Infra Insight Blog : written by Nossaman LLP Infrastructure attorneys, covers infrastructure project delivery, including Public-Private Partnerships, Operations & Management Agreements, policy, and news.

On Friday, Dec. 9, 2011, New York Gov. Andrew Cuomo signed historic design-build legislation into law, giving five state entities - the New York State Department of Transportation, the New York State Thruway Authority, the Office of Parks, Recreation and Historic Preservation, the Department of Environmental Conservation and the New York State Bridge Authority - general authorization to enter into design-build contracts for capital projects for physical infrastructure.  Previously, only public universities had legislative authorization to use design-build. 

The legislation contemplates a two-step procurement process, with the first step involving submittal of statements of qualifications and establishment of a shortlist of design-build teams eligible to submit proposals.  Step two involves "best value" selection based on a review of proposals, and allows the procuring agency to engage in negotiations with the selected firm prior to contract award.  The procuring agency has discretion to establish payment and performance bonds for design-build projects, as it deems necessary, thus resolving concerns about the chilling effect on competition for large projects associated with a 100% bonding requirement.

The legislation also permits alternative procurement methodologies for construction contracts, allowing award based on (a) a best value determination, (b) guaranteed maximum prices accompanied by cost data and other information, and (c) lump sum bids.

The new legislation took effect immediately and will sunset three years after the date of enactment (although procurements already in process as of the sunset date will be permitted to proceed).   The passage of this legislation is particularly noteworthy since New York, which represents a significant portion of the public works market, has now opened-up for design-build contracting. This chart provides information about other states that have previously passed laws allowing use of design-build for transportation projects. Significantly, the New York legislation allows for design-build projects over $1.2 million, with no limit on the type or number of projects.

It is anticipated that this legislation will play a central role in assisting the State of New York to pursue more innovative, alternative project delivery methods to meet its backlog of infrastructure and capital needs.  Among other things, the new Infrastructure Investment Act (2011 N.Y. Laws ch. 56) will enable the New York State Department of Transportation and the  New York State Thruway Authority to use design-build for the Tappan Zee Hudson River Crossing Project.  The Tappan Zee Project, which will replace an existing bridge across the Hudson River (pictured above),  was granted expedited federal approval by President Obama and U.S. Transportation Secretary Ray LaHood in October of this year.

Tristan Robinson contributed to this post.

*Author Nancy Smith is chair of the Design-Build Institute of America's Legislative Committee.

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This morning, U.S. Department of Transportation (USDOT) Secretary Ray LaHood announced the winners of the extremely competitive TIGER III grant application cycle.  Forty-six projects in 33 states will share $511 million in grant funds.  The announcement was made several months earlier than the originally scheduled date.

As has been the case with the previous two rounds of TIGER grants, this cycle was wildly oversubscribed.  According to the announcement, USDOT received 848 project applications from all 50 states, Puerto Rico, and Washington, DC, requesting a total of $14.29 billion, far exceeding the amount available under the TIGER III program. 

“The overwhelming demand for these grants clearly shows that communities across the country can’t afford to wait any longer for Congress to put Americans to work building the transportation projects that are critical to our economic future,” said Secretary LaHood. “That’s why we’ve taken action to get these grants out the door quickly, and that is why we will continue to ask Congress to make the targeted investments we need to create jobs, repair our nation’s transportation systems, better serve the traveling public and our nation’s businesses, factories and farms, and make sure our economy continues to grow."

Of the grants awarded, only three included payments to support TIFIA loans.  The projects that will receive TIFIA payments are the SR-91 Corridor Improvement Project managed lanes being developed by the Riverside County Transportation Commission; Virginia DOT’s I-95 HOT Lanes; and Dallas Area Rapid Transit’s Orange Line Extension.

TIGER grants are awarded to transportation projects that have significant national or regional impact.  USDOT allocated the TIGER III funds to transportation projects in both urban and rural areas.  The funding was distributed between a broad array of road and bridge, transit, port and freight rail projects.  The three rounds of TIGER grants have resulted in an award of over $2.6 billion for critical transportation funding.

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Statements of Qualifications for the California High-Speed Rail Authority's Initial Construction Section, Construction Package 1 (north of the San Joaquin River through the City of Fresno) are due Dec. 19, 2011, with contract award currently scheduled for December 2012. 

This is the first of five design-build procurement packages planned for the California High-Speed Rail Project. The Authority's procurement schedule is available here.  Comments on the Draft 2012 Business Plan, issued by the Authority last month, are due by the end of the year.  The Draft Business Plan includes a general description of contract packaging.

