services,
of health
provision
programs
contract
such use of government
both with respect to transporta
contracting,
tion infrastructure and more broadly. But the use of the term "public
a new enthusiasm
to symbolize
appears
private
partnerships"
for
In
both
this extensive use of
cases,
privatizing
functions.
governmental
out raises
law questions,
both with re
contracting
important public
spect
to the ways
in which
the enthusiasm
for contracting
out has
led
to effortsto weaken existing legal protections for thepublic interest

*
Judge John D. Wessel Distinguished Professor of Law, Loyola University,

New Orleans, College ofLaw.
** Edward L.
Carmody Professor ofLaw, University of Iowa College ofLaw and
Director, LL.M. Program & Visiting Scholars. Professor Reitz thanks Natalia
Lazarova and Corinna Ochsmann for research help, theUniversity of Iowa and Dean
Caroline Jones of the College ofLaw fora research leave thatwas partially devoted to
writing his parts of this report, and the Obermann Center forAdvanced Studies fora
congenial place towork during the leave.
t DOI 10.5131/ajcl.2009.0037.
555
556
the
american
journal
of comparative
law
[Vol. 58
and with respect to theways inwhich existing law fails to ensure that
public
values
interests are protected
and
the use
In recent years,
in such
out.
contracting
of the term "public-private
partnership"
(PPP) has become quite common to describe ways inwhich the state
relies
on private
actors
of government
instead
to deliver
employees
certain infrastructureand services to the public. The mixing ofpublic
and
private
action
raises
a host
of legal
issues.
This
on U.S.
report
law governing PPP and the issues raised by that law is divided into
three parts.
The
first section
discusses
and
terminology
definitional
issues and reviews the history of PPP in the United States. It

stresses the paradoxical nature of the development of PPP in the
the notorious American

United
States. Although
for pri
preference
seem to provide
vate enterprise
would
fertile ground
for an early
of PPP,
the modern
of the term only recently
emergence
acceptance
made itsway into theUnited States. The paradox is better assessed

against the historical background of the public-private divide and the
precursors
to PPP.
The
second
section
focuses
on defects,
in the
not
law and legal models we presently have, but rather on the way in
which
the political
and financial
pressures
to attract
contrac
private
tors for types of PPP have led to a tendency toweaken some of the
law provides
that existing
for the government's
protections
as a contracting
or
for a more broadly defined public
party
interest
interest.
The third section examines some of themost important deficiencies

in current
section will
law. The
show how
current
law fails to extend
the public values of administrative law, especially for the protection

of the non-contracting parties who are most likely to be affected by
contracts that constitute PPP.
In this report
of government
to these problems.
is space only for the briefest introduction
the kinds
there
I.
A.
and History:
Terminology
New
Name,
Phenomenon
Old
Definition and Development of theNew PPP

Defining PPP in theUnited States is not an easy task forat least
two reasons.
The
first one
relates
to the polysemous
nature
of the
concept. In this regard, theAmerican literature reflects three of the

fourpossible PPP approaches:1 1) the local regeneration approach, 2)
the policy approach, 3) the infrastructure approach. The first two
have
strong American
roots whether
it is in urban
litera
governance
1. The fourthapproach enumerated byGuri Weihe is the development approach.

Guri Weihe, Public-Private Partnerships: Addressing a nebulous concept,Working
paper,
Copenhagen
Business
School,
International
Center
for Business
and
Politics,
2005, available at http://openarchive.cbs.dk/cbsweb/handle/10398/7348;Public-Pri

vate Partnerships: Meaning and Practice (2009)(unpublished Ph.D. Thesis), available
at http://openarchive.cbs.dk/bitstream/handle/10398/7734/Gudrid_Weihe.pdf?
sequence=4 (last visited February 10, 2010).).
2010]
PUBLIC-PRIVATE
557
PARTNERSHIPS
ture2 or in public policy literature.3 The third approach is the one

in the U.K.
championed
since
1992,4
and which
more
recently made
itsway in theAmerican political and scholarly discourse as part of its
global
spread.5
The definitional difficultyresulting fromthis general polysemy is

compounded by the complexity of the American legal structure. The
federal characteristic of theUnited States in itself calls fora number
of definitions, at least one at the federal level and potentially many
ones
different
in the several
states. Moreover,
has
Congress
enacted
no general legislation on PPPs. Instead, it has passed different laws

to fit different governmental departments.6 In that, the United
States contrasts with other countries, where typically, the adoption

of
a central statutory framework heralds
the embrace
of infrastructure
PPP. The lack of general federal statute on PPPs results in the ab

sence of a federal statutorydefinition ofPPP, and not all states have
laws on this matter. Each state decides whether to develop its own
template forPPP. Consequently, at this level, definition and designa
tion7 exhibit
variety.
Clearly, in the United States, the law of PPP is fragmented.

Sources ofuniformitycan be found inmodel codes drafted by the Fed
eral Highway Agency (FHWA)8 or the American Bar Association
(ABA)9 for states and local governments and in the Federal Acquisi
tion Regulations (FAR).10 Potentially, circulars issued by the
2. Robert Beauregard, PPPs
in Urban
Partnerships
Pierre,
3.
ed., 1998).
Pauline
Rosenau,
as historical chameleons: The Case of the US,
Governance,
Public-Private
and
European
Policy
American
Partnerships
Experience
54
in
(J.
(2000).
4. Australia and the U.K. pioneered forms of PPP under the name "private fi
nance initiative" (PFI).
5.
Darrin
Infrastructure
and Mervyn
K.
Grimsey
and Project
Provision
Lewis,
PPP, The Worldwide
Finance
(2004).
in
Revolution
6. For instance, theNational Highway System Designation Act of 1995 (Pub. L.

No. 104-59) or the National Defense Authorization Act forFiscal Year 1996 (Pub. L.
No. 104-106), authorized DoD to enter intoPPPs for the provision ofmilitary housing
and introduced a two-phase design-build (DB) selection procedure (10U.S.C. 305a; 41
U.S.C. 253m; FAR Subpart 36.3); The Safe, Accountable, Flexible, Efficient Transpor
tation Equity Act: A Legacy forUsers (SAFETEA-LU) of 2005 (Pub. L. No. 109-59)
which originallywas set to expire on September 30, 2009, but was extended through
December 31, 2010, contains the current PPP enabling provisions in transportation.
7. In Texas a PPP is known as a "Comprehensive Development Agreement"
("CDA").
names
are:
infra n. 45. Other
or "facility concession
agreements."
this case,
the expected
uniformity
See
agreements,"
In
8.
"concessions",
concerns
"leases",
a
particular
"development
sector,
transportation.
road
9. The 2000 revision of theModel Procurement Code forState and Local Govern
ment (2000 MPC)
incorporated PPP-types of public contract. With regard to
infrastructureprojects, in 2007, the ABA published, the 2007 Model Code forPublic
InfrastructureProcurement ("2007MC PIP"), a condensation of the 2000 MPC. Patri
cia A. Meagher, News from theChair, 43 Procurement L., Spring 2008, at 2.
10.
See
infra
text at nn.
69-72.
558
THE AMERICAN
JOURNAL OF COMPARATIVE
LAW
[Vol. 58
President's Office ofManagement (OMB)11 to federal agencies could

also serve that role. The one particularly influential definition has
turned out to be that put forthby the GAO in 1999. It was notably
endorsed by the FHWA in its 2004 Report on PPP to Congress.
1. GAO Definition for Infrastructure and Contracting out of
Government
Service
Functions
as a "contractual
The GAO
defined a PPP
agreement
broadly
sector partners,
and private
which
allows
formed between
public
more private sector participation
It went on to
than is traditional."12
involve a government
that "the agreements
agency
usually
explain
contracting
with
a private
company
to renovate,
construct,
operate,
maintain, and/ormanage a facility or system [thatprovides inwhole

or in part a public service].While the public sector usually retains
ownership in the facility or system, the private party will be given
additional decision rights in determining how the project or task will
defines an expan
be completed. The term public-private
partnership
from relatively
sive set of relationships
simple contracts
(e.g., A+B
to development
that can be very compli
agreements
contracting),
cated
and
From
a PPP
technical
the GAO's
(e.g., design-build-finance-operate-maintain)."13
ideas may be drawn. First,
definition, two main
of procure
form of government
contract, a method
is a specific
a procurement
articulates
the terms and
contract, a PPP
a
in
with
agency, a
which,
government
agreement
or
builds,
maintains,
operates,
designs,
party finances,14
private
a
a
or
to
due
the
actual
combination
service. Second,
manages
facility
to
assumed
of responsibilities
by the private partner, a PPP appears
a
an
wide range of contrac
which encompasses
be
umbrella-concept,
ment.
As
conditions
under
tual arrangements.
This latter point is shared by a much broader usage inwhich the

termPPP refers to the contracting out or privatizing ofmany kinds of
government
service
functions,
especially
where
the contractor
is ac
corded a larger role than has been customary in determining how the
11. Such as OMB Circular A-76, (May 29, 2003), available at http://oam.ocs.doc.
(last visited February 9,
gov/docs/OMB%20Circular%20A-76%20Revised%202003.pdf
2010) [hereinafter "OMB Cir. A-76"] The Circular was originally issued in 1955 to
regulate contracting out. It was revised in 1967, 1969, 1983, and 2003. The latter
revision introduced the principle ofmanaged competition between agencies and the
private
sector
for the provision
of commercial
services.
See
infra Section
IIA.
12. GAO, Public-Private Partnerships: Terms Related to Building and Facility

Partnerships, GAO/GGD-99-71, April 1, 1999 (expanded version of glossary), availa
ble at http://www.gao.gov/archive/1999/gg99071.pdf[hereinafter"GAO Glossary"].
13. GAO, PPPs: Key Elements of Federal Building and Facility Partnerships,
Glossary, GAO/GGD-99-23, February 3, 1999, available at http://www.gao.gov/
archive/1999/gg99023.pdf.
14. This responsibility is missing from the GAO definition stricto sensu but
figures in the example provided at the end of the quotation.
2010]
PUBLIC-PRIVATE
559
PARTNERSHIPS
service is rendered.15 There are thus two rather differentusages of

PPP in theUnited States, the one influenced by the GAO, promoted
by the FHWA, and focused on the construction,maintenance, and op
eration of infrastructureand a broader usage inwhich PPP refers to
any
out of major
contracting
A contractual agreement between a public party and a

private party
a)
one
When
American
functions.
governmental
the PPP
that part of
concept one enters
law covering government
contractual
deal
examines
administrative
ings. From a comparative standpoint, it is useful to bear in mind

three characteristics of this body of law. In the United States, aca
demic study of the rules governing government purchase ofgoods and
services as a discipline in its own right is relatively recent. The first
were
casebooks
in the twentieth
published
lo
century.16 Moreover,
cated at the intersection of the common law of contracts and the

of sovereignty,
attributes
it denotes
a tension
between
private
and
public law.17 Third, it does not differentiate public works contracts

