Values and value creation in public-private transactions

Iowa Law Review

Volumn 94, Issue 3, 2009, Pages 937-986

  Davidson, Nestor M ^a  

^a UNIVERSITY OF COLORADO   (United States)

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EID: 67650116298     PISSN: 00210552     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (168)

1. The seminal article in the transactional-lawyering value-creation literature was Ronald J. Gilson's Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 YALE L. J. 239, 243 (1984). In the intervening twenty-five years, scholars have elaborated extensively on Gilson's framework. See, e.g., Edward A. Bernstein, Law & Economics and the Structure of Value Adding Contracts: A Contract Lawyer's View of the Law & Economics Literature, 74 OR. L. REV. 189, 190 (1995) [hereinafter Bernstein, Contract Lawyer] (exploring legal-system costs in transacting)
2. Lisa Bernstein, The Silicon Valley Lawyer as Transaction Cost Engineer?, 74 OR. L. REV. 239, 240 (1995) [hereinafter Bernstein, Silicon Valley] (exploring value creation through lawyer "counseling, deal making, matchmaking, gatekeeping and proselytizing")
3. Karl S. Okamoto, Reputation and the Value of Lawyers, 74 OR. L. REV. 15, 17 (1995) (discussing the role of reputation in adding transactional value)
4. Steven L. Schwarcz, Explaining the Value of Transactional Lawyering, 12 STAN. J. L. BUS. & FLN. 486, 487 (2007) [hereinafter Schwarcz, Explaining] (empirically testing the value-creation hypothesis)
5. Steven L. Schwarcz, To Make or to Buy: In-House Lawyering and Value Creation, 33 J. CORP. L. 497, 500 (2008) (comparing value creation by in-house and outside counsel)
6. George W. Dent, Jr., Business Lawyers as Enterprise Architects, 64 BUS. LAW. 279 (2009), available at http://ssm.com/abstract=1264063 (seeking to expand Gilson's model to other aspects of business lawyering, including enterprise design). Robert Mnookin and others have added important insights related to strategic behavior in negotiating dynamics. See, e.g., ROBERT H. MNOOKIN ET AL., BEYOND WINNING: NEGOTIATING TO CREATE VALUE IN DEALS AND DISPUTES 127-55 (2000) (discussing various dynamics of negotiations)
7. Ronald J. Gilson & Robert H. Mnookin, Foreword: Business Lawyers and Value Creation for Clients, 74 OR. L. REV. 1, 10-13 (1995) (reviewing strategic-behavior and psychological barriers to transacting). For further discussion, see infra Part II. A.
8. See infra Part II. B.
9. The crisis that by the fall of 2008 had come to grip the global economy spawned a series of responses by the federal government, including notably a multi-trillion-dollar publicprivate program from the Treasury Department and the Federal Reserve to unlock frozen credit markets, see Edmund L. Andrews & Stephen Labaton, Bailout Plan: $2.5 Trillion and a Strong U. S. Hand, N. Y. Times, Feb. 10, 2009, at Al (discussing a proposed public-private bailout fund). A nearly $800 billion economic stimulus plan passed in February 2009 also contemplated significant public-sector funding for private-sector initiatives around infrastructure, energy, and many other areas. See Farhana Hossain et al., The Stimulus Plan: How to Spend $787 Billion, N. Y. TIMES, http://prqjects.nytimes.com/44th- president/stimulus (last visited Mar. 30, 2009).
10. OFFICE OF MGMT. & BUDGET, BUDGET OF THE UNITED STATES GOVERNMENT: HISTORICAL TABLES 318 (2008), available at http://www.gpoaccess.gov/usbudget/fy08/pdf/histpdf (noting that federal and state spending currendy represents thirty-two percent of the domestic economy).
11. See infra Part III. B.
12. Private-sector involvement in die public arena is an important element of an approach to policy that has been labeled "new governance"-a set of policy tools that emphasize localized and decentralized decisionmaking, market-based methods, and stakeholder empowerment. See generally Orly Lobel, The Renew Deal: The Fall of Regulation and the Rise of Governance in Contemporary Legal Thought, 89 MINN. L. REV. 342 (2004) (advocating a "Renew Deal, " breakingc from traditional models of regulation, administration, and adjudication)
13. Jason M. Solomon, Law and Governance in the 21st Century Regulatory State, 86 TEX. L. REV. 819 (2008) (discussing two books, LAW AND NEWGOVERNANCE IN THE EU AND THE US (Grainne de Búrca & Joanne Scott eds., 2006), and LISA HEINZERLING & MARK V. TUSHNET, THE REGULATORY AND ADMINISTRATIVE STATE: MATERIALS CASES, COMMENTS (2006), and their role in the development of scholarly discussion of the regulatory state).
14. As discussed below, see infra Part IV. A., this is not to argue that policy objectives cannot be monetized, although doing so remains controversial in many areas. Clearly, public goals in realms as disparate as health care, education, environmental protection, and criminal justice can be translated into strictly fiscal terms (as is regularly done by economists and policymakers). Cf. Frank Ackerman & Lisa Heinzerling, Pricing the Priceless: Cost-Benefit Analysis of Environmental Protection, 150 U. PA. L. REV. 1553, 1557-59, 1578-80 (2002) (discussing and critiquing the process of monetizing policy objectives). Rather, this is simply to make a point-that might seem prosaic at first, but has significant implications-about the goal orientation of entities entering into public-private partnerships.