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In advance of its deadline for statements of qualifications (SOQ),  the New York State Department of Transportation and the New York State Thruway Authority are holding a Pre-SOQ Informational Meeting for the Tappan Zee Hudson River Crossing Project.  The event will take place on Wednesday, Dec. 14, at the Westchester County Center in White Plains, NY.  Interested participants are required to pre-register for the event by completing an online registration form, available here.   The agenda includes presentations by the DOT and Authority, a question period, and a "meet-and-greet" period.
 
The project involves the development of a bridge crossing on the Hudson River near the existing Tappan Zee Bridge and the demolition of the existing bridge.  The deadline for submitting SOQs is Jan. 10, 2012.  The anticipated date of contract award is August 2012.

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On November 16, challenges to the legality of the Presidio Parkway public-private partnership (P3) contract ended with a one sentence order from the California Supreme Court: “The petition for review is denied.”  Professional Engineers in California Government (PECG), the union representing Caltrans engineers, had asked the Supreme Court to review the Aug. 8, 2011, decision of the California Court of Appeal in San Francisco (First District), which unanimously held that Phase 2 of the Presidio Parkway project can move forward as a P3.  As a result, the California Department of Transportation (Caltrans) and the San Francisco County Transportation Authority (SFCTA) will continue with Phase 2.  The project will replace the old and outmoded approach to the Golden Gate Bridge in San Francisco.  The Supreme Court’s action denying the petition comes a year after PECG filed the lawsuit in the trial court.

When the California Transportation Commission considered whether to approve use of a P3 for the project under Streets and Highways Code section 143, the California Legislative Analyst Office (LAO), and the California Attorney General’s office (AG) as counsel to the Commission, gave written opinions concluding that the project was not authorized.  Caltrans’ general counsel, along with Nossaman acting as P3 legal advisor to Caltrans, took a contrary position.  Section 143, adopted in 2009, broadens the types of P3 projects authorized in California.  The Commission approved the project for a P3, while noting the unresolved legal issue.

PECG sued Caltrans and the SFCTA to stop Phase 2 of the project, arguing, like the LAO and AG had earlier, that the project was not authorized by section 143.  The courts rejected PECG’s argument that, under section 143, Caltrans’ internal personnel must perform all the preliminary planning and design services, as opposed to being responsible only for seeing them done correctly.  The courts also rejected the argument that P3 efforts under California law must be confined to toll projects, holding that the legislation authorized much broader use of innovative financing, in this case an availability payment.  Finally, the courts also held that the project was properly characterized as supplemental to existing facilities, as required by section 143.

The Presidio Parkway Project is the first project to reach award under California’s new P3 statute.  The decision of the courts—and now the finality—is important beyond the Presidio Parkway Project.  This should ease the way to use P3s under section 143 for other projects, and also provide helpful precedent for design build projects authorized under parallel legislation passed at the same time.

At the beginning of 2011, Caltrans, in cooperation with SFCTA, signed a contract for the project to Golden Link Concessionaire, LLC, a consortium led by Hochtief  PPP Solutions North America and Meridiam Infrastructure North America. 

Nossaman represented SFCTA in the litigation and advised Caltrans during the P3 procurement.  Caltrans was represented in the litigation by its own department counsel.

For more about the Presidio Parkway Project and section 143, see Appeals Court Rules Presidio Parkway Can Move Forward as P3, Presidio Parkway Project Awarded, Preferred Proposer Selected for Presidio Parkway Project, Final RFP for the Presidio Parkway Project Released, Presidio Parkway Reaches Two Important Milestones, and Presidio Parkway Project RFQ Issued.

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At its October 27 meeting, the Texas Transportation Commission approved the issuance of a request for qualifications for the Horseshoe Project in Dallas County.  The project will be the first under new design-build legislation passed by the Texas legislature during the 2011 session.  Subchapter F, Chapter 223, of the Transportation Code prescribes the process by which the Texas Department of Transportation (TxDOT) may enter into a design-build contract with a private entity that provides for the design, construction, expansion, extension, related capital maintenance, rehabilitation, alteration, or repair of a highway project. Transportation Code §223.242 authorizes TxDOT to enter into, in each fiscal year, up to three design-build contracts for highway projects with estimated construction costs of $50 million or more.

The Horseshoe Project is part of the larger Project Pegasus, a $2.1 billion (construction only) project in downtown Dallas on two major interstates, I-35E and I-30.   All four legs of Project Pegasus are on the list of 2011 Top 100 Most Congested Roadways in the State of Texas.  The Horseshoe Project will replace two key bridges and connecting roadways crossing the Trinity River at I-30 and I-35E, as well as upgrading outdated roadway geometry.  The estimated construction cost of the Horseshoe Project is $800 million. 