(march?spublics) fromcontractual delegations ofpublic service (d?l?
gations de servicepublic). Indeed, the concept of public service being
devoid of the cornerstone function historically assigned to it in
French
tracts
con
law of government
law, the American
a
not feature
such
Nor does
bifurcation.18
it vest the
over government
in an entirely dis
contracts
disputes
administrative
does
jurisdiction
tinct judiciary. Although such challenges are brought before special
administrative
at the trial
courts19
level, these first instance
rulings
are appealable to theU.S. Court ofAppeals forthe Federal Circuit. A
there is conclusive
judgment
Court on writ of certiorari.
The
15.
See,
reviewed
by the U.S.
Supreme
is thus a type of government

procurement
its name,
it rarely takes the legal form of a part
PPP
American
agreement.
unless
Despite
e.g., Donald
F. Kettl,
Sharing
Power:
Public
service
programs).
Governance
and
Pri
vate Markets 4, 6-12 (1993)(describing wide range of government contracting since

World War II as PPP); Jody Freeman, Extending Public Law Norms, 116 Harv. L.
Rev. 1285 (2003); Martha Minow, Public and Private Partnerships: Accounting for the
New Religion, 116 Harv. L. Rev. 1229 (2003)(using PPP for contracting out of schools,
prisons,
welfare
agencies,
and
social
16. The publication in 1966 of the first edition of the Federal Procurement Law
casebook authored by John Cibinic and Ralph Nash is usually considered the defining
moment, although R. Preston Shealey had published his first edition of the Law of
Government
in 1919.
Contracts
17. Joshua Schwartz, Liability forSovereignty: Congruence and Exceptionalism in
Government
Contracts
Law,
64 Geo.
Wash.
L. Rev.
633
(1996).
18. To be sure, due to the influence of some overarching principles of E.U., the
bifurcation of the French law has been attenuated.
19. Either an agency Board of contract appeals or theU.S. Federal Claims Court.
THE AMERICAN
560
nership,20
and share
in which
profits
LAW
[Vol. 58
the respective parties are co-owners of a business,

losses. The scarcity of the business
organiza
and
tionmodel seems in keeping with the traditional reluctance in the
United
to rely on the state
States
to conduct market
activities.21
result of the rareness of the joint-venture type, theU.S.
As
law ofPPPs
not present
between
contractual
and insti
the neat distinction
in
E.U.
law. In the United
the concept
tutional PPPs
observed
States,
does
of PPP is definitely embedded in public contracts law and focuses

chiefly on two types of contracting for services. It may involve the
or repair of public
infra
It also generally
includes a
construction,
design, financing,
upgrade,
a
or a bridge.
as
such
structure,
highway
contracting out of related services that would otherwise have to be
such as maintenance
of
and operation
by the government,
provided
or even the operation
of a program of government
the infrastructure
not tied to specific infrastructure.
services, such as welfare,
Sub-forms of infrastructurePPP
b)
ifwe
Even
restrict
our view
to the infrastructure
PPPs,
we
see a
wide variety of forms.The private party could potentially finance, de

manage,
build,
lease, purchase,
operate, maintain,
develop,
on
or
or
a
own
a
mix of
service.
Based
the
actual
transfer,
facility
sign,
rights and obligations, the contract falls under one sub-formof a rich
array ofPPPs. In 1999, the GAO identified eighteen possible combi
nations
which
transportation,
which features
across
to
sectors.22 With
regard
one
enumerates
of
currently
eight types,
of these sui-generis
PPPs.23
The existence
used
be
may
the FWHA
sui generis
44 Procurement
Julia Pascal
20.
Public-Private
Law.,
Fall,
Davis,
Partnerships,
on such partnerships,
see infra n. 116.
2008, at 9. For state constitutional
prohibitions
in Con
21.
in New
Features
and Contract
John Reitz, Political
Law,
Economy
tract
at http://ssrn.com/abstract=
Law
247
available
(Reiner
Schulze,
ed., 2007),
964476; John Reitz, Doubts about Convergence: Political Economy as an Impediment

to Globalization,
12 Transnat'l
L. &
Contemp.
Probs
139-159
(2002).
22. The GAO lists 18 categories: 1) O&M: Operations and Maintenance {conces
sion)', 2) OMM: Operations, Maintenance & Management (wastewater treatment); 3)
DB: Design Build; 4) DBM: Design-Build-Maintain; 5) DBO: Design-Build-Operate; 6)
DBOM:
Maintain
Design-Build-Operate-Maintain;
8) DBFOMT:
{concession);
7) DBFOM:
Design-Build-Finance-Operate
Design-Build-Finance-Operate-Maintain-Trans
fer; 9) BOT: Build-Operate-Transfer also called greenfield PPP; 10) BOO: Build-Own
Operate; 11) BBO: Buy-Build-Operate; 12) Developer Finance; 13) EUL: Enhanced
Use Leasing or Underutilized Asset (the Department ofVeterans Affairs (VA)); 14)
or BDO:
LDO
Lease-Develop-Operate
{affermage)
pal transit facilities); 15) Lease/Purchase;

(used
to finance
a wide
variety
of capital
or Build-Develop-Operate
16) Sale/Leaseback;
assets,
ranging
(munici
17) Tax-Exempt Lease
from computers
to telecom
munication systems and municipal vehicle fleets); 18) Turnkey. GAO Glossary, supra
n.
12.
23. New facilities: 1) DB, 2) DBOM, 3) DBFO; Old facilities: 4) O&M, 5) Long
Term Lease; Hybrid facilities: 6) Lease-Develop-Operate; 7) Private Contract Fee Ser
vices; 8) Other Innovative PPPs. FHWA, P3 Defined, available at http://www.Aiwa.
dot.gov/ipd/p3/defined/index.htm.
2010]
PUBLIC-PRIVATE
561
PARTNERSHIPS
of the non-exhaustive
is indicative
nature of the classifica
categories
are of the essence
in PPP design.
tion as tailoring and innovation
The U.S.
of affairs
categories of PPP now reflectglobal trends. This state
betrays
a process
of legal
in trans
Thus,
transplantation.
portation, a 2002, and a 2004 study24 commissioned by the FHWA

the difference
deplored
between
the continuing
reliance
on fixed-price
sealed bidding with award to the lowest price in the United States
use of best-value
in Europe
the increasing
and Ca
contracting
of non-price
factors. Now, the U.S.
nada, which allows consideration
in adopting
is emulating
its European
and Canadian
counterparts
for
best-value
PPPs.
the reports
Likewise,
contracting
transportation
and
contrasted the entrenched reliance on tolling inEurope with the dedi

cated (gasoline) tax revenue sources preferred in the United States
since the development of the automobile. In fact, starting in 1995, the
opening of the Dulles Greenway inVirginia, whose private owner25
was
a limited intro
tolls from motorists,
signaled
as an alternative
of concession
to the fuel
to collect
allowed
duction
of the French
model
tax form of highway financing. Since 2000, this model has made
headway in the United States.26 The signing inMarch 2009 of the
first availability payment scheme in Florida is illustrative of the in
troduction of theUK formofPPP, PFI.27 Further British influence is
evident in the replacement
of the separate financial
between
package
structure incorporated
private contractor and lender with a financial
into the concession
and determining
risk allocation
all par
between
ties involved in the completion of the project.28
24. David
O. Cox, et al., Contract
in Eu
Administration
and Practice
Technology
at http://international.fhwa.dot.gov/contractadmin/;
available
rope, October,
2002,
et al., Construction
De Witt,
Steven
Practices
In Canada
and Europe,
Management
at
available
2005,
May,
http://international.fhwa.dot.gov/links/pub_details.cfm?
id=537.
25. Transfer of ownership to the state ofVirginia in scheduled for 2056.

26.
Detroit
stands
as
a precursor
in that
as
early
as
1927
and
despite
the ascen
dancy of state intervention in transport in the twentieth century; it experimented

with concession in perpetuity: the Ambassador Bridge and the Detroit-Windsor tun
nel. Illustrations of the recent trend towards privatization include: Concession: 2007
opening ofCalifornia South Bay Expressway (SR 125), the first TIFIA funded project
to open;
in 2007
DOT
Missouri
signed
a Design-Build-Finance-Maintain
agreement
with a private party to replace and rehabilitate 802 bridges. Long-term lease: Chicago
Skyway (2005), Virginia Pocahontas Parkway (2006), Indiana Toll Road (2006).
27. The public project sponsor pays availability payments to contractors based on
construction
milestones
or performance
measures.
See
infra n. 87. On March
3, 2009,
the Florida DOT signed a DBFOM including availability payment clauses for the up
grade of a segment of 1-595. JeffPaniati, (FHWA Acting Deputy Administrator and
Executive Director), Transportation Infrastructures Financing Opportunities and
Challenges, Fifth Annual Public Private Partnerships USA Summit, March 12, 2009,
DC,
Washington,
ers,
PPP
available
at http://www.fhwa.dot.gov/pressroom/re090312.htm.
28. Such parties include government, developers, project company, project lend
construction
Concession
consortium,
Agreements,
operators.
Cook, Modern
Jacques
28 Construction
Law.
Fall,
2008,
Enhancements
at 24,
26.
for
562
THE AMERICAN
LAW
[Vol. 58
2. The Recent Development of PPPs

Paradoxically, the absence of a legal definitionhas not prevented
the federal government frompromoting PPPs starting in the 1990s.
Almost half of the states have followed suit. This use of the term
"PPP" is thus quite new in theUnited States. The rest of subsection
IA will survey the recent use of the term at federal and state levels.
Subsection IB will look at the historical background which led to the
more
recent use
of the term, including
over the public-private
debates
distinction and a long history of use of similar forms of contracting

out
important
a)
functions.
governmental
Federal government use ofPPPs since the 1990s
The 1990s mark the date ofbirth ofmodern American PPPs with
an average of 1000 PPPs being created annually since 2007.29 As
elsewhere,
structure
sectoral
they came about in a context of privatization,

aging infra
PPPs
do not face any
and shortage
of public funds. U.S.
restriction. The sectors of these creations
include transporta
real
estate/economic
water/wastewater,
health
care,
corrections,
education,
welfare,
parks
and technology.32
tion,30
the
Among
federal
departments
conducting
development,31
and recreation,
cam
promotional
paigns forPPPs, the role of the Department ofTransportation (DOT)
has
been
prominent.
It has
resorted
to a large array
of means
to en
courage transportation PPPs. Within the DOT, FHWA engaged in
three experimental
programs
ulatory restrictions
impeding
innovative methods.33
itwaived
under which
statutory or reg
or explored
the establishment
of PPPs
to these non-financial
As a complement
incentives, federal finan
direct
cial support is provided
loans, loan guarantees,
through bonds,
and lines of credit. Other means of encouragement deployed by the