15. It is appropriate at the outset to clarify the scope of this discussion. To begin, although the government is often represented in public-private partnerships and government attorneys can be intimately involved in some kinds of public-private transactions, this Article focuses on the work of private-sector rather than public-sector attorneys. This is because the paradigm transaction contemplated in this Article is not between the government and the private sector, as in traditional public contracting, see infra Part III. A., but rather, between private parties acting pursuant to a government program. Next, the kinds of transactions on which this Article focuses are generally handled by private attorneys not acting in a pro bono capacity. Many law firms have developed pro bono transactional practices. See Scott L. Cummings, The Politics of Pro Bono, 52 UCLA L. REV. 1, 123-25 (2004) (discussing law firm pro bono transactional work). This Article, however, focuses on the traditional fee-paying transactional work that makes up the bulk of deal practice in publicprivate partnerships. Moreover, scholars have examined the role of transactional lawyers in serving both individual clients in communities in need and causes on behalf of those clients. See, e.g., Susan R. Jones, Small Business and Community Economic Development: Transactional Lawyering for Social Change and Economic justice, 4 CLINICAL L. REV. 195, 202-07, 218-23 (1997) (discussing the work of transactional lawyers in supervising law students working in legal clinics and helping clients start small businesses)
16. Ann Southworth, BUSINESS PLANNING FOR THE DESTITUTE? LAWYERS AS FACILITATORS IN CIVIL RIGHTS AND POVERTY PRACTICE, 1996 WIS. L. REV. 1121, 1132-40 (reviewing a study of planning projects completed by attorneys). Public-interest-oriented lawyering is certainly an important aspect of transactional practice in public-private partnerships, particularly in certain areas of social-welfare policy, but it represents only a portion of the larger mosaic of lawyer involvement with clients involved in public programs. Finally, although this Article focuses on lawyers in the transactional context, this is not to minimize other roles that lawyers undertake-beyond litigating-in mediating public policy for private clients, particularly in communities in need. Lawyers can, and do, serve clients through empowerment, education, strategy, and organizing, among other tasks not traditionally associated with lawyers as litigators or lawyers as scriveners. Cf Jennifer Gordon, The Lawyer Is Not the Protagonist: Community Campaigns, Law, and Social Change, 95 CAL. L. REV. 2133, 2137-45 (2007) (discussing the role of lawyers in organizing for social change)
17. Austin Sarat & Stuart Scheingold, What Cause Lawyers Do For, and To, Social Movements: An Introduction, in CAUSE LAWYERS AND SOCIAL MOVEMENTS 1, 1-10 (Austin Sarat & Stuart A. Scheingold eds., 2006) (discussing the increasing variety and complexity of cause lawyering and related lawyer roles). The social impact of lawyering must be understood in light of all these roles, but this Article focuses primarily on what lawyers do in dealmaking.
18. Gilson, supra note 1, at 241.
19. Id. at 255.
20. Id. at 308.
21. Gilson argued that to assess the value that a lawyer may add to a transaction, one must examine the transaction as a whole, rather than in terms of the gains that any one client might achieve through redistribution of static value. See id. at 245.
22. Although much of the work of business lawyers is not transactional, such as structuring entities and advising on compliance and corporate "housekeeping" matters, see Dent, supra note 1, at 295-309, this discussion focuses on deal lawyering.
23. ***ing scribe [s]." Victor Fleischer, The MasterCard IPO: Protecting the Priceless Brand, 12 HARV. NEGOT. L. REV. 137, 139 (2007) (quoting Posting of Victor Fleischer to The Conglomerate, http://www.theconglomerate.org/2006/03/monkey- scribes.html (Mar. 7, 2006)).
24. See ROBIN PAUL MALLOY & JAMES CHARLES SMITH, REAL ESTATE TRANSACTIONS: PROBLEMS, CASES, AND MATERIALS 13-14 (3d ed. 2007) ("To a large extent the lawyer is hired to identify and manage the wide assortment of risk tiiat can and should be anticipated in a particular transaction. ").
25. See Gilson, supra note 1, at 253-56 (discussing the role of business lawyers as "transaction cost engineers"). As Mark Suchman has argued, the orientation of much of the value-creation literature toward transaction-cost economics risks paints an overly narrow picture of the dynamics of deal lawyering. See Mark C. Suchman, Translation Costs: A Comment on Sociology and Economics, 74 OR. L. REV. 257, 260-72 (1995) (discussing cultural norms, power relations, and path dependency as alternative explanatory variables absent from primarily economic accounts of business lawyering). To draw on the framework that Gilson and his successors have laid out is not to suggest that it provides the only, or even necessarily a complete, description of the work of transactional attorneys.
26. Gilson derived this transaction-cost-free baseline from the financing concept of the Capital Asset Pricing Model, which assumes that the price of an asset will costlessly reflect future income. The model accordingly presumes that capital assets will be priced based on market forces operating with perfect information, a counterfactual assumption that would make the cost of any third-party intermediary a loss to the transacting parties. See Gilson, supra note 1, at 251 (discussing the transaction costs of hiring a lawyer).
27. Indeed, as Gilson argued, under these assumptions, "fees charged by business lawyers would, " by definition, "decrease the net value of the transaction. " Id.
28. See MNOOK1N ET AL., supra note 1, at 127-55 (reviewing strategic-behavior and psychological barriers to transacting)
29. Gilson & Mnookin, supra note 1, at 10-13 (same).
30. Gilson & Mnookin, supra note 1, at 7-8.
31. Gilson, supra note 1, at 255.
32. See id. at 257-62 (reviewing the role of the business lawyer in the acquisition process).
33. Id. at 264.
34. Id. at 266.
35. Id. at 267-93.
36. Cf Bernstein, Contract Lawyer, supra note 1, at 195 (observing that practicing lawyers "who are properly concerned only with the well being of their clients, frequently fail to understand that a reduction in joint costs can benefit their client perhaps because, in practice, many actions that increase the value of a transaction as a whole decrease the value of a transaction to one of the parties").
