What was believed to be one of the first U.S. transportation public-private partnership projects to be led by county officials has turned sour.
The Northampton County, Pa., General Purpose Authority and Kriger Construction Inc. failed to agree during a recent mediation on how much the county would credit the Dickson City, Pa.-based contractor for its costs for withdrawing eight of 33 bridges covered under a 2017 agreement. The county sought $6.8 million, but Kriger proposed less than half that amount, about $3.2 million. Last month, the county filed a lawsuit in state court in Easton seeking the contract credit.
James W. Kutz, an attorney for Kriger, declined to comment on the lawsuit but says Kriger will file a reply with the court in several weeks. Meanwhile, the contractor expects to continue working on the other bridge projects covered by the pact. “We plan to build many bridges in 2021," Kutz said.
Under the original $37.5-million service agreement between the county and Kriger in 2017, 28 bridges were to be replaced and five rehabilitated in four years.
In its complaint, the county says the agreement with Kriger allows the county a credit of 100% of the direct labor, material and equipment costs, plus financing costs for bridges being removed from the deal.
Neither party has issued a letter of default to the other, but current county officials clearly are disenchanted with details of the original P3 pact. Bridges included in the original pact seemed poorly chosen, with some having enough traffic to justify the expense of rehabilitation, said a key official involved with the project.
"We're disappointed in the original plan for this contract," said Charles Dertinger, the county General Purpose Authority's director of administration, adding that county resources earmarked to enter and monitor P3 work were not sufficient.
P3s are suitable for Pennsylvania's Dept. of Transportation, which has engineers and attorneys who can keep projects moving forward, Dertinger said. But counties, even with a consulting engineer, "don’t have a stable of people" equipped for a P3 that was set up as the county approach was, he noted. "It was a misuse or misapplication" of the P3 concept.
Extra costs related to utility relocation and rights-of-way, unmentioned at the time of the pact, also added to the burdens. The General Purpose Authority in each case had to obtain the funds needed from the county.
"It's not a good way to go" and "no council member sitting now would have passed it," Dertinger added. "Northampton County should serve as a cautionary example."
The county's changing perspective on the P3 developed after County Executive John Brown, a Republican, failed to win re-election in November 2017. The elected county executive, Democrat Lamont McClure, and new authority leadership, discovered shortcomings.
Former Beacon of P3 Progress
At the time the deal was struck, the Northampton P3 seemed like a beacon of progress.
The $37.5-million replacement and rehabilitation of 33 bridges is a rare example of a county serving as the “lead agent” for a P3 project, said John Parkinson, executive director of the Association for the Improvement of American Infrastructure. “One can’t help but applaud them for being creative,” he said.
There were many potential advantages cited by the previous county administration.
In early 2017, Stan Rugis, Northampton director of public works, said the project will save up to 30% per bridge, compared to conventional municipal bridge contracting. Rugis said the agreement saves taxpayer money by bundling bridge work that otherwise might have cost up to $1.5 million per structure.
Rugis said the county is using the alternative procurement tool because its offiicials are “sick and tired” of paying a premium on the municipal bond market to fund projects. “This contract encompasses the entire project, soup to nuts, along with a [10-year] maintenance period,” he says. “We didn’t give bidders a dime to do paperwork.”
At that time, Rugis said Kriger is shouldering the majority of the risk by financing the project itself.
James Marzolino, Kriger's vice president, saw advantages for his firm, noting that in 2017 the contractor liked the project’s steady work and financing flexibility. He said that unlike a fixed-bidding process that sets a deal’s terms when a contractor is selected, Kriger negotiated the terms, including the county’s payment structure, after being selected.
Marzolino said the contract allows Kriger flexibility to fund the work with a combination of self-financing, payments from the county and drawdowns—similar to a line of credit on a house—from local community banks. “The [project] size allowed us to be a little more flexible with the finance options and give the best value to the county,” he said.