FHWA have been educational publications and material for state
transportation
officials; presentations
to states
and developers,
work
29. Arthur L. Smith, Public-Private Partnerships: the U.S. Experience http://

www.unescap.org/ttdw/common/TPT/PPP/text/bfi^f_arthur_smith.pdf(last visited,
February 9, 2010). Already in 1985, theNational Council forPublic-Private Partner
as
was
founded
(NCPPP)
ships
as the Washington
30.
Such
a non-profit,
D.C. metro
non-partisan,
station.
advocacy
organization.
31. Urban regeneration projects including schools, housing, and administrative
facilities.
32. In particular communications: the FCC entrusted a PPP with the construction
of a nationwide broadband public safety network which will serve both public agen
cies and commercial users, the 700 MHz Second Report and Order ,22 FCCR 15289
(2007).
33.
The
first program,
SEP-14,
came
in 1990.
See
FHWA
website
at http://www.
It was followed in 1994 by TE-045. See FHWA

fhwa.dot.gov/hfl/framework/10.cfm.
website
at http://fhwainter.fliwa.dot.gOv/innovativefinance/ifq61.htm#TE045.
Lastly,
the FHWA launched SEP-15 in 2004. See FHWA website at http://www.fhwa.dot.gov/

15_faqs.htm.All websites last visited on Feb. 9, 2010.
ipd/p3/tools_programs/sep
2010]
PUBLIC-PRIVATE
563
PARTNERSHIPS
annual
conference
shops;34 a co-sponsored
or on transportation
in transportation,35
on public-private
ventures
finance;36
drafting model
legislation for states; adoption of PPPs and tolling (as a long-term
revenue
stream
to investors)
attractive
as key
of DOT's
components
congestionmitigation initiatives; the creation of a PPP website;37 the

establishment in October 2003 of a Task Force in charge of identify
ing ways of facilitating the use of PPPs as well as the Office of
Innovative Program Delivery. In this supportive capacity FHWA may
as an American
be viewed
sectoral
of the British
counterpart
Trea
sury Task Force on PPPs or the French MAPPP.38 These effortsare

likely to continue under the Obama administration which has pro
for transportation
infrastructure
posed PPPs
projects and to stabilize
or
the
the financial
of
the
cyber infrastructure.40
system39
securing
b)
State legislation authorizing PPPs since the 1990s
Apart from taking advantage of the federal promotional policies,

states have also adopted policies of their own. State legislation typi
cally
state
empowers
departments
of
It may
transportation.
sometimes vest the right to sign PPPs in local governments.41 The

first state statutory authorizations ofPPPs were enacted in themid
1990s.42 As of 2007, the FHWA identified twenty-three states with
some
type of PPP-
enabling
legislation
in transportation
infrastruc
ture.43With regard to transit projects, as of February 2009, twenty

34. The first one ofwhich took place inNovember 2001 and explored the "vision
ary possibilities of the private sector building and operating most projects and the
public
sector
taking
a subordinate
role."
FHWA,
Report
to Congress
on PPPs,
Decem
ber 2004, at 32.

35. Together with the American Road and Transportation Builders Association.
36. Together with the Transportation Finance Board.
37.
FHWA,
38.
Mission
Public-Private
available
Partnerships,
ipd/p3/index.htm(last visited on February 9, 2010).

aux
d'Appui
Partenariats
at
http://www.fhwa.dot.gov/
Public-Priv?.
39. Obama Transportation Pick [Transportation Secretary LaHood]
for Private
Sector,
Infrastructure
Investor,
January
22,
2009,
available
Urges Role
at http://
www.infrastructureinvestor.com/Article.aspx?article=33806&hashID=DlF2EBADCB
66B60913A33B1A45601AD68B6BEE43;
Treasury Department, Fact Sheet on Public
Private Partnership Investment Program, March 23, 2009, available at http://www.
treas
.gov/press/releases/tg65
.htm.
40. Barack Obama, Remarks by the President on Securing our Nation's Cyber
Infrastructure,
May
29,
2009,
available
at
http://www.whitehouse.gov/the_press_
office/Remarks-by-the-President-on-Securing-Our-Nations-Cyber-Infrastructure/.
See
also Kenneth Chang, Obama Plan Privatizes Astronaut Launchings, New York
Times, January 29, 2010, at A9.
41.
As
in California.
Legal
Issues"].
42. Virginia was among the pioneers in 1995. Transportation Research Board,
Major Legal Issues forHighway PPP, Legal Research Digest 51, January 2009 at 25.
available at http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_lrd_51.pdf
[hereinafter
"TRB,
43. The state were: AL, AK, AZ, CA, CO, DE, FL, GA, IN, LA, MD, MN, MS, MO,
NC, NV, OR, PR, SC, TN, TX, UT, VA,WA, WA. See FHWA website available at http://
www.fhwa.dot.gov/ppp/tools_state_legis_statues.htm
(last
visited,
Feb.
9,
2010).
In
THE AMERICAN
564
LAW
[Vol. 58
states had authorized PPPs.44 Still, more than half of the states lack
such legislation, a factwhich is indicative of the significance of im
pediments to the development of PPP. The latter category of states
tends to be located in the Northeast and theMidwest whereas the
new growth economies in theNorth and the South appear to be the
to the controversial
Due
pioneers.
nature
of PPP,
some
of the states
that have adopted forms of PPP have suffered backlash. Thus, in

the Texas
2007,
legislature
a moratorium
imposed
on new privately
financed toll roads and changed to 31 August 2009 the original sun
set date (31 August 2011) of the PPP enabling legislation.45 In June
and July 2009, itdid not reauthorize PPPs fortoll-roads.Even among
variations
the existing authorizations,
may be observed whether
considers
the types of arrangement
covered or the requirements
one
de
limiting the exercise of the statutory authority. The FHWA's model

is meant
legislation
to inject
some uniformity
into state
laws.
Historical Examples ofPPP
B.
The
distrust
of government,
the entrenched
bias against
seem to be fertile ground
would
and
the strong
U.S.
on privatism,
in the economy
for public-private
emphasis
participation
for a preference
cooperation. Interestingly, the emergence of the term PPP in the

1990s coincides with a long period of decline in the salience of the
in
divide, and the history of government
contracting
public-private
use of forms of contracting
out
States
shows considerable
the United
to forms now being touted as PPP.
that stand as precursors
1.
Historical
a)
Background
Decline in importance of the public-private divide since

1945
In American law, the public/private distinction crystallized in
as a result of the intersection

nineteenth
of
century legal discourse46
on the one hand, the advent of the
two movements
born in Europe,
in the sixteenth
and its attendant
claim of sovereignty
nation-state
and seventeenth
centuries and, on the other hand, natural
rights the
on
in the seventeenth
ories articulated
century. Relying
sovereignty,
February 2009, California enacted a bill providing unlimited authority forpublic-pri

vate partnerships for transportation projects until January 1, 2017.
44. The number grew from 17 in 2008 to 20 states in 2009 (the bold font indicates
the states which joined the list in 2009): AI, CA, CO, DE, FL, GA, HI, IN, LA, MD, MI,
MO, NC, NV, NJ, OH, OR, TX, VA,WA. Nossaman LLP, State Legislation Authoriz
ingPublic-Private Partnerships forTransit Projects, as ofFebruary 2009, available at
http://www.ncppp.org/FTA/EnablingLegislation.pdf(last visited, February 9, 2010).
45.
been
supra
Issues,
TRB,
Legal
in 2003.
introduced
Id. See
n. 42, at
supra
also
16. CDAs,
n. 7.
the Texas
term
for PPPs,
had
46. Morton J. Horwitz, The History of thePublic IPrivate Distinction, 130 U. Pa.
L. Rev. 1423, 1424 (1982).
2010]
PUBLIC-PRIVATE
565
PARTNERSHIPS
public law sought to protect a public realm from the king's feudal
on natural
law sought
power. Relying
rights, private
vate realm from interference by public power.
to protect
a pri
Crystallization into a sharp public/private separation occurred

when legal thinkers and judges sought to preserve the integrityof a
and apolitical"
law
"neutral
system of private
as "the dangerous
redistributive
and unstable
so-called
they viewed
from what
tendencies
of democratic politics" epitomized by statutes.47 From the distinction

a classification of legal fields was drawn. Itmilitated in favor of con
tractual
freedom
and
expansion
of private
law and
correlatively
for
the containment of regulation and public law.

That first phase came to an end when legal realists unmasked
the conservative underpinnings of the dichotomy in the 1920s and
1930s.
Scathingly
criticized,
the dichotomy
ebbed
away.
Correla
tively, the responsibility of the state for the public interest was
magnified. Thus, in a sense, under the legal realist approach public
law absorbed
private
law. Moreover,
the Great
Depression
was
the
impetus for a multi-faceted state interventionuntil 1945.

AfterWorld War II, in reaction to the totalitarian bent shown by
the socialist state in its embodiment of the public interest, the func
tion of the state was redefined. Accordingly, the state shed its
as its role
vis-?-vis
of superiority
self-interests
private
sum
con
of
vectors
into
"a
reflection
the
of
the
of
morphed
private
as
law
of
law displaced
the
dominant
flict".48 Private
form
law,
public
attributes
albeit with the same weakening effecton the public-private law di
an expansion
of government
there was
Although
conservative
Great
the
Johnson's
Society,
Reagan
during
action, fueled by neo-liberal
theory, and the subsequent
vide.
programs
counter-re
two Bush
administrations, continued the trend. Even though the Clinton ad
fell on the other side of the partisan

it
spectrum,
a reinvention
of government
which
similarly aimed for a
use of the
better and costs less. Tellingly,
that works
government
ministration
advocated
term PPP emerged during the Clinton years. While the Obama ad
ministration's
stance,
to be interventionist,
as may be gathered
it also incorporates
from its first year, appears

the PPP philosophy.49
47. Id. at 1425.