37. See infra Part IV. B for further discussion of the empirical challenges attendant to proving value creation.
38. In this vein, David Driesen and Shubha Ghosh argue that there is another side to the role of transaction costs in dealmaking that Gilson's framework ignores. Driesen and Ghosh point out that transaction costs may have corresponding benefits, and that structuring transactions single-mindedly to minimize transaction costs ignores this side of the ledger. See David M. Driesen & Shubha Ghosh, The Functions of Transaction Costs: Rethinking Transaction Cost Minimization in a World of Friction, 47 ARIZ. L. REV. 61, 88 (2005). This is a valuable perspective, but to identify value from reducing transaction costs is not to argue that this should be the only role-or even the most normatively attractive role-for deal lawyers to play.
39. See, e.g., Jonathan C. Lipson, Price, Path & Pride: Third-Party Closing Opinion Practice Among U. S. Lawyers (A Preliminary Investigation), 3 BERKELEY BUS. L. J. 59, 113-24 (2005) (providing contrasting explanations of value creation in the context of third-party closingopinion practice).
40. Gilson, supra note 1, at 244.
41. Id. at 247.
42. Id.
43. See Bernstein, Contract Lawyer, supra note 1, at 198 (stating that Gilson's assumption that courts will enforce whatever the lawyer writes represents the hypothetical world and ignores the costs of the legal system in the real world)
44. see also Bernstein, Silicon Valley, supra note 1, at 243 n. 22 (stating that the enforcement of a contract can be "costly and inherently uncertain").
45. See Bernstein, Contract Lawyer, supra note 1, at 198 ("[E]ach party faces the prospect of delay, litigation costs, and the risk that a court may not interpret the contract or calculate damages in the manner anticipated when the contract was signed....").
46. It remains open to debate the extent to which contract drafters place litigation risks at the center of their work. Compare Robert E. Scott & George G. Triantis, Anticipating Litigation in Contract Design, 115 YALE L. J. 814, 818 (2006) (oudining a "theory of contract design that anticipates the enforcement of contracts by adversarial litigation"), with Schwarcz, Explaining, supra note 1, at 497 (presenting empirical research to suggest that the primary role for transactional attorneys is to "provide a roadmap for the parties to follow in their ongoing relationship" and only "secondarily to minimize the potential for ex post litigation").
47. See, e.g., Schwarcz, Explaining, supra note 1, at 491 n. 35 (discussing Fleischer's conception of regulatory-cost engineering)
48. Victor Fleischer, Regulatory Craftsmanship (unpublished manuscript, on file with the author) (discussing the importance of managing regulatory constraints).
49. Fleischer, supra note 36 (manuscript at 25).
50. As discussed below, evaluating this kind of regulatory arbitrage normatively poses interesting questions about the role and value of regulation more generally. See infra text accompanying notes 44-46.
51. See David M. Schizer, Frictions as a Constraint on Tax Planning, 101 COLUM. L. REV. 1312, 1317-18 (2001) (describing "frictions" as "constraints on tax planning external to the tax law").
52. See id. at 1319-39 (offering guidance on which tax reforms are easily avoidable and which are not).
53. Fleischer's examination of the role of the deal lawyer also builds on Frank Partnoy's concept of regulatory arbitrage, which Partnoy describes as "financial transactions designed specifically to reduce costs or capture profit opportunities created by differential regulations or laws." Frank Partnoy, Financial Derivatives and the Costs of Regulatory Arbitrage, 22 J. CORP. L. 211, 227 (1997)
54. see also Fleischer, supra note 36 (manuscript at 7) (discussing Partnoy).
55. Fleischer, supra note 36 (manuscript at 26).
56. Id. (manuscript at 27-28). Fleischer calls this the "regulatory frontier" and argues that the ability to practice at this frontier increasingly divides elite law firms from firms that approach transactions as a commodity practice. Id. (manuscript at 27). This also gives law firms a comparative advantage, Fleischer argues, over other professionals, because the varied regulatory expertise required to close complex transactions-from ERISA to environmental compliance to tax structuring and many others-requires lawyers to stand at the center of the deal. Id. (manuscript at 29-31). It is beyond the scope of this Article, but worth investigating further what impact legalmarket pressures have on firms that specialize in various aspects of public-private transactional law. Given the varied contexts in which public-private partnerships arise-with the profile of firms involved ranging from the largest global firms to single practitioners-it is harder to generalize about market advantages in this context.
57. Id. (manuscript at 32).
58. Cf. William E. Kovacic, Law, Economics, and the Reinvention of Public Administration: Using Relational Agreements to Reduce the Cost of Procurement Regulation and Other Forms of Government Intervention in the Economy, 50 ADMIN. L. REV. 141, 144-48 (1998) (discussing the determinants of potentially inefficient regulation).
59. See infra Part IV. B.
60. See infra Part IV. A.2.d.
61. Cf. Fleischer, supra note 36 (manuscript at 26) (discussing the government as a virtual third party in transactions).
62. See supra text accompanying notes 4-7. Indeed, all indications are that the government's response to the current economic crisis signals a decided shift toward increasingly direct involvement in the private sector. See supra note 3.