The Horseshoe Project is one of several major new design-build projects in the United States, including the Gerald Desmond Bridge replacement project in Long Beach, Calif., VTA’s BART Berryessa extension project in the Silicon Valley, and New York's Tappan Zee Bridge replacement project, which is one of 14 projects chosen by the Obama administration for expedited federal review and approval.

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Moving Ahead for Progress in the 21st Century (MAP-21), the draft reauthorization bill unanimously voted out of the Senate Environment and Public Works Committee, contains major improvements to the TIFIA program that many, including those of us at Nossaman, have been advocating.  These changes, if enacted, will greatly expand availability and eliminate much of the uncertainty over whether a project will be selected.

• The bill eliminates virtually ALL of the selection criteria, converting availability from a discretionary competitive selection process to a simple objective determination of project eligibility.
• It adopts a rolling basis for applications and availability.  No more waiting for annual notices of funding availability; it is up to the project sponsor to decide when to apply.
• The bill gives applicants the right to pay the subsidy from other sources, included federal grant funds, if budget authority runs out.
• Alternatively, if budget authority runs out, the bill allows an applicant to enter into a master credit agreement to obtain budget authority in a later year when available.
• The bill increases the size of the TIFIA credit assistance from a maximum of 33 percent to a maximum of 49 percent of eligible project costs.
• The Senate EPW Committee recommends an annual TIFIA budget authority of $1 billion.

Other features of the bill's amendments include:

• Beefed up credit standards, including "an investment grade rating from at least two rating agencies on debt senior to the Federal credit instrument; and a rating from at least 2 rating agencies on the Federal credit instrument."   For small projects (up to $75 million, rural projects, and ITS), only one rating agency rating is required.
• As a requirement for project eligibility, the applicant must first submit a letter of interest (LOI), followed by an application.  Presumably, the LOI and application requirements will get a lot simpler and quicker with fewer eligibility criteria.
• The bankruptcy springing lien has an exception for senior debt that is for an agency's program and is secured by tax revenues or system revenues.
• 50 percent of unused annual budget authority (if any) can be carried forward; the balance is returned to the states via federal share.
• Administrative fees for the program are set at 1 percent of the annual budget authority.  At $1 billion of annual budget authority, annual administrative fees will be $10 million, a large increase from the $2.2 million under existing law.

There are a few issues that cause us concern.

• Project readiness is not a prerequisite for TIFIA eligibility.  Such a requirement seems especially needed given the new first-come, first-served approach to budget authority allocation.
• Improved and expedited procedures are needed to overcome the inordinate processing delays that characterize the TIFIA program.  We are quite concerned that applications, credit processing and loan documentation will get bogged down, and bureaucracy rather than budget authority will be the new constraint on TIFIA expansion.
• The exponential increase in TIFIA demand that will occur if this bill comes to fruition has real potential to overwhelm the TIFIA JPO, particularly because applicants can pay in subsidies on top of the $1 billion budget authority.  The bill’s increase in the annual administrative budget to $10 million may not be enough. Consideration should be given to increasing the administrative budget so that the TIFIA JPO can staff up to handle in a timely manner the growth in demand.
• There is no provision calling on the TIFIA JPO to process LOIs, applications, term sheets and loan documentation during the period it will be rolling out regulations for carrying out the amended program.  It would be quite detrimental to the states if things grind to a halt while USDOT goes through a long procedure to adopt regulations.

There is reason to believe that the House reauthorization bill will contain comparable improvements to this vital federal credit assistance program.

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U.S. Department of Transportation Secretary Ray LaHood plans to name Karen J. Hedlund as Deputy Administrator at the Federal Railroad Administration (FRA).  Hedlund moves to the Deputy Administrator position from her current role as Chief Counsel at FRA, replacing Karen Rae, who Gov. Cuomo recently appointed as New York State Deputy Transportation Secretary.  Before moving to FRA, Hedlund served as Federal Highway Administration Chief Counsel from June 2009-June 2010, where she helped implement the American Recovery and Reinvestment Act, including new investments in highway, intermodal and freight rail facilities.
 
Prior to joining DOT, Hedlund was a partner in the Washington, DC, office of Nossaman. She has 35 years of experience in transportation and is recognized nationally for her expertise in structuring public-private partnerships. All of us at Nossaman offer congratulations to our former partner on this new appointment.