48. Id. at 1427.
49. An example of such a mixed stance is the combination of the Recovery and
Reinvestment Act (ARRA) ofFebruary 2009, Pub. L. No. 111-5, 123 Stat. 115 (2009),
and the announcement of a Public-Private Investment Program (PPIP), supra n. 39,
as part of themassive bank bailout inMarch 2009. The ARRA relies entirely on gov
ernment for the purchase of troubled assets whereas thePPIP also uses private sector
investors.
THE AMERICAN
566
b)
LAW
[Vol. 58
Predominant assimilation of administration to

business since 1945
the public
Unsurprisingly,
law debate
law-private
reverberates
in the conception of administration. Coupled with the claim of an au

tonomous sphere sheltering the exercise of natural rights is the
notion that "the field of administration is a field of business"50 which
also
lends a supportive
environment
and
into fashion
to PPPs.
Prevalent
from the late
nineteenth century until 1929, the concept receded under the New
Deal
swung
back
after
the second world
conflagra
tion.51 In the 1990s, itwas echoed by the New Public Management
which
"refers to a cluster of contemporary
ideas
(NPM) paradigm52
and practices
that seek, at their core, to use private sector and busi
ness approaches
in the public sector."53 The NPM, which advocates
broad use ofPPP, was embraced by the Clinton administration,54 and

endorsed
by President
W.
George
Bush.
A great deal of the critique of the growth of PPPs in the late

1990s was grounded in the public-private law distinction, revealing
that the importance of the distinction had declined but not com
in this quasi-resurrection
of the
Interestingly,
pletely disappeared.
reversal has occurred. On the one hand, since
late 1990s, a discursive
the end of the twentieth century those concerned with the assertion
of the public interest and the preservation of the public sphere have
stressed
On
the distinction.
the other hand,
over half a century
ear
lier, the legal realists who equally meant to protect the public
interest and public law argued that the distinction was an obstacle
toward that end. In otherwords, alternatively the champions of the
interest
public
and public
law have
sought
to expand
either
or to con
fine the public-private divide. Those who currently object to PPP

make much of the distinction that the legal realists sought tomini
mize.
But
they all
share
an attachment
to the public
interest.
One might have thought that the seeming decline of the public/
private distinction, the longtime diffusion of the notion that business
methods
tion,
provide
compounded
an
operational
by pervasive
model
distrust
for government
of government
administra
would
have
resulted in an early introductionofPPP in theUnited States. In fact,

50. Wilson Woodrow, The Study ofAdministration, 2 Pol. Sci. Q., June 1887, at
197-222 (reprinted in 55 Pol. Sci. Q. ,December, 1941, at 481-506).
51.
tration:
David
H.
Congress
52. David
trepreneurial
Rosenbloom,
and the
Osborne
Spirit
Building
Administrative
& Ted Gaebler,

is Transforming
a Legislative-Centered
State,
Reinventing
the Public
Public
Adminis
1946-1999
(2000).
Government:
How
Sector
(1992).
B. Denhart,
The New
Service
Public
12
the government
Al Gore
spearheaded
(2007).
reform
David
the
En
Osborne
served as a key advisor to the Clinton administration during the implementation
phase.
53.
54.
Robert
Vice-President
through
the Na
tional Performance Review launched in 1993, renamed The National Partnership for
Reinventing Government in 1998.
2010]
PUBLIC-PRIVATE
567
PARTNERSHIPS
even though the termwas not used until the 1990s, various levels of
in the United
government
States
have
long contracted
out important
governmental services inways that look very similar to themodern

ppp 55Thus, in the United States, as in Europe, the term PPP is a
new name
sign a more
even though
for an old phenomenon,
role to government.
restrictive
the U.S.
to as
tends
2. Precursors to PPP
and
Construction
a)
see the precursors

to PPP
of major
and operation
We
struction
of major
operation
infrastructure
in contracts for the con

especially
infrastructure.
This development
falls roughly into three periods: In the initial period infrastructure

construction,
prise, with
and
maintenance,
government merely
For
for such work.
monetary)
operation
roads
were
left to private
providing
and water
incentives
enter
(usually
this
transportation,
period startedwell before the nineteenth century.Other forms of in

frastructure development came chiefly during the nineteenth
The
century.
first phase
was
responsibility formajor
started
followed
by an era
of increased
public
infrastructure. In general this public role
in the late nineteenth
century and took the form of command

or common carriers. For roads and
of utilities
in the
this greater public role began
already
owner
and
involved
and
direct
century
financing
and-control
regulation
water
transportation,
early
nineteenth
ship. Finally, in the 1990s, we reach the beginning of the current

period ofwidespread use of and experimentation with PPPs. In a
sense, the era of the modern PPP is a return to the first phase of
development and it in that first phase thatwe find themajor precur
sors to modern
PPP.
private
up into the nineteenth

century, private entrepreneurs
for the construction
and the maintenance
responsibility
revenue was
roads from which
toll-based
derived. The
as
Thus
sumed
of
first
turnpike built in 1792 was under private ownership and chartered by
state subsidi
The nineteenth
century saw substantial
Pennsylvania.
zation of private enterprises
the
of American
down
backbones
laying
to build canals,
utilities.56 As they were pressed
commercial
docks,
electrical and water

telephone,
telegraph,
in
for
states
economic
growth,
supply systems necessary
developed
to
whether
circumvent
the
reluctance
of
the
centives,
private
or to supplement
to assume
the risks of free-enterprise
in
companies
piers, post roads,
railroads,
55. NCPPP, Critical Choices: The Debate over PPPs and What It Means for
America's Future 9 (2003); John B. Miller, Principles of Public and Private In
frastructure Delivery 81, 103, 113-14 (2000).
56. See,
Conditions
e.g., Minow,
of Freedom
James Willard
supra n. 15, at 1237-38;
in the Nineteenth-Century
United
82, 88 (1967) (cited byMinow, op.cit., at 1237, nn.25, 27).
Hurst,
States
and
the
32, 96-07,
79
Law
568
THE AMERICAN
LAW
[Vol. 58
sufficient private funding. Under franchise contracts passed with
aid came in six ways:

cash pay
their financial
corporations,
in the
shares
loan of credit, bond
of
issuance,
purchase
case
in
and
the
of
land
railroads,
corporation,
tax-exemption
was
in
Public
such
that
failures
contribution
subsequent
grants.57
private
ments,
those joint initiatives and resulting public indebtedness prompted

the introduction
of constitutional
to curtail unwise
amendments
com
mitments of state funds to private entities.58Thus, the first phase of

development embodies the idea of a public-private tandem inwhich
government pursues its public policies largelyby encouraging private
to deploy
enterprise
its commercial
capacities
toward
same
those
ends. In this sense, the nineteenth century foreshadowed the 1990s'

use of PPPs. Public support for development in these periods is
largely indirect in the sense that it tries to avoid public ownership
and operation or provision of services by the government directly to
the public.
In the second phase, the model changed to one of direct public
case
in the particular
intervention,
of roads
and water
transporta
tion.59The era of public ownership really60 began in 1806 with the

of the National
construction
Road,61
exclusively
with
federal
funds.62
In the 1830s, the federal government inaugurated the concept of in

tergovernmental responsibility, inwhich it shared responsibilitywith
the states,63 a concept that the Federal Aid Road Act of 191664 insti
tutionalized. In the nineteenth century fuel taxes, and dedicated
tolls?both governed by the idea that user pays?became the main
sources
of revenue
owned,
and
petitive
procurement
for road
construction
and maintenance.
The
high
way system which developed was publicly designed, financed and

constructed
on the basis
corporations
by private
to the low bidder.
contracts awarded
of com
Although direct public intervention differs from indirect inter

it
vention,
still
accommodates
private
through
participation
procurement and thereforemight be thought to amount to a type of
57. The federal government also resorted to such incentives to construct the indis
pensable transcontinental rail lines indispensable to thewestward expansion. Karl B.
Raitz & George F. Thompson, The National Road 23 (1996).
58. David E. Pinsky, State Constitutional Limitations on Public Industrial Fi
nancing: An Historical and Economic Approach, 111 U. Pa. L. Rev. 265, 278 (1963).
59. This model of direct public financing was also employed forharbor improve
ments, navigable river projects, navigation aids, territorial roads and trails, and
public buildings, Miller, supra n. 55, at 82.
60. From the early years of the Republic, counties had been responsible for rural
roads, but had sparingly discharged such responsibility.
61. It is otherwise known as the Cumberland Road.
62. Mainly through appropriations, with some land sales. Id. at 111.
63.
The
states,
which
gradually
assumed
ownership
of the road,
raised
revenues
through tolls while the federal government was in charge of upkeep and repairs
Rickie Longfellow, The National Road, available at http://www.fhwa.dot.gov/infra
structure/back0103.cfm (last modified on Dec. 23, 2008).
64. Ch. 241, 39 Stat. 355 (1916).
2010]
PUBLIC-PRIVATE
to modern
precursor
PPPs.
569
PARTNERSHIPS
this
However,
is not
em
the analysis
braced by contemporaryPPP advocates such as theNational Council

forPublic-Private Partnerships (NCPPP), who typically regard this
phase ofpublic ownership as a displacement of free enterprisewhich
must be restored throughmodern PPP. In this sense PPP in the
1990s
is viewed
as a revival,
a restoration
of a pre-nineteenth
century
order, although in the earlier period, the role assigned to the private
party
seems
to have
even more
been
rently. In any event, the reference

PPPs.
legitimate modern
b)
than it is cur
encompassing
to the past is apparently meant
to
Lease-purchase of public buildings
Interestingly, some of the closest relatives ofmodern PPPs can

be found in public building contractswhere government is tradition
ally expected to assume most of the responsibilities. Indeed, "in 1954,
Congress initiated a new program for an integrated approach to the
and
acquisition
delivery
of buildings."65
Known
as Lease-Purchase
contract, that deliverymethod could be approximated to the Design

contract
Build-Operate
now
in fashion
as one type of PPP.
The
exper
imentation was suspended in 1957 but resumed under the Public

Buildings Amendments of 1972. In 1989, Congress revived the proce
dure for individual projects,66and labeled it an "alternative financing
method to finance federal ownership" of public buildings.67 Itwas to
be distinguished from direct appropriation, thus reflecting an early
but isolated experiment with modern PPP.
C.
Summary ofPPP Definition and History
The use of the term PPP came rather late to the United States
and the termwas not formally recognized by government until the
1990s when
its adoption
was
influenced
by European
models,
includ
ing theNew Public Management. While the term PPP is, on the one
hand, used to refer to a fairly specific family of government contracts
for the construction,
maintenance,
or operation
of infrastructure,
es
pecially for transportation, it is also used quite broadly in theUnited

States to refer to any kind of contracting out or privatizing of impor
tant government
the discretion
accorded
functions, especially where
the contractor under the contract gives the contractor a broader
role
in determining
than has been customary
how service is rendered
to
the public or how well the public interest is protected.While often

touted as new, the basic ideas involved in either formofPPP are seen
. 55, at 113. Miller is referring to The Public Buildings
65. Miller,
supra
Purchase Contract Act of 1954, 68 Stat. 518 (1954).
66. GAO, Report to Congress: Federal Office Space, GAO/GDD-90-11, December
1989, at 24.
67.
Id.
at 23.
570
the
american
of comparative
journal
law
[Vol. 58
in government contracts going back to the founding of theRepublic, if

not before. The legal regime ofPPP is thus not entirely new and the
raises
phenomenon
all
the
of important
privatization
II.
issues
that
government
extensive
services
in the Application
Problems
Forms of PPP
out or
contracting
raises.
of Existing
Law
to
There is a large and sophisticated body of federal government

contract law that deals reasonably well with many of the problems
forms of PPP,
those concerning
the re
by various
especially
of
interests
the
and
government
spective
private
contracting
State contracts are not subject to federal contracting
law,
parties.68
raised
but many of the most important examples of PPP

on the state
involve contracts
level. The state law is quite
States
varied
and local
and difficult
in the United
level, not the federal

to research.69 Never
theless, federal law provides an influentialmodel forhow to deal with

many of the issues of fairness between the parties and how to subject
to certain
the contracts
public
policies.
Space
does
not permit
a de
tailed discussion of this law in the published version of this report,

a substantial
but because
in the General
number of the questions
Re
concern issues that are regulated
that
law,
by
to the Gen
law will be provided
procurement
porter's Questionnaire
a summary
of federal
eral Reporter in an appendix and will be available to readers of this