63. Corporate social responsibility and similar developments that attempt to foreground social and environmental concerns in business practice raise a separate possible alignment between private activities and the public interest, although arguably a more diffused public interest than the targeted policy orientation of public-private partnerships. See, e.g., John M. Conley & Cynthia A. Williams, Engage, Embed, and Embellish: Theory Versus Practice in the Corporate Social Responsibility Movement, 31 J. CORP. L. 1, 8-23 (2005) (discussing and debating the consequences of the corporate social-responsibility movement in the United States and internationally).
64. See U. S. GEN. ACCOUNTING OFFICE, PUBLIC-PRIVATE PARTNERSHIPS: TERMS RELATED TOCBUILDING AND FACILITY P ARTNERSHIPS 1 (1999), available at http://www.gao.gov/archive/ 1999/gg99071.pdf (describing the numerous ways the private sector can partner with the government).
65. See generally JOHN D. DONAHUE, THE PRIVATIZATION DECISION: PUBLIC ENDS, PRIVATE MEANS (1989) (discussing die issues surrounding the privatization of public undertakings).
66. See generally MARTHA MINOW, PARTNERS, NOT RIVALS: PRIVATIZATION AND THE PUBLIC GOOD (2002) (exploring the optimal method for mixing the private and public sectors for society)
67. LESTER M. SALAMON, PARTNERS IN PUBLIC SERVICE: GOVERNMENT-NONPROFIT RELATIONS IN THE MODERN WELFARE STATE (1995) (advocating stronger relationships between private, nonprofit organizations and the state).
68. See MINOW, supra note 53, at 3 (describing the increasing mixture of public-private partnerships across many fields). Privatization and public-private partnerships are as much a part of the international experience as they are a central feature of domestic policy. For a helpful discussion, see generally THE CHALLENGE OF PUBLIC-PRIVATE PARTNERSHIPS: LEARNING FROM INTERNATIONAL EXPERIENCE (Graeme Hodge & Carsten Greve eds., 2005).
69. Social venture capital, for example, involves double-or multiple-bottom-line investing predicated on achieving financial return and social benefits.
70. Scholars have highlighted the risks associated with public entities in some sense "selling" regulatory privileges in exchange for public benefits, including skewed regulatory priorities and the potential for outright corruption. See, e.g., ROBERT C. ELLICKSON & VICKI L. BEEN, LAND USE CONTROLS: CASES AND MATERIALS 303-04, 308-09, 331 (3d ed. 2005) (noting the risks of dealmaking and incentive zoning and exploring zoning corruption)
71. Jerold S. Kayden, Market-Based Regulatory Approaches: A Comparative Discussion of Environmental and Land Use Techniques in the United States, 19 B. C. ENVTL. AFF. L. REV. 565, 568-69 (1992) (defining incentive zoning)
72. Judith Welch Wegner, Moving Toward the Bargaining Table: Contract Zoning, Development Agreements, and the Theoretical Foundations of Government Land Use Deals, 65 N. C. L. REV. 957, 959-60 (1987) (identifying the benefits and perils of government land-use "dealing"). These concerns are not trivial, but part of a larger discourse on the merits and risks of privatization discussed in Part III. B.
73. As with the risks that this program structuring poses for public incentives, there are corresponding hazards on the private side, with the ever-present danger that private parties acting to advance public goals without their own role motivation may shirk or act strategically to undermine the goals they have been engaged to advance. Again, this is best addressed in terms of the general debate on privatization. See infra Part III. B.
74. The alignment of interests between various participants in public-private partnerships outlined here assumes, of course, an alignment of interests and incentives between attorney and client. That attorney-client alignment does not always hold true. See William H. Simon, The Market for Bad Legal Advice: Academic Professional Responsibility Consulting as an Example, 60 STAN. L. REV. 1555, 1556-66 (2008) (discussing the recent problem of lawyers giving clients "bad legal advice because the clients want[] it"). Although important, the ethical implications of attorney conflicts of interest are beyond the scope of this Article.
75. To many, privatization is more controversial when responsibility for a traditionally public function is shifted entirely to the private sector. Here, in contrast, the public and private sectors work together. Moreover, acknowledging that labels are not terms of art in this context, as deployed in this Article, public-private partnerships also vary from traditional public contracting in that the ultimate recipient of the relevant good or service is not the government itself, but instead, the public.
76. See Nestor M. Davidson, Relational Contracts in the Privatization of Social Welfare: The Case of Housing, 24 YALE L. & POL'Y REV. 263, 269-76 (2006) (discussing the debate over privatization).
77. See supra note 6.
78. See, e.g., Scott L. Cummings, Mobilization Lawyering: Community Economic Development in the Figueroa Corridor, in CAUSE LAWYERS AND SOCIAL MOVEMENTS, supra note 8, at 302, 304-07 (discussing the emergence of public-private partnerships in community economic development as part of a larger contemporary shift toward localized, market-based governance that leverages private resources and emphasizes community empowerment)
79. Lobel, supra note 6, at 343 ("The legal field is at a critical moment of renewal and reinvention. ").
80. See Davidson, supra note 60, at 270-71 & n. 35 (discussing the empirical debate about privatization).
81. As Jody Freeman has argued, however, efficiency and accountability perspectives have more in common than the at-times heated rhetoric in the debate on privatization might suggest. Seejody Freeman, Extending Public Law Norms Through Privatization, 116 HARV. L. REV. 1285, 1310-14 (2003) (reconciling the economic perspective on privatization with the publiclaw perspective).
