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ARIZONA STATE SENATE
Fifty-Fifth Legislature, Second Regular Session
public-private partnership contracts
Purpose
An emergency measure that expands the authority of the Arizona Department of Administration (ADOA) to enter into certain public-private partnership contracts (P3 contracts).
Background
The Arizona Procurement Code regulates the buying, purchasing, renting, leasing and acquiring of materials, services and construction services by the State of Arizona using public monies. The procurement process is overseen by ADOA, with the Director of ADOA (Director) acting as the Central Procurement Officer. Statute outlines requirements for public construction contracts under the Arizona Procurement Code (A.R.S. Title 41 Ch. 23).
The Director may enter into P3 contracts to finance the technology needs of the purchasing agency. The funding for services under a P3 contract must be contingent on and computed according to established performance standards and must be attributable to the successful implementation of the technology program for the period specified in the contract. The Director may issue requests for information (RFI) and requests for proposals (RFP) to solicit private partners that are interested in providing programs under a contract. Each RFP issued must require each private partner to propose specific performance improvements and measurement approaches to be used to measure the value delivered by the vendor technology solution. The Director must include an assessment of the proposed value of the vendor technology solution in its evaluation criteria to select the best value solution for the purchasing agency. A contract entered into between the Director and an automated systems vendor must provide for payment of fees on a contractually specific amount based on the achievement of measured performance improvements that are mutually agreed to by the contractor and the Director and monies for payment of these fees are not subject to legislative appropriation. The following are subject to review by the Director: 1) the terms of contracts entered into relating to the measurement of the performance improvement attributable to the vendor technology program; and 2) payment of fees based on achievement of the established performance measures. Before a P3 contract is awarded, the Joint Legislative Budget Committee (JLBC) Staff must be consulted with regard to the potential fiscal impact of the contract to the state. JLBC Staff, if there is a finding of a significant negative impact to the state, must report the findings to JLBC (A.R.S. § 41-2559).
Certain public bodies, including the Arizona Board of Regents, the legislative and judicial branches and the Arizona Department of Transportation (ADOT), are exempt from requirements of the Arizona Procurement Code (A.R.S. § 41- 2501). Statute outlines requirements for ADOT to enter into highway construction contracts, including authorization for P3 contracts (A.R.S. Title 28, Ch. 22).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Allows the Director to authorize a procurement officer to enter into a P3 contract to do the following:
a) finance or provide construction services, operations services and maintenance services of buildings, infrastructure or improvements to or on state property;
b) finance or otherwise facilitate the development of state property; or
c) develop programs or services that enable a purchasing agency to expand or enhance any of its operations, including training, employee support and customer service to achieve desired results that serve the interests of the state, are consistent with the legal authority and responsibilities of the purchasing agency and are best accomplished by a P3 contract.
2. Requires a P3 contract to only result from an RFP issued by the purchasing agency authorized to solicit private partners interested in providing construction, development, services or other functions under a P3 contract entered into in accordance with statute.
3. Allows the Director to authorize a procurement officer to issue RFIs at any time in accordance with statute to facilitate the development of or modifications to an RFP.
4. Requires the procurement officer of the purchasing agency seeking a P3 contract, before issuing the RFP, to submit to the Director justification regarding the reason the P3 contract approach is being sought and why it is essential or comparatively advantageous over other contracting options.
5. Requires the justification to also include information about any financial obligations the purchasing agency would have under the proposed P3 contract and whether the purchasing agency's current appropriations or other funding sources are sufficient to meet those obligations.
6. Requires the Director to determine in writing whether to approve the justification.
7. Requires, if approved, the Director to address details regarding how the procurement is to be solicited and awarded and any limits associated with the Director's approval.
8. Requires any RFP issued in accordance with statute to require each responding potential private partner to propose specific details of the design, construction, services, programs or other functions associated with its response to the RFP.
9. Requires each respondent to also provide an assessment of the potential value of its expenses beyond any state funding that may have been specified in the RFP.
10. Requires the Director to include an assessment of the proposed value of each proposal as a component within the evaluation criteria developed to select the best solution.
11. Prohibits potential private partners, in any response to an RFP in accordance with statute, from asking the purchasing agency, ADOA or the state to guarantee funding or the securing of funding in connection with the proposal.
12. Prohibits potential private partners from asking in any response to an RFP for the assistance of the purchasing agency, ADOA or the state in securing funding in connection with the potential private partner's proposal, unless specifically addressed in the RFP that the purchasing agency, ADOA or the state is seeking assistance in funding alternatives for some aspect of the proposed partnership.
13. Requires a P3 contract entered into between a purchasing agency and a private sector partner to address, if applicable, the matter of payment of any fees by the purchasing agency to the partner based on the achievement of contract requirements, milestones or goals that are mutually agreed to by the partner and the agency director.
14. Stipulates that fees collected by the private sector partner are not subject to legislative appropriation.
15. Requires fee provisions and notice of payment of fees to be reported to JLBC in a timely manner.
16. Requires a P3 contract entered into between a purchasing agency and a private sector partner to address, if applicable, the matter of payment of fees by the partner to the purchasing agency to cover administrative overhead, goods, services, leasing of state land, buildings or space or other costs associated with the partnership that are mutually agreed to by the partner and the purchasing agency director.