report upon
ment
request
to the authors.
For present purposes, it suffices to note that this body ofgovern
that
for example,
for systems of procurement
law provides,
as reasonably
as much
competition
possible.
Competi
contract
require
tion is not restricted to sealed bids forfixed prices, however; the rules
a range
allow
In the 1990s,
of competitive
negotiation
techniques.
which
trade
procurement,
long permitted
factors for technically
complex contracts for
negotiated
competitively
offs of price and quality
which the government lacked the expertise to produce design specifi

use
to allow more
of best-value
general
expanded
a
of
of
forms
PPP.70
Stan
aspect
contracting,
European
prominent
a
contract
law
further
dard
establishes
government
special
cations,
was
administrative litigation system for resolving disputes about the

awarding
68.
See
contracts.
of government
generally
Steven
W.
Feldman,
It also
provides
Government
clauses
Contract
to protect
Guidebook
(4th
ed. 2008-2009).
69. The most important standard for state procurement law is the ABA's Model
State
Procurement
Code,
on Privatization
Legislating
supra
and
n.9.
See
also
Subcontracting,
toMarket:
Ellen
To Market,
Dannin,
as
L. Rev.
249 (2001)(meant
60 Md.
a primer forstates towrite better rules forprivatization through contracting out,with
many
examples
of different
out specifically).
70.
See
supra
state's
text following
rules
on procurement
generally
and
on contracting
n. 24.
2010]
PUBLIC-PRIVATE
571
PARTNERSHIPS
in contract
interests
and private
government
party
performance,
or intellec
such as clarifying who owns property under construction
as
of
tual property developed
contract performance.
It provides
part
to change the work under
that allow the government
special clauses
the contract or terminate
all or part of the contract but also impose
on the government the obligation to pay for certain costs in the event
of a change
or termination
of contract
work.
It also
establishes
an
other special administrative litigation system for resolving disputes
over those matters.71

contract law has long been
Finally, government
to further socio-economic
and other important public policies.
are established
for contract awards
of
Thus, for example,
preferences
some kind of contracts
or minority
to small businesses
owned busi
used
to
contractors
have
to establish
nesses,
may
government
plans
to
increase
the award of subcontracts
preferred groups, and contrac
tors must certify compliance with labor standards
and environmental
statutes.72
protection
There
of course,
are,
some
other
important
sources
of law
that
may apply tomost forms ofPPP. One especially important one is the
National Environmental Policy Act ( E A), which applies whenever
there are "major Federal actions significantlyaffecting the quality of
the human environment."73 E A thus clearly applies to federally
funded
contracts
for the construction
of highways,
dams,
and
other
major infrastructure.Where it applies, E A requires that before

constructionmay begin, an Environmental Impact Statement (EIS)
or Environmental
Assessment
(EA) must
be prepared
to ensure
that
the expected costs of the project do not outweigh its expected costs.
This section will focus on the way that enthusiasm forPPP has
led to a tendency toweaken some of the protections provided by these
kinds of law. As specific examples of this phenomenon, this section
will look at the failure to ensure adequate competition in the letting
of PPP
in which NEPA's
the way
rules for environmental
contracts,
have
been
weakened
the review process for
protection
by shortening
in some transporta
EISs
and EAs, and how non-competition
clauses
tion
contracts
have
had
infrastructure
unexpectedly
negative
The theme of this section is that the legal models
for
consequences.
protection
adequate
siasm for PPP may
A.
of the public interest exist, but excessive

enthu
to failure to use them or use them wisely.
lead
Competition
One of the chief arguments for contracting out is the claim that
can provide
contractors
the services more
private
for lower overall cost?than
government
personnel.
71.
See
72.
See
supra
generally
73. 42 U.S.C.
text at n.
Feldman,
"efficiently"?i.e.,
Some advocates
19.
supra
? 4332 (C) (2006).
n. 68.
572
THE AMERICAN
out make
claims
of contracting
very broad
LAW
[Vol. 58
in this regard,74
and
in a
market-centered political economy like that of the United States,

may find especially
strong resonance.
arguments
on
rests
of
the
the
belief
that markets
market
superiority
The posited
are charac
such
terized by competition and that competitive pressure will force

private
to trim costs
entities
the preference
that, despite
to the bone.
The
contract
government
is
reality, however,
law gives to compet
itive procurements, "[a]t least at the local level, competitive bidding

is not the norm."75
any market
contractors
Sole-source
discipline.
If contracting
cannot
be said
out is to realize
to be under
any of the prom
ised reduction in public expenditures, it ought generally to be

restricted to the kinds of services forwhich there is a competitive
to be so restricted.
but it does not appear
market,76
standards
that
Government
audits and the detailed
accounting
contracts
usual
form
of
sole-source
contracts)
(the
govern cost-plus
may provide some protection to the public against price gouging,77

but then one needs to add the costs ofmonitoring (including the sub
stantial costs of resolving disputes through the courts and special
to the contractors
costs to see the true
boards of appeal)
contracting
costs to the public of contracting
out.78 In fact, it is not self-evident
out would generally
be the low-cost solution for pro
that contracting
74.
See,
e.g., Michael
J. Trebilcock
&
Edward
M.
Iacobucci,
and Ac
Privatization
countability, 116 Harv. L. Rev. 1422, 1422 (2003)("flaws in private markets,

significant though theymay be, pale in comparison to the flaws associated with public
provision
or even
public
oversight
of private
actors").
75. Ellen Dannin, Red Tape orAccountability: Privatization, Publicization, and
Public
15 Cornell
Values,
J.L.
&
Pub.
Pol'y
111,
114
(2005).
See
also
Sharon
Dolovich, State Punishment and Private Prisons, 55 Duke L.J. 437, 495-500 (2005)
(because
of lack
of competition,
states
tolerate
prison
contractors
who
do not meet
contract requirements). Cf. TR?, Legal Issues, supra n. 42, at 30 (only a handful of
private companies bid on large-scale PPP highway projects).
76. "[A]ny absence of robust competition, a lack of experience specifying contract
results
. . . ."
or a
Dannin,
failure
supra
to monitor
n. 75, at
can undermine
benefits
performance,
privatization
sum
121 (quoting Representative
Christopher
Shay's
mary ofGeneral Accounting Office report).

77. The Truth inNegotiations Act (TINA), 10 U.S.C. ? 2306a (2006), applies to
most federal forms ofPPP contracts. See generally Feldman, supra n. 68, ? 9:63 ff.,at
301 ff.TINA applies to any negotiated federal contract expected to exceed $650,000,
or to any modification
even to a sealed-bid
of any type of contract,
to involve a price adjustment
and
that amount,
expected
exceeding
is
contract, which
to any subcontract
exceeding that amount ifthe prime contractor is subject to theAct. If itapplies, TINA
requires the contractor to submit cost or pricing data to the government and to certify
that the data are correct and complete, upon pain of civil and criminal penalties. If
upon audit, the government is able to show that the data were deficient, the contrac
torwill at a minimum be forced to pay the differencebetween the contract price and
the price that the governmentwould have negotiated ifthe disclosures had been accu
rate. Id. at ? 9:64, at 302; ? 9:76, at 312.
The government
also incurs monitoring
costs when
its own personnel
perform
and it is an empirical
whether
costs are greater
for moni
question
monitoring
the costs of monitoring
toring a non-governmental
entity, but it seems
likely because
include
costs to resolve
costs that are proba
substantial
privates
litigation
disputes,
in the case of government
government.
bly not incurred
monitoring
78.
a task,
2010]
573
PARTNERSHIPS
PUBLIC-PRIVATE
includes
viding a service. The true cost of using a private contractor
own labor and government monitoring
not only the contractor's
costs,
own administrative
but also the contractor's
costs, which may include
does not incur, like taxes. And the contractor
factors the government
would
like to earn a profit, to boot. For those very reasons, advocates
of contracting out have opposed allowing government to compete

against private contractors in deciding whether or not to contract out
a given
doing
service, and government

so by state or local law.79
are often precluded
employees
from
One good idea that has nevertheless come out of the battle over
contracting
out is the idea of "managed
to compete
against
to
referred
competition"
(also
for a given
contract,
as "competitive sourcing") inwhich public employeesmust be allowed

firms
private-sector
and
the
contract is awarded to a private bidder only if it truly offersthe best
contract.
The
federal
has
engendered
had
apparently
at least at some
in OMB
is embodied
rule
considerable
some success
Circular
Federal
controversy.81
in prevailing
under
but when
agencies,82
A-76,80 which
have
employees
these
competitions,
lose, private
they
industry
is
offeringthe public a documented cost savings, and the competition
may
workers
spur government
to be more
efficient.
It is hard
to argue
against managed competition,but it does not appear thatmost states

have a general requirement similar to OMB Circular A-76, and the
federal
is weakened
rule
by the courts'
refusal
to recognize
the stand
ing of interested government employees to invoke judicial review of
the process.83
79. Dannin, supra

allowed
employees
. 75, at 114 (in 2002, only 26.5 percent of local government
to compete);
see also
supra
Dannin,
n. 69, at 302-06
(state
statutes
limit information that could be considered and the decision makers inways that favor
privatization,
of the costs).
80.
81.
and
in some
supra n. 11.
contractors
Private
cases,
simply
require
privatization
without
consideration
See
see
a bias
against
contracting
out because
Circular
A-76
prohibits contracting out unless the private contractor offers at least a ten percent
over the government.

Both government
and contractors
fear sub
savings
employees
in the trade-off of price for quality
factors under
best-value
See
jectivity
contracting.
E. Harney,
The Quiet Revolution:
and Best
generally
Mary
Downsizing,
Outsourcing,
L. Rev.
con
158 Military
48 (1998)(discussing
tension
between
best-value
Value,
tracting and competition); David M. Walker, The Future ofCompetitive Sourcing, 33

