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New York State Legal Barriers to Long-term Contracts and Asset Ownership of Municipal Water and Wastewater Systems

PROCUREMENT PROCESS

Municipal contracts for public works and public purchases are governed generally by Article 5-A of the General Municipal Law ("Article 5-A"). Privatization projects are not "public works." Public-private partnerships achieve efficiencies by allowing the private sector to assume risks which the public sector does not normally assume. Such arrangements are different from the "public works" anticipated by the General Municipal Law. They should not be inappropriately constrained by it.*

A. Procurement Procedures.

Much of the value of a public-private partnership lies in the ability of the private developer to provide innovative solutions to problems, assume significant project performance risks and use creative financing. The local government may want to encourage such solutions. It is inconsistent to force a local government to establish the project specifications before seeking private proposals. Requiring detailed municipal specifications imposes an expense on the local government. Detailed specifications may limit the opportunity for developers to submit innovative approaches that may better address the community's needs.

A significant potential benefit arises out of the private developer's assumption of significant design, construction and project performance risks. A developer is normally unwilling to assume those rules where it does not fully control the design and construction processes and the selection and control of the contractors. Further, where a project requires a variety of skills and abilities, the public works process would limit a developer's ability to assemble a team of contractors to complete the project. The public works requirement to bid separately limited portions of the construction work is inconsistent with theadvantages to the public of requiring the private entity to take the risk for the construction process. completion date, performance and total cost guarantees.

A community should have the opportunity to explore the willingness of proposers to accept differing levels of project risk necessary to achieve the project cost savings.

*Section 1 09-b of Article 5-A limits the use of installment purchase contracts Article 5-A of the General Municipal Law functions with respect to routine purchases or construction projects. For example, Section 103 of Article 5-A. requires a local government to develop its own detailed terms and specifications for a project before it is put out for bid, limiting ingenuity of responses by prospective bidders. It prohibits significant negotiation of the terms of the contract with the successful bidder and makes cost the primary criterion for selection of the successful bidder. Where the project involves significant erection, construction, reconstruction or alteration of a building, Section 101 of Article 5-A requires the separate preparation of specifications and bidding of at least three subdivisions of the work, in addition to the balance of the construction project.

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