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GAO Reports on “Limited Role” of Public-Private Partnerships in Disposing of and Managing Excess Real Property

In response to a request from the Senate Committee on Homeland Security and Governmental Affairs, the Government Accountability Office (“GAO”) recently reported on the “limited role” that public-private partnerships (“PPP”) play in disposing of and managing the federal government’s “excess or unneeded real property.”  Despite recent “[h]igh profile projects” — such as the 60-year lease of the Old Post Office in Washington, DC to be converted into Trump International Hotel — the General Services Administration (“GSA”) “consider[s]” PPPs “for fewer than ten cases each year.”  And while GAO identified three state governments that might use PPPs to dispose of unneeded real property, none was able to point to any recent instances.

As defined in the report, PPPs are “agreement[s] between a government agency and a private entity to transfer ownership or control of a property that includes compensation other than money.”  PPPs generally fall into three main categories:

  • Enhanced use leases: long-term agreements “for the use of federal property in which the ownership of the property is not transferred, but a private party manages the property for a specific period of time.”

  • Swap exchanges: “the title of a federal property is transferred to a developer or other property recipient in exchange for the construction of a new asset or completion of other construction/renovation at a different location or on a portion of the existing property.”

  • Negotiated sales: the government conditions the sale of federal property on the buyer’s satisfaction of certain requirements or tasks (e.g., environmental clean up).

There is no unified federal law that governs PPPs, and, as a result, the manner in which agencies enter into and carry out PPPs varies.  For instance, while some statutory provisions authorizing leases require that partners be chosen through a competitive process, others do not.

Unneeded or excess real property is a significant concern for the federal government.  As of fiscal year 2015, federal agencies controlled more than 263,000 federally-owned buildings (or 2.5 billion square feet of real property) within the United States.  They also reported more than “7,000 excess or underutilized assets, including dormitories/barracks, family housing units, hospitals, laboratories, offices, and warehouses.”  But it is not a simple transaction for the government to dispose of this excess property — among other things, it must consider whether the property has potential use for other agencies, homeless providers, or state and local governments.

PPPs offer a potential avenue to facilitate and expedite the disposal or management process.  For instance, GAO explained that an agency can use a PPP to finance improvements to a property without needing an appropriation or draining its operating budget.  An agency also can outsource maintenance costs while still retaining control of the property.

Notwithstanding those potential benefits, GAO identified a number of challenges with PPPs that may contribute to their infrequent use for this purpose:

  • It can be difficult to entice private entities, given that most unneeded properties have been vacant and require significant maintenance or environmental clean up.

  • It can be challenging to assess the value of the property and its associated risks — for instance, the cost of any necessary environmental remediation or maintenance.

  • Politics might throw a wrench in the works — for example, because certain constituencies may be unfamiliar with PPPs or take issue with the PPP’s end result.

  • Negotiating PPPs “requires unique expertise . . . that GSA currently lacks, but is gaining.”

Although ostensibly a dim portrait of PPP usage, GAO’s report may signal a potential for increased use of PPPs in the future.  Although the government is not currently using PPPs for real property disposition to their maximum potential, both the Senate and GSA are interested in and monitoring this issue — and may encourage or incentivize more frequent use of PPPs moving forward.

© 2019 Covington & Burling LLP

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About this Author

Michael Scheininger, Covington Burling, Litigation Attorney
Senior Counsel

Michael Scheininger focuses on the defense of business crimes and civil fraud, especially procurement fraud civil false claims (qui tam) and criminal investigations. He regularly advises government contractors on mandatory disclosure.

Mr. Scheininger also focuses his practice on health care fraud. In addition, he represents individuals and entities in investigations alleging offenses in the areas of FCPA, National Security, Public Corruption, Securities (Criminal and Civil Fraud).

202-662-5350
Kayleigh Scalzo, Covington, Litigation attorney
Associate

Kayleigh Scalzo represents clients in a broad array of high- stakes litigation matters with the government and other private parties. She litigates bid protests at the Government Accountability Office, Court of Federal Claims, state courts, and before federal and state agencies. Ms. Scalzo also litigates Administrative Procedure Act cases and other civil matters in the U.S. Courts of Appeals and U.S. District Courts.

Kayleigh Scalzo represents clients in a broad array of high- stakes litigation matters with the government and other private parties. She litigates bid protests at the Government Accountability Office, Court of Federal Claims, state courts, and before federal and state agencies. Ms. Scalzo also litigates Administrative Procedure Act cases and other civil matters in the U.S. Courts of Appeals and U.S. District Courts.

202-662-5133