Pub. Cont. L.J. 299 (2004)(then-Comptroller General, head ofGAO, offeringten prin
ciples to guide future decisions under Circular A-76).
82. Dannin, supra n. 75, at 113-14, 122 (in fiscal years 2003 and 2004, federal
employees won ninety percent of all price competitions conducted under Circular A
76). See also letter fromAllen Li, Director, Acquisition and Sourcing Management,
GAO, toRepresentative Bart Gordon, GAO-07-434R, March 16, 2007, on implementa
tion ofOMB Cir. No. A-76 at science agencies (finding that private sector won few
competitions, only three out of twenty-two in fiscal years 2003 through 2005), availa
ble at http://www.gao.gov/new.items/d07434r.pdf(last visited Feb. 12, 2010).
83. Paul R.Verkuil, Public Law Limitations on Privatization ofGovernment Func
tions, 84 N.C.L. Rev. at 440, 452-53 (2006)(disappointed private bidders have
standing, but forgovernment employees only administrative review possible, not judi
cial
review).
574
THE AMERICAN
A related
about
point
concerns
competition
LAW
[Vol. 58
the issue,
important
mainly at the state and local level,whether the government should

be permitted to accept unsolicited proposals forPPP contracts. The
argument in favor is that unsolicited proposals may provide new in
formation
is ensuring
and
to the government.
ideas
competition.
chief concern, however,

submitting unsolicited
proposals
Companies
The
argue that forcingthem to compete for the privilege ofperformingon

their proposal
may
require
the disclosure
of proprietary
information.
But that argument would permit contractors in effectto establish a

protectedmonopoly on the subject of their proposal. The better view,
is to permit them but provide
that an agency
should not
however,
an
without
entities to
unsolicited
first
other
accept
"allowing
proposal
or
submit
alternative
bids."84
propose
approaches
competing
B.
Current
Weakening
to Encourage
Law
Example of E A
Out:
Contracting
The
Enthusiasm forPPP may lead to pressures tomodify current law
to be an obstacle
to business
participation.
perceived
under current law, one particularly
significant obstacle
construction
project
involving
federal
funds
For
example,
to any major
is the National
Environ
mental Policy Act ( E A). Under current legislation, contracts to

build highways today are typically awarded by state governments,
which receive federal funds and work closely with the U.S. Depart
ment of Transportation (DOT). The EA or EIS required by E A is
generally drafted by consultants hired by the state that is proposing
the project, and DOT then reviews it. Final design, land acquisition,
and
construction
may
not commence
until DOT
approves
the EA
or
EIS and issues a Record ofDecision (ROD) or Finding ofNo Signifi

cant Impact (FONSI).85
Eager to promote PPPs in the transportation field, the federal
government
in recent years
has
attempted
to streamline
the process
of reviewing the EIS by permitting concurrent review of the EIS or

EA by the lead agency and other participating agencies. Critics argue
reduces
that this streamlining
and permits
tal documentation
over the environmen

the deliberation
a rush to the start of construction,
the
point afterwhich it is very hard to stop any project. Perhaps even

more disturbing is the federal pilot program to allow states to per
form their own E A review without federal agency oversight.
Because judicial review of agency approvals of the EAs and EISs is
quite deferential and because the state agencies are generally the
proponents of the project, opponents' best chance to block a project is
to persuade the federalDOT during the review process, and by elimi
84.
TRB,
Legal
Issues,
supra
n. 42,
at 29.
85. Ellen M. Ehrhardt, Note, Caution Ahead: Changing Laws
Public-Private
Partnerships
in Transportation,
42 Val.
U.L.
Rev.
905,
toAccommodate
922-25
(2008).
2010]
PUBLIC-PRIVATE
575
PARTNERSHIPS
nating DOT's approval role or collapsing itwith that of the states, the
C.
or eliminates
weakens
streamlining
Ill-Advised
Competition
that opportunity.86
Government
Contracting:
Clauses
Regret
Another result of uncritical enthusiasm forPPP

ments
One
have
clear
lease
to contractual
terms they later
concerns non-competition
clauses
agreed
the local governmental

that offer alternative
clauses
is that govern
come
to regret.
in contracts
to
example
toll roads.
operate
and
have
proven
other roads.87
Could
Such non-competition
clauses may bind
not
to
to highways
make
entity
improvements
routes. In a number
of celebrated
cases, such
on
to be an obstacle
to highway
improvements
in PPP
clauses
toNon
in Agreeing
contracts
a government
prevent
from sub
sequently taking action to promote the general public good, especially

through legislation? The law used to lookmore protective of govern
v. Winstar
in United
But
States
the
prerogative.
Corp.,88
it
courts
to
have
made
for
Court
easier
find
may
govern
Supreme
are two
mental
liable for breaching
their contracts.
bodies
There
doctrines that used to protect the government.
One was the sovereign
mental
acts defense,which says that to the extent that the state is exercising
its sovereign
not be
powers
to regulate
liable for breaching
general,
through
it can
acts,
public
its contracts. The
other was
the
sover
says that the government's
doctrine, which
unmistakability
remain
will
intact
it is surrendered
in
unless
power
eign
terms. Perhaps
unmistakable
those doctrines
continue to protect the
government because five justices applied them to the case at bar

86.
at
Id.
The
939-40.
928-29,
author
also
argues
that
the
review
was
process
further restricted by tight deadlines, further squeezing out public comment and par
in the process.
Id. See
also
Sharon
E A
under
Assault
Buccino,
ticipation
and Administrative
Weaken
Would
Environmental
Review
Proposals
Congressional
12 N.Y.U.
Envtl.
L.J. 50 (2003).
and Public
Participation,
on
87.
Ellen
Privatization
Infrastructure
Contracts
and Their
Effect
Dannin,
two other types of clauses
Governance,
July 10, 2009, at 1 (also describing
commonly
in these kinds
of contracts
that create
found
similar
clauses
problems:
describing
a right to object to and receive
and those giving
events"
the contractor
"compensation
compensation for legislative, administrative, or judicial decisions), available at http://

ssrn.com/abstract=1432606; Nicholas J. Farber, Note, Avoiding thePitfalls ofPublic
Private
to Be Aware
Issues
Partnerships:
of when
Transferring
Assets,
Transportation
35 Transp. L.J. 25, 35 (2008)(even though contract clause expressly permitted safety
modifications,
in order
to avoid
threatened
litigation
over non-compete
clause,
Orange
County, California, government ultimately bought whole tollway back); TRB, Legal
Issues,
supra
n. 42,
at 35-36.
The non-competition clause is an important part of a PPP inwhich the contractor

is to be compensated by collecting tolls because in such a case, the contractor is as
suming the risk of changes in trafficloads. Without a non-competition clause, which
many
governmental
bodies
are now
unwilling
or taxes
to cover
to agree
to, private
contractors
will
pre
fer to be compensated by an availability payment from the government, leaving the
government
to collect
tolls
88. 518 U.S. 839 (1996).
the cost of the project.
Id.
at 32-33,
35-36.
the
576
american
of comparative
journal
law
[Vol. 58
though they disagreed about how the doctrines applied. The two dis
senting justices thought that the doctrines applied to protect the
from
government
liability
case.
in the
Three
concurring
justices
thought that a contract between certain healthy banks and the Fed
Loan
eral Home
accounting
failing banks
to use a favorable
to buy some
for the banks
not
to
promise
change the
Bank
the banks
Board authorizing
as an inducement
an unmistakable
constituted
treatment
law on the accounting practice in question. So they voted with the

plurality of four justices, who also found the government liable for
a statute
enacting
subsequently
that prohibited
treat
the accounting
ment in question, but on grounds that call into question the

continuingvalidity of either the sovereign acts or the unmistakability
doctrines. The plurality opinion thus destabilizes the old law that
the government's
dual roles as regulator
and contracting
party
and distinct.89 The fear is that after Winstar
governments
separate
kept
may not be as free as they used to be to issue laws or regulations for

the general public good ifsuch action would arguably breach existing
commitments.
contractual
The
III.
Challenge
Interests
This
section
of Developing
and Values
some
examines
New
Law
Affected
to Protect
by PPP
in current
deficiencies
Public
law. Specifi
cally, the section looks at how current law fails to extend the public
of administrative
values
for the protection
law, especially
of the non
contractingparties who are most likely to be affected by the kinds of
government
wise
contracts
out complex
Contracting
PPP.
that constitute
services
to the public
that would
be provided by government constitutes a
other
delegation
of
This
should be quite clear in the case of
authority.
governmental
care
care organizations,
the
of
health
through managed
privatization
use of private
to
state
administer
welfare
programs,
organizations
the use of charter schools and educational
management
organiza
of prisons.90
tions to operate
schools, and the privatization
public
Gillian Metzger has perceptively argued that each of these situations

"not simply the ability to exert coercive powers on a noncon
resources
basis, but also control over access to governmental
the degree of power and con
Perhaps
government
programs."91
involves
sensual
and
89.
See
Jody
See
Gillian
(2000).
90.
Freeman,
The
E. Metzger,
Contracting
Privatization
State,
28 Fla.
as Delegation,
St. U.L.
Rev.
103 Colum.
155,
L. Rev.
209-12
1367,
1377-94 (detailed analysis ofway each of these arrangements grants governmental

power
91.
to privates).
Id. at 1462.
Cf.
Lester
M.
Salamon,
The New
Governance
and
the Tools
of
Public Action: An Introduction, 28 Fordham Urb. L.J. 1611, 1614 (2001) (new govern
ance tools involve "the exercise of discretion over the use of public authority and the
spending of public funds").
2010]
577
PARTNERSHIPS
PUBLIC-PRIVATE
trol is not quite so dramatic in the case of a private operator of a

public toll road, but even in such an example ofPPP, the contractor
exercise
may
discretion
affecting
public
lic, such as whether and when

or which
maintenance
subcontractors
assets
and
to engage
to select
a numerous
pub
in road repair and
to operate
rest stops.
If this kind of power and controlwere subject to tightly drawn
contractual
contractor
concern would be unwarranted.

The
limitations, perhaps
could be seen as the mere agent of the government, which
remained in charge of the major policy and legal decisions. But as
every lawyer knows, "providing services always entails some element

to differ
of interpretation
and discretion
that may cause the execution
cost
the strategy of gaining
from what was
intended."92 Moreover,
on
out
contractors
sub
depends
giving
savings
through contracting
stantial discretionwith regard to how they render the service so they

can introduce techniques the government did not think of or cannot
use.
The combination ofpower and discretion thusmeans that private

contractors on major forms of PPP may effectivelybe determining
some of the important rules about the application of coercive power to
to governmental
individuals
and their access
programs. When
gov
ernment wields
this kind of power, we have developed
basic rules of
public law to constrain the government in the name of such public

as transparency,
values
public
participation,
due process
for affected
individuals, and public rationality. These rules and values are found
in the federal
trative
and
procedure
state
acts
constitutions,
and
(APAs),
the federal and state adminis

numerous
other statutes
and
regulations at both the federal and state level. But these rules gener
ally do not apply to private parties, and some do not even apply to
to contract out. Contracting

out is thus all too
decisions
as
a
to
to
abused
the
evade
way
being
complex of public
susceptible
law.
In
to
interests of af
values
order
the
protect
imposed by public
government
fected members of the public and to preserve the idea of limited
government,
a growing
number
of commentators
argue
that
is neces
sary to extend the reach ofpublic law principles so that they apply to
forms of PPP.93
A.
Applying Public Law Rules toProtect Public Values
seeks
In thinking about how to protect the interests that public law
tional
much
to protect, we have to think both about what,

if any, constitu
or administrative
contractors
law applies
to private
and how
to governmental
to contract out.
of that law applies
decisions
92. Ellen Dannin, supra

93.
Metzger,
See,
e.g., Dannin,
n. 90.
supra
supra
. 75, at 144 (footnoteomitted).

n.
75; Freeman,
supra
n.
15; Freeman,
supra
n. 89;
578
THE AMERICAN
1.
Contractor
LAW
[Vol. 58
Actions
The situation is clearest and at itsmost stark with respect to
actions
by private
contractors.
The
Constitution
not
does
to
apply
them unless their activity is so clearly intertwinedwith the govern
to be "state action." Merely

that their acts can be deemed
a
contract
with the government
does not turn contractor ac
having
tions into state action. Thus due process, which attempts
to restrain
that private parties have an oppor
power by ensuring
governmental
ment
tunity to be fairlyheard on issues that affect them individually in a

process that is free fromobvious bias, does not apply to private con
tractors. Nor
do other
constitutional
important
like equal
guarantees,
protection. The APAs with their specific rules providing forfairhear

ings and
do not apply
form of rulemaking
the notice-and-comment
to
contractors; they apply only to governmental bodies and officers.