82. One perennial shortcoming in the discourse on privatization is an inattention to the particular context in which the private sector is engaging with public governance. The privatization of military operations or prisons raises distinctly different-and in many ways more troubling-questions about the rule of law and the problem of accountability than does the privatization of municipal waste treatment.
83. See Davidson, supra note 60, at 276-79 (discussing agency problems in privatization).
84. In the context of programs that ameliorate conditions that might generate demand for broader social change, it is a well-founded critique of lawyering that the potential exists for such lawyering to undermine the very causes it seeks to serve. Cf. Scott L. Cummings, Community Economic Development as Progressive Politics: Toward a Grassroots Movement for Economic Justice, 54 STAN. L. REV. 399, 455-56 (2001) (discussing the limitations of community economic development to "challenge the structural determinants of poverty" and dhe risk that such local work "diminishes dhe importance of large-scale, coordinated social change strategies"). How one responds to this concern has much to do widh how one evaluates dhe potential likelihood of fundamental, radher than incremental, social change and the advantages and disadvantages of serving communities in need regardless of the pace (or, in recent decades, direction) of that change. These are difficult questions and are beyond the scope of this Article. For now, it must suffice to recognize that governments at all levels are investing resources-inadequate by most lights, but hardly trivial-in engaging dhe private sector to serve dhose in need, and dhat model of social welfare is likely to continue for dhe foreseeable future.
85. See STEPHEN BREYER, REGULATION AND ITS REFORM 15-35 (1982) (discussing rationales for regulation and comparing market-failure versus non-market-failure justifications).
86. Defining "public goods" in terms that are consistent with traditional economic understandings can be a challenging task, see, e.g., JAMES M. BUCHANAN, THE DEMAND AND SUPPLY OF PUBLIC GOODS 49-50 (1968), but it is not necessary to delve into that conundrum to recognize that there are categories of goods and services that the government either directly provides or incentivizes the private sector to provide. See DONAHUE, supra note 52, at 7 fig. 1.1 (discussing dhe variables dhat inform the matrix of public provision and public payment for public goods).
87. See supra note 7.
88. Schwarcz, Explaining, supra note 1, at 489.
89. See E. S. SAVAS, PRIVATIZATION AND PUBLIC-PRIVATE PARTNERSHIPS 111-12 (2000) (discussing the reasons for dissatisfaction and recurrent problems with government activities)
90. see also DONAHUE, supra note 52, at 51 (comparing the attenuation of ownership in public undertakings to the more concentrated organization of private companies).
91. This representational problem, and the broader problem of engaging diverse stakeholders, remains a point of vulnerability for new governance. See Lisa T. Alexander, Stakeholder Participation in New Governance: Lessons from Chicago's Public Housing Reform Experiment, 17 GEO. J. ON POVERTY L. & POL'y (forthcoming 2009) (discussing new governance's effect on public and private collaboration).
92. Were recipients more often directly represented in public-private transactions, it might bring into sharper focus the interests of the ultimate beneficiaries. Id. However, there is not always going to be a perfect alignment of interests between the "public, " represented by public-policy tradeoffs instantiated in any given program design, and the specific members of the public to whom a program is directed. For example, a low-income tenant may disagree with what a sponsoring agency thnks is the best way to approach tenure or subsidy issues. Discerning the appropriate line between recipient involvement and policy discretion is a recurring concern.
93. This is not to argue that political considerations-a category of interests that are hard to define-are inherendy illegitimate or inappropriate to factor into the implementation of public subsidy programs. There are positive and negative aspects to factoring in public participation, and it is hard in many situations to separate beneficial involvement from naked rent seeking. The practical problem, however, is how to translate the potential for policy changes into a long-term set of mutual obligations. Conversely, accountability on the part of the provider is equally fundamental. Politics are manifest in public-private partnerships in more clearly negative ways-steering contracts to personal contacts or other types of outright corruption, for example. Officials wisely managing subsidy programs can, in a variety of ways, attempt to insulate their programs from this kind of political interference, but the risks such involvement poses are hardly trivial.
94. Parties can allocate political risk as they allocate any other risk. To preview the example of affordable housing that this Article discusses in detail below, see infra Part IV. B.2 (presenting the affordable-housing example), investors in Low Income Housing Tax Credit transactions can and do bargain for guarantees relating to issues like the nonrenewal of particular subsidies. See Oversight of HUD and Its Fiscal Year 2009 Budget: Hearing Before the S. Comm. on Banking, Housing, & Urban Affiars, lOOth Cong. (2008) (statement of Hector Pinero, Related Management Company), excerpted at http://www.taxcreditcoalition.org/uploads/post-pdfs/Background-of-Sect-8- Shortfall.pdf (discussing non-renewal risk that investors face in developments with project-based Section 8 subsidies).
95. See supra text accompanying notes 66-67.
96. Gilson, supra note 1, at 282 n. 109.
97. See infra Part IV. A.2.d.
98. Regulatory translation can take place regardless of the "subjective" orientation of the client to the relevant policy goals. See supra Part III. A. However, where a client is neutral with respect to the goal of institutional motivation, the incentives for attorney creativity or structuring to go beyond minimal conformity to public-law strictures may be muted.
99. Moreover, it is not uncommon for individual transactions to have multiple private parties who do not share a common outlook on the given program involved. See infra Part IV. B. This can give rise to an additional "translation" task for lawyers in mediating not only between the private sector and the state but also between mission-driven entities and more economically oriented entities involved in a deal.
100. See Bernstein, Silicon Valley, supra note 1, at 245-51 (discussing the role that lawyers play in venture-capital-financing transactions).
