Seemingly overnight communities around the country have realized that affordable, reliable, high-speed is more than a “nice thing to have” – it’s a necessity. The COVID pandemic exposed the risk of relying on stop-gap solutions such as smart phones, hot spots and obsolete DSL technologies. Public officials and local businesses are beginning to understand that hoping for a technological breakthrough to solve their digital connectivity problem is a poor plan for the future of their community.
Just like the electric grid, every community, no matter how isolated needs to be connected to the “information grid.”
This has given way to the sobering realization that, just like the electric grid, every residence and business in every community needs to be connected to the “information grid” — the network of fiber optic cable supplemented by various wired and wireless technologies that connects communities to outside world and to the 21st century technologies that rely on high-speed internet access to provide better health, education and economic outcomes for all.
Some will continue to insist that this is a problem that only can be addressed through private, for-profit companies. Others will argue that an internet connection is so critical to everyday life that it is a “utility” and should be publicly owned and controlled, so that all individuals and business have a minimum level of internet service at a price they can afford. However, it’s likely neither of these extremes is the answer for most of neighborhoods and communities still waiting for adequate high-speed internet service.
Instead, many local governments have instead turned to public-private partnerships to bridge the digital divide in their community. Public-Private Partnerships –- often referred to as “P3s” — are contractual agreements that allocate the “4Rs” – the roles, responsibilities, risks, and rewards — associated with the design, construction, maintenance, operation, and ownership of a modern high-speed internet network.
P3s operate from the premise that local, State, and federal government can do some things well, while others are best handled by for-profit business and nonprofit organizations (NGOs). P3s dispense with political and ideological rhetoric, in favor of a finding a practical approach that recognizes that government, NGOs and business can create a better solution by working together for the common good.
All P3 arrangements involve some degree of “risk sharing.” They operate from the premise that the best result is achieved when all stakeholders are motivated by the risk of failure – along with the anticipated rewards that accompany success. For the most part businesses and most operating NGOs are familiar with these concepts and are comfortable balancing their appetite for success (profit) with their aversion for risk – the risk of failure.
The same cannot be said for many local government “public partners.” Too often, public partners tend to assume that a public private partnership is a one-way street, where business and NGOs (the private partners) will assume all the risks, fulfill all the public partner’s objectives, and deliver and operate the project for the common good – just because someone calls the arrangement a “public private partnership.”
This mindset can have disastrous consequences for the public partner (and the public at large). Just as there are many examples of successful P3s, there also are also many examples of P3’s that have failed, leaving the public partner (and its taxpayers) on the hook for the additional funds needed to provide the promised network.
Does this mean that P3s are a bad choice for communities? Of course not, but it does mean that public entities contemplating a P3 arrangement to solve their digital connectivity problem need be aware that a P3 is simply a tool, and like all tools, it needs to be used properly. Of course, that means that no public partner should enter into a P3 without first obtaining legal and financial representation to represent the public’s interests. But it also means that local government decision makers need to focus on 4 key questions that largely will determine how their P3 will be structured.
Public entities contemplating a P3 arrangement to solve their digital connectivity problem need to focus on 4 key questions when structuring a P3.
Question 1 — Design and Construction:
Which party – the public partner or a private partner is best able to design and construct an effective high-speed internet network for the community?
Regardless of who will ultimately own, maintain, and operate the internet infrastructure once it is completed, a properly negotiated and documented P3 can assign responsibility for the design and construction of internet network to the private partner. Arrangements that do this are often called design-build contracts. A public partner using a design-build P3 would first go through a process to define its objectives for the network (for example, speed (throughput), reliability, expandability, etc.). and leave to an expert private partner to determine how those objectives will be achieved.
The process of decerning the core objectives for the network is critical. A properly negotiated design-build P3 can reduce and eliminate many of the risks associated with the design and construction, but in the end it only promises to achieve the results the public partner identified in the contract specifications. If those specifications are insufficient to meet the needs of the community, that is a risk assumed by the public partner.