Neither theAPA requirements forpublication of the rules followed by
an agency, nor the Freedom of InformationAct (FOIA) with its re
of agency
records or any of the related
in the Sunshine
like the Government
Act94 or
for disclosure
quirements
transparency
statutes
the Federal Advisory Committee Act (FACA)95 apply to private con
tractors.96
2.
So citizens
contractors
how PPP
Government
or similar statutes
cannot use FOIA
are exercising
their discretion.
to Contract
Decisions
to find out
Out
The exemption of private contracts from the rules of public law

goes
to contract out are not ex

decisions
government
since
is
constitutional
the government
requirements
in
the
such
constitutional
of
due
cases,
acting
requirement
probably does not require any hearing by affected interests,97
further. While
empt
clearly
process
from
and the federalAPA does not add any hearing requirements. By their
own terms, the formal hearing
requirements
554, 556, 557
of Sections
94. 5 U.S.C. ? 552b (2006).

95. 5 U.S.C. App. 2 (2006).
96. When contractors submit documents containing confidential financial infor
mation to the government as part of the bidding process, as is required, for example,
in best
value
procurements,
important
issues
are
raised
whether
those
documents
are
need
to prevent
dis
exempt from FOIA disclosure requirements as confidential business information

under 5 U.S.C. ? 552(b)(4) (2006). The law has to strike a balance between the need
for transparency
in government
contracting
and
closures of information that could disadvantage

supra
n. 42,
at 30-31.
the contractor's
it competitively. TRB, Legal Issues,
Section 7 of the OPEN Government Act of 2007, 121 Stat. 2524 (2007), amended
the FOIA, 5 U.S.C. ? 552(f)((2) (2006), tomake it clear that any recordsmaintained
for a federal
agency
by a records
management
ment records for purposes of the FOIA.
contractor
are
to be
treated
as govern
out services
to the general
to contract
does not
97. Because
the decision
public
as an identifiable
in a closed
of
affect a person
individual
class, but only as a member
an open class of persons
remits
them to the
affected as by a general
rule, due process
political process to defend their interests,not to the courts. See United States v. Flor
ida East Coast Ry. Co., 410 U.S. 224, 244-46 (1973).
2010]
PUBLIC-PRIVATE
579
PARTNERSHIPS
do not apply unless another statute imposes the requirement, and
federal contracts
ment rulemaking
and
grants
are
from the notice-and-com

exempted
of Section
553.98 In most cases of PPP,
procedures
the projects will require authorizing legislation, so there is likely to
be a legislative
interests
sufficient
but not necessarily,
process?probably,
tive hearings?in
with
legisla
which there will be an opportunity for affected
to be represented.
Whether
legislative
provide a
hearings
on
for due process hearings
substitute
view
one's
depends
ofhow well federal and state political processes work. The legislative
process would appear to be a particularly problematic substitute in
situations inwhich instead of authorizing a specificPPP project that
could be the subject of a clearly defined debate during the legislative
the
process,
grants
legislature
wide
to an
discretion
administrative
agency to engage in a variety ofPPP projects on a schedule of its own

of that kind of general or framework
choosing. The enactment
legisla
as specific and concrete
a debate
tion is unlikely
to generate
as
a
authorization
of
would.
legislative
specific project
3. Using the Contract to Protect Public Law Values

If contract law is a large part of the problem because it does not
adequately protect public values, it could also be the solution in the
sense
that
an
to extend
easy way
the requirements
of public
law
would be tomake them applicable to the contractors in PPP by con

tract clauses (or by statutes or regulations that in effectdetermine
what the contract clauses are).99While different types of PPP may
typically adopt
ute, there does
some aspects
of public law by contract clause or stat
not appear
to be any general,
thoroughgoing
attempt
to specifywhich public law rules should be extended towhich private
contractors.
There are, at least, no general
that would
requirements
ensure the extension
of public law values
into all important forms of
out.100
contracting
98. 5 U.S.C.
? 553(a)(2)
(2006).
is one of the most

and creative
for the
Jody Freeman
vigorous
spokespersons
view
that contract
for creating
could be a vehicle
much
of ac
greater mechanisms
for forms of PPP.
See, e.g., Freeman,
supra n. 15; Freeman,
countability
supra n. 89.
99.
100. One might have expected contracts for themanagement of prison facilities to
provide
examples
of contract
clauses
imposing
due
process
obligations
on the compa
nies running prisons. But instead, the recommended approach in this industry is to
leave all significant decisions thatmight disadvantage prisoners (concerning classifi
cation, transfer,discipline, or parole) to government personnel and to limit the role of
the private prison operator and its employees to such functions as making reports and
recommendations about individual prisoners and carrying out disciplinary decisions
by
the government.
National
Institute
of Justice,
U.S.
Department
of Justice,
Con
tractingfor theOperation ofPrisons and Jails, in 3 Prisoners and the Law 22-17, 22
19 to 22-21 (Ira P. Robbins, ed., 2008); Ira P. Robbins, The Legal Dimensions ofPri
vate
Incarceration
in 3 Prisoners
and
the
Law,
op.
cit.,
22-33,
22-138
to 22-142
(discussing a model contract forprison privatization). Public values are protected by

the involvement of the government official if that officialdoes not just rubber-stamp
contractor
recommendations.
580
THE AMERICAN
LAW
[Vol. 58
Judicial Powers Not Generally Effective toGuard Against
B.
Contractor
Abuse
is not a governmental
the contractor
Since
are
its actions
entity,
not subject to judicial review under theAPA. Do the affected individ
uals
have
causes
law
any private
of action
the contractor?
against
Prisoners who are beaten in a private jail may have a claim under
state
tort law, but what
about
the harm
an unemployed
person
suf
fers when the company that contracted with the government to

provide unemployed persons in his neighborhood job training and a
job for at least one year completely fails to fulfill its obligations?
Those harmed would like to assert either their standing as third
party
beneficiaries
the government
under
contract
or an
implied
right of action under the legislation authorizing the contract. The

beneficiaries of these kinds ofPPP have not, however, faredwell with
these kinds of claims. The courts are reluctant to imply rights of ac
tion under statutory schemes that do not literallyprovide such rights
to the beneficiary class and they have generally refused to find that
the beneficiaries have the right to sue as third party beneficiaries
the contract
unless
This
problem
says so.101
expressly
can also be cured by statute
or contract.
The
gov
ernment has to be willing to include in legislation authorizing the

contracting out of the delivery of services express rights of action by
or for whose
to whom
benefit the services are to be ren
the people
the government
dered. In the contracts for the carrying out of PPP,
to invoke ad
beneficiaries
could include clauses
expressly permitting
review.
and judicial
ministrative
Limits
C.
on What
best
The
Can
Be Contracted
cure for serious
abuse
Out
or Privatized
is prevention.
Perhaps
there are
some kinds of functions that simply should not be contracted out be
cause
limits
of the risk of grave violations

on what
powers
law-making
of public
the
values.
legislature
Constitutional
may
delegate
to
the executive branch are notoriously weak in the United States, at

least in federal law, so itmay not be surprising that constitutional
limits on what law-making powers the legislature may delegate to
are also rather unclear

limited. The
and seemingly
quite
privates
a
of
invalidate
Court
did
U.S.
regulatory power
delegation
Supreme
in one New Deal
to private actors on due process grounds
case,102 but
The extent towhich contract clauses in other types of PPP might extend public
values
is not well
documented
and
needs
further
research.
101. The fact pattern involvingunemployed persons in the text is fromMartinez v.
Socoma
Co.,
Inc.,
521 P.2d
841
(Cal.
S. Ct.
1974)(rejecting
third party
claim).
See
also
Davis v. United Air Lines, Inc., 575 F. Supp. 677 (E.D.N.Y. 1983)(rejecting thirdparty
claim after Second Circuit rejected implied right of action claim in connected case).
102. Carter v. Carter Coal Co., 298 U.S. 238, 311 (1936)(holding that the scheme of
subjecting the entire coal mining industry to the wage decisions of the majority of
2010]
PUBLIC-PRIVATE
581
PARTNERSHIPS
subsequent decisions effectivelyeliminated the due process limita

tion by upholding most delegations to privates as long as the
has
government
a power
of ratification,
"however
perfunctory."103
Paul Verkuil has argued that "the duty to be accountable forpublic

is not a function
decisions
performable
by those
outside
government"
and he sees such duties as typically inhering in officesforwhich there

to take an oath or to carry a badge.104
is a requirement
Jack Beerman
makes a similar argument that theAppointments Clause of the fed

eral Constitution may prohibit delegating certain functions to
But
privates.105
Court
the Supreme
has
not held
any
government
function clearly nondelegable nor has it clarified which functions

must be subject to the oath or theAppointments Clause, so itappears
that federal constitutional law is unlikely to impose significant limits
on delegation
to privates.106
Such limitations on delegations as there are under federal law

are rather to be found in statutes and regulations, which may limit
the executive
to delegate,
but do not, of course, limit
Act, for example,
grants blan
Subdelegation
branch's
Congress's
power.
executive
branch,
power
The
ket authority to the President, in the absence of specific statutory

prohibition, to delegate his powers to subordinates, but the delega
tion can be made only to "a head of any department or agency in the
or any
official
thereof who
is required
to be ap
pointed by and with the advice and consent of the Senate."107

as in forms of PPP,
parties,
authorization.108
congressional
to private
Delegations
quire
thus
clearly
re
specific
more
is OMB
Circular
the executive
A-76,
significant
Perhaps
or
branch
rules for "managed
competition"
"competitive
sourcing."
Those
rules provide that "inherently governmental
functions" should
not be contracted
out.109 The Circular
defines
govern
"inherently
one of the following characteristics:
mental
functions" as having
representatives
ious form" and
from both industry

due process
violated
in its most
involved
and unions
obnox
"delegation
was
to a private
because
the delegation
body, not
an official or official body that would be "presumptively disinterested" and because