101. On balance, this kind of policy-innovation role is likely ultimately a positive contribution for lawyers, but there are grounds for some caution. See infra Part V.
102. See Fleischer, supra note 36 (manuscript at 25-27) (discussing the state's involvement in transactional deals).
103. See generally Michael Diamond, Affordable Housing and the Conflict of Competing Goods: A Policy Dilemma, in AFFORDABLE HOUSING AND PUBLIC-PRIVATE TRANSACTIONS (forthcoming 2009) (on file with the Iowa Law Review) (discussing the conflict between different housing goals).
104. See Fleischer, supra note 36 (manuscript at 5) (discussing law firm market advantage in managing regulatory complexity).
105. It bears noting that transactional complexity is not only a function of the bureaucratic (in a neutral sense of the word) tendencies of the administrative state, but also it arises from the increasing sophistication of clients and the multiple constituencies involved in most modern deals. The vision of transactional law as the realm of two parties sitting across the negotiating table hardly describes deals that may involve constituencies as varied as regulators, unions, lenders, consumer groups, customers, and others. Recognizing that complexity raises its own transaction costs allows an extension of Gilson's analysis to the value that can come from managing that complexity. This is not a skill that is inherent to lawyers, of course. Other professionals have more direct training in management, but there is something in the "quarterbacking" of deals that gives attorneys a comparative advantage in finding the value of managing complexity. See id. (manuscript at 29-31) (discussing the role of "quarterbacking" deals).
106. See supra Part III A.
107. See Dent, supra note 1, at 297-98 (discussing non-transactional business-related legal work)
108. cf. David Dana, Environmental Lawyers and the Public Service
109. Dana, supra note 89, at 75 (discussing signaling to regulatory agencies)
110. cf. Victor Fleischer, Brand New Deal: The Branding Effect of Corporate Deal Structures, 104 MICH. L. REV. 1581, 1628-37 (2006) (analyzing the consumer-signaling effect of corporate deal structures).
111. Cf. Tim Iglesias, Our Pluralist Housing Ethics and the Struggle for Affordability, 42 WAKE FOREST L. REV. 511, 589 (2007) (describing the "progressive" vision of affordable housing). Affordable housing shares some characteristics with other areas of public-private partnerships, including urban renewal and infrastructure, as well as other areas of social-welfare policy. Housing, however, is a particularly fruitful area on which to focus given the heavily-transactionoriented nature of the practice. Any example drawn from the world of social-welfare policy is likely to have some disconnection with examples from areas not as explicidy directed toward ameliorating poverty. From a functional lawyering perspective, these differences are generally going to be questions of emphasis and degree, rather than of kind.
112. Affordable housing is subsidized on the supply side directly through grants and loans and other subsidies and indirecdy through the tax code; on the demand side, housing is typically subsidized through vouchers. The kinds of affordable-housing transactions this Article examines primarily involve supply-side subsidies.
113. See U. S. DEP'T OF HOUS. & URBAN DEV., FY 2007 BUDGET SUMMARY 13-16 (2007), available at http://www.hud.gov/about/budget/fy07/fy07budget.pdf (outlining the U. S. Department of Housing and Urban Development's discretionary spending by program for 2005, 2006, and 2007)
114. Novogradac & Co., Affordable Hous. Res. Ctr., Low-Income Housing Tax Credit: 2007 Federal Tax Credit Information by State, http://www.novoco.com/low- income-housing/lihtc/federal-lihtc-2007.php (last visited Feb. 26, 2009) (listing the allocation of low-income-housing tax credits by state for 2007).
115. MILLENNIAL HOUS. COMM'N, MEETING OUR NATION's HOUSING CHALLENGES 25 (2002).
116. See generally ALEX F. SCHWARTZ, HOUSING POLICY IN THE UNITED STATES: ANINTRODUCTION (2006).
117. Single-family housing, particularly on the for-sale side, is also a part of affordablehousing policy; however, despite the veneration of this sector of the market by policymakers, homeownership is untenable for many of those served by core affordable-housing programs. Accordingly, the core of affordable-housing policy focuses more on rental housing.
118. For good overviews of various subsidy mechanisms at all levels of government, see generally Rick Judd & Barbara E. Kautz, Local Government Financing Powers and Sources of Funding, in THE LEGAL GUIDE TO AFFORDABLE HOUSING DEVELOPMENT 287, 287-328 (Tim Iglesias & Rochelle E. Lento eds., 2005) (discussing local governments' authority in relation to funding)
119. Rochelle E. Lento, Federal Sources of Financing, in THE LEGAL GUIDE TO AFFORDABLE HOUSING DEVELOPMENT, supra, at 215, 215-58 (discussing the different sources of federal funding available)
120. Peter Salsich, State Sources of Housing Finance, in THE LEGAL GUIDE TO AFFORDABLE HOUSING DEVELOPMENT, supra, at 259, 259-86 (discussing states' involvement in providing funding for low-income residents).
121. See supra Part III. A.
122. It is open to question the extent to which any private entity, at least in the for-profit arena, is driven purely by economic considerations, but it is hard to deny that economic considerations constitute the predominant (if not overriding) organizing principles for most for-profit entities.
123. Another variable in client orientation can be reluctant participation, which arises primarily in the context of regulatory bargains. Inclusionary zoning is a good example of this. In inclusionary zoning, a regulatory benefit-typically some development permission-is granted in exchange for the inclusion of affordable housing in the project or fees in lieu of such dedications. One can compare an affordable-housing development by a nonprofit provider to inclusionary zoning. In the former case, a mission-driven entity calls on public subsidies to create a new asset that directly advances the goal of providing shelter for those unable to afford market-rate housing. In the latter case, the same number of units of housing may be created, serving the exact same recipients, but the orientation of the provider is different: private developers tend to view inclusionary housing (and any number of other public benefits granted in exchange for development rights) as transaction costs in the purest sense. Thus, the physical product may look the same in each deal, but the orientation of the transaction-and the role of the lawyer-may take on a different cast.