17. Requires monies obtained by the purchasing agency from the partner from any such fees to be separately accounted for by the purchasing agency.
18. Stipulates the monies obtained by the purchasing agency from the partner are not subject to legislative appropriation as long as they are used for meeting the obligations of the state or requirements of the partnership.
19. Requires fee collections by a purchasing agency from a P3 contract and expenditures from such collections to be reported annually to JLBC.
20. Requires the term of the P3 contract to be clearly stated in any RFP and is at the discretion of the Director, in consultation with the purchasing agency, for a period of up to 25 years.
21. Requires the Director's determination for contract length to be based on all of the following:
a) the request of the purchasing agency involved following a consultation; and
b) information gathered on matters.
22. Stipulates that information gathered on matters includes:
a) required lead time for operations;
b) expected time required to achieve a reasonable return on any investment made or expenses incurred resulting from a similar contract;
c) the current and projected availability of potential vendors that can adequately perform the scope of envisioned work; and
d) the costs and risk associated with short contract time frames or multiple renewal periods.
23. Allows the Director, if it is determined to be in the best interest of the state and on mutual agreement with the vendor, to extend the length of a P3 contract beyond what was stated in the RFP to facilitate the transition to a new vendor resulting from a new RPF or any other allowable process or decision for contract termination in accordance with the terms of the contract.
24. Requires the terms of any extension to be shared with JLBC before the execution of the extension.
25. Requires JLBC Staff, if there is a finding of a significant negative fiscal impact to the state as a result of any extension, to report its findings to JLBC.
26. Requires P3 contracts to address ownership of any infrastructure or buildings developed and constructed during a public-private partnership.
27. Stipulates that P3 contracts issued are subject to modification within the contracted time frame for the public-private partnership as long as the modification fits into the scope of work included in the RFP from which the contract as awarded.
28. Requires a new RFP to be issued if the Director determines that modifications involve new construction that cannot be considered required maintenance or improvements, new services or other new functions not contemplated in the original RFP.
29. Requires the use or expansion of the following to be considered to have been contemplated in the original RFP if involved in a P3 contract:
a) the use of military or law enforcement aircraft, vehicles, equipment or technology;
b) the use of the purchasing agency of new or updated aircraft, vehicles, equipment or technology; or
c) the expansion of buildings, airfields or training areas to accommodate new or updated aircraft, vehicles, equipment or technology.
30. Requires P3 contract modifications involving payment of new or increased fees to be reported to JLBC with regard to the potential fiscal impact of the contract on the state.
31. Requires JLBC Staff, if there is a finding of a significant negative fiscal impact to the state as a result of any contract modification involving new or increased fees, to report the findings to JLBC.
32. Allows the Director to delegate all or a portion of the procurement activities for a P3 contract to the purchasing agency.
33. Stipulates that regardless of any delegation both of the following are subject to review and approval by the Director:
a) the terms of the P3 contracts entered into in accordance with statute; and
b) payment of fees by the state based on the achievement of any performance measures established in the P3 contract.
34. Requires JLBC, before a P3 contract is awarded, to be consulted with regard to the potential fiscal impact of the P3 contract to the state.
35. Requires JLBC Staff, if there is a finding of a significant negative fiscal impact to the state as a result of entering into a P3 contract, to report the finding to JLBC.
36. Prohibits an executed P3 contract from:
a) causing the state to share in the liabilities of the private sector partner;
b) exempting the private sector partner from state law and regulations unless such an exemption is specified under statute; and
c) involving the manufacturing of a good or delivering a service that is already readily available to the public sector through existing contract mechanisms.
37. Makes an exemption to the prohibition involving readily available goods and service if the Director determines a P3 contract is required to address:
a) an existing or projected shortfall in supply or availability of good and services; or
b) a level of complexity, technical capacity or volume of required production or service that existing contract mechanisms cannot provide physically or cannot offer at costs consistent with an agency's legislative appropriation.
38. Requires a purchasing agency, in order to enter into a P3 contract, to already possess the legal authority to procure the goods, services and construction it is seeking.
39. Stipulates the statutory authorization of the P3 contracts does not alone provide any agency with the legal authority to procure goods, services or construction.
40. Specifies, for P3 contracts for the financing of the technology needs of a purchasing agency, that a contract for an information technology vendor must include for payment of fees which are not subject to legislative appropriation.
41. Exempts P3 contracts from the restriction on state agency activities that compete with private enterprise.
42. Exempts ADOA, for the purposes of P3 contracts, from statutory rulemaking requirements for 18 months after the effective date.
43. Requires ADOA to issue proposed rules and hold at least one public meeting regarding the proposed rules no earlier than one month after issuing the proposed rules.
44. Makes technical and conforming changes.
45. Becomes effective on the signature of the Governor, if the emergency clause is enacted.
Prepared by Senate Research
February 12, 2024
JT/slp