"one
and
person
may
especially
103. Metzger,
not be intrusted with

to regulate
the power
of a competitor").
cases).
supra n. 90, at 1440-41
(discussing
the business
In fact,
of another,
the federal
courts
apply the same liberal test to these cases as they apply to delegations to the executive
branch, promptingGillian Metzger to conclude that "constitutional law [at the federal
level, at least] makes no attempt to link the constitutionality ofa private delegation to
the risk that itwill place government power outside of constitutional controls." Id. at
1370; see also id. at 1441.
104.
Verkuil,
supra
n. 83,
at 425-26,
428-31,
447
text at n.284.
105. Panel Discussion: Public Oversight or Public IPrivate Partnerships, 28 Ford

ham Urb. L.J. 1357, 1360 (2001)(remarks by Prof. Jack Beerman).
106.
supra
supra
Freeman,
n. 83, at 424.
107. 3 U.S.C.
108.
109.
n.
15, at
1304
n.70;
Metzger,
supra
n. 90, at 1438-39;
Verkuil,
?? 301-302 (2006).
n. 83, at 426-28.
supra
Verkuil,
OMB
Cir. A-76,
supra n. 11, ? 4 a., b.
582
THE AMERICAN
LAW
[Vol. 58
(1) Binding the United States to take or not to take some
action
by contract,
otherwise;
(2) Determining,
cal,
protecting,
territorial,
property,
order, or
authorization,
regulation,
policy,
and advancing
economic, politi
or other interests by military
or
diplomatic action, civil or criminal judicial proceedings, con

or otherwise;
tract management,
(3) Significantly affecting the life, liberty,or property of pri
vate
or
persons;
ultimate
(4) Exerting
control
over
the acquisition,
or
use,
disposition ofUnited States property (real or personal, tan

gible or intangible), including establishing policies or
for the collection,
and other federal
procedures
propriated
control, or disbursement
funds.110
of ap
The A-76 factors seem like a reasonable attempt to identifythe func

tions that should not be the subject of contracting out. But the
significance of the Circular A-76 criteria is limited because the one
to police violations
of the
have personal
incentives
criteria, government
jobs are subject to contracting
employees whose
In fact, the ex
to bring court challenges.111
out, are denied standing
use
in Iraq and Afghanistan,
for
contractors
of private
tensive
to
to
of
from
food
service
interrogation
prisoners,
security
everything
group who would
shows that there are in practice apparently no limits to the important

functions
governmental
Although
erably
out.112
that may be contracted
of the nondelegation
doctrine are consid
do not
the federal version,
the state versions
state versions
than
stronger
appear to be any more effective than the federal doctrine at limiting

to privates. Rather,
the chief obstacles
delegations
to delegation
to private persons113 would
appear
at the state level

to be the types of
constitutional clauses adopted bymany, but not by all, states in the
wake
of scandals
concerning
state financing
of railroads
in the 1830s
and 1840s. The most important of these clauses prohibit public finan
cial
to
aid
private
the "public
developed
Concomitantly,
enterprises.114
a substantive
doctrine,
purpose"
state
due
courts
process
doctrinewhich holds that implicit in the state constitution is the rule

that taxes can be levied only forpublic purposes and thereforea tax
110. Id. at Appendix A,
111.
See
113.
States
114.
Pinsky,
. 83.
supra
. 1.A.
112. Allison Stanger, One Nation Under Contract 84-108 (2009)(in 2007, more
than 180,000 government contractors (not counting subcontractors), as compared to
160,000 U.S. soldiers (at 84); contractors engaging in combat (at 89), in interrogation
(at 200)).
may
have
some
legislation
prohibiting
contracting
out
of certain
func
tions. For example, by statute both Illinois and New York prohibit private prisons.
Lucas Anderson, Note, Kicking theNational Habit: The Legal and Policy Arguments
forAbolishing Private Prison Contracts, 19 Pub. Cont. L.J. 113, 132-34 (2009).
supra
n. 58, at 278-80.
2010]
public-private
583
partnerships
that is not levied fora public purpose is a violation of due process.115

This substantive due process limitationmay apply even in states that
have
not adopted
on public
restrictions
constitutional
aid.
David Pinsky argued over fortyyears ago that the courts ofmany
states had interpreted the constitutional clauses and the public pur
pose doctrine to require sufficient public control over projects
supported by public financial means to ensure attainment of the pub
lic purpose, a requirement that could go a longway to ensuring that
public values are respected inPPP.116 But in fact, they do not appear
to have had that effect.The requirement forpublic control has been
relaxed "where attainment of the public purpose objectives is deemed
sufficientlyvital and the need for public capital sufficientlyur
gent,"117 a condition that may apply tomany examples of PPP. At
least inWashington State, it appears that the courts have narrowed
the constitutional restrictions on public aid and the public purpose
doctrine greatly by treating them as effectivelyprohibiting only gifts
to private
parties,
so that even
of a public
in the absence
an
purpose,
expenditure of public funds can be sustained as long as the public

sufficient
receives
"consideration."118
Even
these
state
New
Law
constitutional
clauses and doctrines thus do not appear to provide significant limi

tations
IV.
on contracting
out.
- the
to Develop
Need
Conclusion
and
Public
Values
Public
to Protect
Interests
While it is impossible to distinguish very clearly between forms

of PPP and any other types of contracting out, government is also
unimaginable todaywithout PPP, especially inasmuch as theUnited
States
has
such
strongly
market-centered
political
economy.
Clearly, PPP is here to stay, has in fact long been with us, and will
increasingly
involve
complex
for the delivery
arrangements
of ser
vices, thus raising all the types of problems surveyed in this report.
115.
Id.
at
116.
Id.
at 284-89.
281.
Some
state
doctrine explicitly. Id. at 282.

See
also
constitutions
David
M.
were
Lawrence,
later
amended
Private
Exercise
to incorporate
of Governmental
this
Power, 61 Ind. L.J. 647, 685-86 (1986)(confirming this part ofPinksy's analysis on the
basis of a few additional cases).
Not surprisingly in light of the literal wording of the public aid clauses, some
state courts interpreted the constitutional clauses as categorical bans on institutional
forms ofPPP. Pinsky, supra n. 58, at 283, 286 (discussing Lord v. City ofDenver, 143
P. 284 (Colo. 1914) (invalidating plan that it regarded as a joint venture between the
company and the city);Walker v. City ofCincinnati, 21 Ohio St. 14, 54 (1871) (clause
prohibits "a business partnership between a municipality or subdivision of the State
and individual or private corporations or associations")).
117. Pinsky, supra n. 58, at 292.
118. Nick Beerman, Comment, Legal Mechanisms ofPublic-Private Partnerships:
Promoting Economic Development or Benefiting Corporate Welfare? 23 Seattle U. L.
Rev. 175, 186-87 (1999) (discussing City ofTacoma v. Taxpayers ofCity ofTacoma,
743 P.2d 793 (1987)).
584
THE AMERICAN
LAW
[Vol. 58
Of all the problems, themost serious ones have to do with the need to
law values.
Some commentators
refer to this problem
extend public
as the issue of accountability.
re
L. Friedman
Well-known
New York Times
columnist Thomas
cently gave a trivial but clear example of this issue. He and his Iraqi
driverwere trying to get through the tightU.S.-provided security to
meet with a member of the Iraqi Governing Council in the Green
in Beirut.
Zone
The
contractor
civilian
young U.S.
who treated
soldiers
Friedman
on guard deferred to an older

and his driver rudely, put
ting the Iraqi driver at risk by requiring him to stand for a long
period of time in the hot sun. Friedman writes, "I kept thinking to
myself: 'Whodoes this guy report to? If I get in his face and he comes
after me, to whom do I complain?"'119
If a soldier or a bureaucrat
abuses
power in a serious way, there
so we know, at
a
is
chain of command
that is publically
available,
least in a general way, to whom to complain, and while we may not be
confident thatwe will get satisfaction,we know that there is at least
over
even judicial
some mechanism
for administrative
and maybe
we
a
to
If
contractor
whom
do
abuses
its
power,
private
sight.
we
ensure
and
How
administrative
do
judicial
adequate
complain?
in
levels of public participation
review? How do we ensure adequate
important decisions the contractormakes affecting the public? How
do we
ensure
the appropriate
level of transparency
con
for private
tractorswhen they are carrying out public tasks? How important is it

to ensure that the contractorpersonnel deciding how individual peo
ple will be treated under the contract are free frombias or conflictsof
interest?
These
are
the challenges
of PPP,
and
to a large extent,
these
is
sues are only beginning to be addressed in the law of the United
States.
119.
at A25.
Thomas
Friedman,
The Best
Allies
Money
Can
Buy,
N.Y.
Times,
Nov.
4, 2009,

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Public-Private Partnerships

Author(s): DOMINIQUE CUSTOS and JOHN REITZ

& JOHN REITZ**

the term "public private

the term is used to denote government

highways and bridges, the term refers to a family of relatively new

shiftmuch of thefinancing, maintenance, and lor operating cost for

contractors, who may then be allowed

bling thegovernment touse themarket toaccomplish itspurposes and

the term has

been applied broadly to all typesof contracting out of importantgov

to effortsto weaken existing legal protections for thepublic interest

Judge John D. Wessel Distinguished Professor of Law, Loyola University,

interests are protected

of the term "public-private

certain infrastructureand services to the public. The mixing ofpublic

issues and reviews the history of PPP in the United States. It

the notorious American

made itsway into theUnited States. The paradox is better assessed

The third section examines some of themost important deficiencies

law fails to extend

the public values of administrative law, especially for the protection

Definition and Development of theNew PPP

concept. In this regard, theAmerican literature reflects three of the

1. The fourthapproach enumerated byGuri Weihe is the development approach.

2005, available at http://openarchive.cbs.dk/cbsweb/handle/10398/7348;Public-Pri

ture2 or in public policy literature.3 The third approach is the one

itsway in theAmerican political and scholarly discourse as part of its

The definitional difficultyresulting fromthis general polysemy is

no general legislation on PPPs. Instead, it has passed different laws

States contrasts with other countries, where typically, the adoption

PPP. The lack of general federal statute on PPPs results in the ab

Clearly, in the United States, the law of PPP is fragmented.

as historical chameleons: The Case of the US,

6. For instance, theNational Highway System Designation Act of 1995 (Pub. L.

President's Office ofManagement (OMB)11 to federal agencies could

maintain, and/ormanage a facility or system [thatprovides inwhole

This latter point is shared by a much broader usage inwhich the

for the provision

12. GAO, Public-Private Partnerships: Terms Related to Building and Facility

service is rendered.15 There are thus two rather differentusages of

A contractual agreement between a public party and a

ings. From a comparative standpoint, it is useful to bear in mind

cated at the intersection of the common law of contracts and the

public law.17 Third, it does not differentiate public works contracts

tinct judiciary. Although such challenges are brought before special

level, these first instance

are appealable to theU.S. Court ofAppeals forthe Federal Circuit. A

is thus a type of government

vate Markets 4, 6-12 (1993)(describing wide range of government contracting since

17. Joshua Schwartz, Liability forSovereignty: Congruence and Exceptionalism in

the respective parties are co-owners of a business,

tionmodel seems in keeping with the traditional reluctance in the

to rely on the state

result of the rareness of the joint-venture type, theU.S.

of PPP is definitely embedded in public contracts law and focuses

contracting out of related services that would otherwise have to be

wide variety of forms.The private party could potentially finance, de

964476; John Reitz, Doubts about Convergence: Political Economy as an Impediment

pal transit facilities); 15) Lease/Purchase;

17) Tax-Exempt Lease

categories of PPP now reflectglobal trends. This state