124. See Gilson, supra note 1, at 247-48 (discussing measurement problems in assessing lawyer value creation).
125. Schwarcz, Explaining, supra note 1, at 491.
126. For example, Schwarcz finds that lawyers and clients regard minimizing ex post litigation as a primary goal for deal lawyers, id. at 496, that there is only weak support for Gilson's vision of transaction-cost engineering, id. at 498, and that there is strong support for value creation through the reduction of regulatory costs, id. at 500.
127. Gilson began with the proposition that the persistence of business lawyering is some indication that lawyers add value. Mark Suchman has challenged this predicate assumption, arguing that the persistent centrality of deal lawyers is at least as consistent with "its taken-forgrantedness, normative endorsement and ritualization" that might "reflect a local equilibrium that might be resistant to change, but not be globally optimal." Suchman, supra note 16, at 272-73. These are valuable nuances to add to Gilson's framework, but they are not necessarily inconsistent with the proposition that deal lawyers nonetheless may be worth, at least some of the time, what they command in the market.
128. See generally Gilson, supra note 1, at 256-93 (analyzing a typical acquisition agreement and the role that business lawyers play in creating value in such transactions)
129. supra Part II. A (discussing Gilson's examples).
130. Fleischer takes a third tack, pointing to deal structures, firm self-reporting of value, and qualitative data in the form of attorney interviews to undergird his argument. See supra Part II. B.
131. It is important as well to acknowledge that attempting to discern traces of value creation, however defined, in the residue of deal structures risks ignoring the larger context in which transactions occur. Lisa Bernstein has argued that beyond "the terms of the parties' written agreements, " certain transactional contexts, such as Silicon Valley, may allow for value Creadon through roles other than transactional engineer. Bernstein, Silicon Valley, supra note 1, at 253. Context is obviously equally important for the specialized practice areas in which publicprivate partnerships take place.
132. See I. R. C. §42 (j) (2000).
133. See Roberta L. Rubin & Jonathan Klein, Nonprofit Guaranties in Tax Credit Transactions: A New Era?, 15 J. AFFORDABLE HOUSING & COMMUNITY DEV. L. 314, 318 (2006) (discussing an interna) IRS memorandum that set forth criteria for evaluating a tax-exempt organization's involvement in a LIHTC transaction).
134. See Davidson, supra note 60, at 288-93 (discussing contractual provisions in affordablehousing transactions).
135. A notable area of recent policy development and litigation involves the problem of time-limited affordability requirements. Many housing programs make an explicit bargain with the private sector: utilize public subsidies to develop housing that will be below market for a period of time-thirty years, for example, in many LIHTC transactions-at which point you will be able to take the building to market-rate housing. Congress and HUD have attempted, in a variety of ways, to mitigate the impact of this initial bargain (with owners resisting some of these attempts), and ever-longer affordability periods are becoming common, but this remains a controversial aspect of contemporary housing policy.
136. It is also fair to ask the predicate empirical question whether deal lawyers in publicprivate transactions act in the way this Article oudines. On this, again it would be difficult to evaluate in any depth, but it is safe to hazard a tentative claim that lawyers, at least some of the time, embrace that role, although there is value in doing so more self-consciously, as the Article discusses below. See infra Part VI. A.
137. See, e.g., Sharon Dolovich, Ethical Lawyering and the Possibility of Integrity, 70 FORDHAM L. REV. 1629, 1629-30 (2002) (summarizing the debate).
138. Katherine R. Kruse, Lawyers, Justice, and the Challenge of Moral Pluralism, 90 MINN. L. REV. 389, 389 (2005).
139. See ANTHONY T. KRONMAN, THE LOST LAWYER: FAILING IDEALS OF THE LEGAL PROFESSION 11-162 (1993) (discussing a standard of professional ideals for lawyers).
140. See Ben W. Heineman, Jr., Lawyers as Leaders, 116 YALE L. J. POCKET PART 266, 266-70 (2007), http://thepocketpart. Org/2007/2/16/heineman.html (arguing that lawyers should aspire to be "wise leaders").
141. See, e.g., Norman W. Spaulding, Reinterpreting Professional Identity, 74 U. COLO. L. REV. 1, 2, 6-7 (2003) ("[T]he lawyer's role is grounded in a logic of service....").
142. See Daniel Markovits, In Praise of the Supporting Cast, 116 YALE L. J. POCKET PART 272, 277-78 (2007), http://thepocketpart. Org/2007/2/16/markovits.html (describing the lawyer's professional role as counsel).
143. See Dana, supra note 89, at 58-62 (discussing the different lawyering models).
144. Id. at 70-77.
145. See Fleischer, supra note 36 (manuscript at 33-34) (describing pressure on lawyers to "read the relevant regulations in a manner that favors their client").
146. Cf. Robert L. Nelson, Ideology, Practice, and Professional Autonomy: Social Values and Client Relationships in the Large Law Firm, 37 STAN. L. REV. 503, 504-05 (1985) (arguing that although lawyers in large firms privilege autonomy in conceptualizing legal institutions and attorneyclient relations, in practice, client-centered advocacy is the norm and lawyers "rarely experience serious disagreement with the broader implications of a client's proposed course of conduct").