In addition, ideally, a design-build P3 should be set up as “fixed price contract” and payment should be required only when the network is completed, and all design specifications are satisfied. While this may seem somewhat obvious, there are several projects (both for internet infrastructure and other capital projects) where the public partner failed to follow this guidance, and instead agreed to make required to make “progress payments” – even if though the private partner’s work was incomplete. While such an arrangement may be appropriate in some special cases, it is critical that the public partner understand the risks associated with making payment for a network that has not been completed.
Question 2 — Maintenance
Which party – the public partner or the private partner should be responsible for maintaining the community’s internet network?
Once a network is completed, a second question needs to be addressed: who will be responsible for maintaining it in working order. This really can be divided into two questions. First, which partner is responsible for replacing equipment that wears out, fails, or is that is damaged by weather or some other natural cause? Second, which partner is responsible for making certain the network does not become technologically obsolete: assuming responsibility for upgrading the equipment and associated software so that it continues to meet the evolving needs of individual and business users in the community?
A high degree of technical knowledge about network design and industry trends are critical to meet these maintenance requirements. For that reason, it isn’t surprising that in many settings this responsibility will be assumed, at least in part, by a private partner, even if the public partner wants to own and operate the network.
Maintenance for the network can be addressed in variety of ways. For example, a private partner might include a long-term warranty and extended service plan as part of a design-build P3, converting it P3 to a “design-build-maintain P3. Concerns related to technological obsolescence might need to be combined with and made a part of a “maintenance and operation” P3.
In either case, a threshold question for the public partner is whether it has the personnel and the expertise necessary to maintain the internet network. If not, then it must decide how to select a private partner to assume that responsibility.
Question 3 — Operation
Which party – the public partner or the private partner should be responsible for operating the internet network?
Operating an internet network certainly requires a significant level of technical expertise to monitor network demand and data traffic (for example, how many folks are accessing the network and how much bandwidth are they using), but it also requires competency in handling more pedestrian issues, such as billing, customer relations, and marketing. This means that a partner handling network operation, needs to have resources available to address issues as complex as negotiating guaranteed access through a mid-mile or backbone provider, to helping a customer trouble-shoot a bad connection inside their home or business.
For the public partner, the first question again is whether it has experience and personnel available that can address these issues. Logically, one might thing that a public partner that has extensive experience operating other utilities would be best equipped to assume responsibility for operating an internet network. But this may be an oversimplification. After all, the technologies involved in delivering water and sewer service to residents are quite different than those used to operate a high-speed internet network.
Question 4 — Ownership
Which party – the public partner or the private partner should own the completed internet network?
This might seem like the most important issue in any P3 arrangement, but usually it isn’t. Legal ownership often is not the critical factor in terms of achieving the practical objectives of the parties. For example, the right to use and control internet network assets or the responsibility for designing, constructing, maintaining, and operating the network can be assigned to a partner even though that partner doesn’t “own” the network.
However, the “legal ownership” of portions of the network assets may have significant state law and tax implications, both for the public partner and the private partner. For example, there are a variety of public financial and tax incentives that can be provided to help make it possible for a private partner to go forward with the construction and operation of a high-speed network in the community, but the availability of these incentives may hinge on which partner has legal ownership of the assets. These issues are often best addressed by the public partner’s legal counsel and financial advisors.
The Digitally Connected Community Guide
Obviously, the issues associated with a P3 are complex. No one approach will be right for every community, and clearly no community should commit public funds or enter into a P3 arrangement without expert legal and financial advice.
Nevertheless, many communities need information and guidance as they work to understand and evaluate various potential P3 options. The Digitally Connected Community Guide is a facilitated program sponsored by MU Extension that can help communities and their stakeholders develop a workable proposal that uses a P3 to help their communities become “digitally connected.” To learn more about the program and how your community can participate — contact email@example.com.