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Changes on the Public Construction Horizon: A North Carolina Legislative Update
October 17, 2018
This past year the North Carolina Legislature has been incredibly active. Among the legislation proposed and adopted, a few bills will create changes in how contractors interact with various public entities. Most notably, big changes are on the horizon for contractors that work with the NCDOT and with school systems.
Sitting with the Committee on Transportation, H.B. 1012 "DOT/Project Delivery Method Pilot Project" could allow the NCDOT to use a construction manager-general contractor project delivery system on a limited number of projects in the future. Many contractors will recognize the proposed system as the construction management delivery system currently in use on other types of public projects in North Carolina, typically construction manager at risk ("CMAR") or construction manager agency. NCDOT currently uses the processes laid out in Chapter 136 of the North Carolina General Statutes to contract for construction of any NCDOT road or facility, typically using the authorized design-bid-build or design-build delivery systems. If passed, H.B. 1012 will allow NCDOT to use the alternative construction manager-general contractor delivery system on up to five projects with costs of less than $100,000,000. H.B 1012 also places other limitations on NCDOT's use of the new system, including that the department must determine if the use of the new system is in the public interest, special reporting requirements, and that NCDOT must establish and implement guidelines for letting of projects under the construction manager-general contractor system. This new program mirrors the design-build pilot program that rolled out after the 1997-98 legislative session and continually expanded after the success of the design-build delivery system on NCDOT projects. If H.B. 1012 goes into effect and the construction manager-general contractor delivery system proves effective on NCDOT projects, similar growth and change in NCDOT's contracting procedures can be expected. Limits on the number of projects NCDOT could let using the design-build process were removed after about 12 years of the pilot program, and a similar timeline should be expected if H.B. 1012 becomes law, barring significant problems with early projects using the new delivery system.
Changes are also on the horizon regarding North Carolina school construction. In particular, contractors and developers should expect to see an increase in the number of public-private partnerships ("P3s") in school construction. Generally speaking, in P3 projects, a private entity constructs a facility (i.e., a school) then leases the facility to a public entity for a definite period. P3s allow for flexibility in funding and bidding processes, but have been criticized in the past as vehicles to circumvent the rigid bidding process required under N.C. Gen. Stat. Chapter 143. Use of P3s in school construction also raises concerns about maintenance obligations and general construction requirements about the quality of the facility. However, these quality and maintenance concerns should be addressed in the front-end contracting process between the public entity and private developer. The increased number of future P3s could come from two legislative developments: (1) direct authorization for P3 development of public schools under H.B. 600 and (2) authorization of municipalities to operate charter schools under H.B. 514. In particular, H.B. 600 "School Construction Flexibility" would directly allow school systems to enter into capital leases of privately developed K-12 public schools. H.B. 514 passed in June 2018 and was enacted as Session Law 2018-3. This law allows, under restrictions, municipalities to establish and operate charter schools. A major concern raised has been how municipalities will fund construction of appropriate facilities for charter schools. One solution for municipalities to fund this construction will be implementation of P3s in partnership with organizations such as the YMCA or other large non-profits that can fund the initial costs of construction and allow the school board to lease all or a portion of the facility for use as a charter school.

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Construction Law Steven C. Hemric