147. This universalism is not without critics. See Dolovich, supra note 113, at 1639-46 (discussing contextual legal ethics)
148. Kruse, supra note 114, at 426-33 (same).
149. See supra text accompanying notes 44-46.
150. Gilson identifies, for example, the barriers to transacting that come from information asymmetry as a concern. See Gilson, supra note 1, at 280. Others have suggested that an element of transacting culture that heightens mistrust may have to do with the business world "lawyering up. " Cf. Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary Study, 28 AM. SOC. REV. 55, 60-61, 65-67 (1963) (discussing the attitude of individuals in business toward the role of lawyers and the settlement of disputes).
151. Cf. Robert A. Kagan, Do Lawyers Cause Adversarial Legalism? A Preliminary Inquiry, 19 LAW & Soc. INQUIRY 1, 15-21 (1994) (discussing the role that lawyers play in shaping a culture of "adversarial legalism").
152. Cf. Gilson, supra note 1, at 246-47 ("[L]awyers are often the source of much of the current regulatory jungle confronting those doing business. From this perspective, a client may be less than grateful for salvation from the very problems the savior originally created.").
153. See infra Part VI. B.
154. Are the additional costs of complexity inherent in public-private approaches to policy outweighed by the additional benefits such partnerships provide? Proponents and opponents can cite competing statistics about comparative institutional advantage for private and public providers, and the theoretical debate is exhaustive, but the underlying question remains unanswered. See supra Part III. B.
155. This would be true for both regulatory craftsmanship and for regulatory translation, but the "value" added in the latter context advances relevant policy goals rather than seeking to create private value by arbitraging their limitations.
156. Suchman, supra note 16, at 267.
157. Bernstein, Silicon Valley, supra note 1, at 245-51.
158. See infra Part VIA.
159. The same question would not arise when lawyers are creating value through regulatory craftsmanship because, by definition, any gain to the client is a cost to the state (again setting aside the normative questions that this raises). In regulatory translation, there is the possibility of gain to the client and gain to the state, and in that situation, it may be that the state is, in some sense, free riding on the private sector's engagement of private lawyers.
160. Gilson, supra note 1, at 295. Gilson noted that economies of scope-the ability efficiently to apply the same investment to more than one outcome-should give lawyers an advantage in performing the non-legal aspects of transaction structuring, such as drafting, valuation, and due diligence. Id. at 298. But this comparative advantage is not necessarily grounded in deal lawyers' expertise as lawyers.
161. Housing provides many examples of other professionals who play prominent roles in instantiating policy goals. Accountants, for example, are active players, as are bond specialists, financial advisors, deal consultants, title companies, insurers, and others. As in more privateoriented transactions, much of the work of deal lawyers involves coordinating other professionals, but the centrality of regulation-legal strictures-gives greater justification for this otherwise non-legal lawyer-coordinating function.
162. One curious cultural aspect that marks transactional lawyering in at least some areas of public-private transacting is that attorneys seem open to sharing knowledge, document forms, and experience working with the various agencies involved. The members of the American Bar Association's listserv for affordable-housing and community-development law, for example, regularly engage in ongoing discussions of arcane regulatory questions, and an ethos seems to prevail that focuses on mutual support. Lawyers share insights and provide detailed feedback on regulatory interpretation (and the extent to which such interpretation has been accepted by agencies and market participants). This is an anecdotal impression, to be sure, and there are certainly other areas of legal practice where lawyers offer each other continuing legal education, and regulatory and other legal knowledge is considered something of a common stock. One can speculate that this is because attorneys see reciprocal advantage to be gained from this exchange of knowledge, but it is at least possible that this ethos has developed because of an awareness among housing deal lawyers that there is an important aspect of their work that is much closer to David Dana's public-service model than die kinds of conflicts Dana associated with the client-service model in heavily regulated sectors of the economy. Dana argued that where regulatory constraints were clear and draconian, there would be no conflict between what client service and public service would demand of a lawyer. Dana, supra note 89, at 59-60. Dana rightly pointed out that this is rarely, if ever, the case. See id. (discussing the real world of ambiguous and inconsistent regulation that raises the conflict between models of lawyering). But in public-private partnerships, it may be that the very complexity of relevant regulations creates a culture of mutual support among attorneys aware of the public orientation of their work.
163. See generally Fleischer, supra note 90 (discussing brand image as a factor in corporate deal structures).
164. See Fleischer, supra note 36 (manuscript at 26-27) (discussing the premium that firms command for performing regulatory work and the legal-market context in which lawyers can obtain a premium for that expertise).
165. See supra Part V. B.
166. See supra Part III. B.
167. It might seem like an inherent conflict to represent a private client subject to oversight in a public-private transaction and in any way to assist in public oversight; yet, in practice, there may be more of an alignment of interests than at first appears. There is a political dynamic of reaction to failure in privatization-a kind of ratcheting effect-that undermines what makes public-private partnerships potentially advantageous to both sides. To the extent that skillful eliciting of issues can avoid the ratcheting effect-such as private benchmarks and the consequences of failure-"value" is added to a public-private transaction in a similar overall net-benefit manner as Gilson identified for purely private transaction-cost reductions.
168. See Keith E. Gottfried, Gen. Counsel, U. S. Dep't of Hous. & Urban Dev., Remarks at the National Settlement Services Summit (June 14, 2006), available at http://www.hud.gov/offices/ogc/gottfriedrefresh/ remarksofkgottfriedatsettlementservicessummit.pdf (discussing regulatory transparency).