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On October 21, I participated on a panel regarding “Successful Teaming” at the 2011 DBIA Conference & Expo in Orlando, Fla.  In the broad sense, “teaming” in the design-build context is collaboration among all project participants to help foster integration and achieve “win-win” solutions for delivering a project.  The panel addressed best practices for drafting teaming agreements and promoting communication and integration among team members.  My presentation focused on why the owner is interested in teaming and how the owner can influence teaming arrangements.  Key takeaways from the panel discussions included the following:

• Always put your teaming agreement into writing and address key terms and conditions.  Although it may take time and money, it is in the interest of all team members to memorialize the underlying basis and relationship of the teaming arrangement into writing.  The teaming agreement should address the extent the members’ relationship is exclusive, how confidential information exchanged among members should be treated, and how costs will be allocated among members.
   
• The owner is not a passive observer.  Rather, the owner is an interested party who can and does influence teaming, both in a direct and indirect way.  For example, during the pre-award phase—especially in the context of public requirements—the owner influences teaming through requirements contained in the solicitation documents.  Therefore, members need to carefully review the solicitation documents to determine the extent that their teaming arrangement needs to be tailored to fit the requirements of a particular project.
   
• Perform due diligence before entering into teaming arrangements.  It is important that members conduct a certain degree of due diligence to determine whether a prospective team member will be a good fit.  Matters to inquire about can include a prospective member’s safety record, organizational conflicts of interest, financial stability and resources, and past dealings with the owner.

It was a pleasure participating with my fellow panel members: Robynne Parkinson of the Law Offices of Robynne Thaxton Parkinson, Pat Miller of Baker & Daniels, and Craig Unger of Unger Security Solutions.  And a special thanks to our moderator, Tom Porter of Tom Porter Services, for keeping the panel focused and on topic.

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Our October 21 blog on managed lanes projects in Southern California talked about how three county transportation agencies are expanding on the success of the SR91 Express Lanes in Orange County, Calif., by using managed lanes to further relieve congestion and improve mobility in the region.  Not to be outdone by its Southern California cousins, the Metropolitan Transportation Commission (MTC), the transportation planning and funding agency for the nine-county San Francisco Bay Area, just received the blessing of the California Transportation Commission (CTC) to develop and operate a value pricing program that will involve either the conversion of existing HOV lanes or the development of new HOT lanes.  As with the Southern California setting, several Bay Area agencies are already developing and operating HOT lanes in their jurisdictions.  MTC’s application is the last that will be processed under California’s HOT lanes demonstration program, which expires at the end of this year, and authorized four HOT lanes projects (the RCTC and LA Metro express lanes projects described in our last entry secured the two Southern California slots under this legislation).

MTC’s goal in pursuing the HOT lanes application is to fill in the “gaps” in the HOT lanes network by converting 149 miles of existing HOV lanes to HOT lanes and adding 116 miles of new HOT lanes to create a seamless experience for the motorist.  According to a detailed cost-benefit analysis, implementation of the program could produce benefits equal to over 3.3 times the costs of developing the network, achieved primarily from travel time savings and emission reductions.  MTC estimates that—depending on the availability of funding and the timing of the permitting process—delivery of the new network will occur between 2015 and 2030.  The Bay Area Toll Authority, which operates the seven state-owned toll bridges in the region, is likely going to be the toll collection entity.  MTC anticipates utilizing a variety of funding sources, including senior toll road revenue bonds, TIFIA loans, local contributions, and grant funds to pay for the $3.5 to $4.3 billion capital costs of the program.

MTC’s application acknowledges that there is still a fair amount of work ahead to implement the program, including the execution of agreements with the California Department of Transportation (the network will be built in state right of way), FHWA (several of the projects involve tolling federal interstates), and county transportation agencies (integration of the new/converted lanes into the existing projects).  And MTC will be looking at the optimal delivery approach for design, construction, operations, and financing.

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Today, DesertXpress Enterprises, LLC (“DXE”), a group of private investors, received authority from the U.S. Surface Transportation Board (“STB”) to construct and operate a 190-mile dedicated high-speed passenger rail line between Las Vegas, NV and Victorville, CA.  Once the line is constructed, trains will operate at up to 150 miles per hour and provide an energy-efficient alternative to automobile travel on the I-15 corridor and air travel between these two areas of the country.

DXE requested that the STB grant authority to construct and operate this line under an expedited review process that allows for an exemption from certain statutory prior approval requirements.  The STB granted DXE’s request, citing the many benefits of the project.

The STB found that the project will clearly promote the rail transportation policies set forth in the federal agency’s governing statute.  By providing a passenger rail transportation option in this market and alleviating automobile congestion on the I-15 freeway, the project will reduce air pollution and overall fuel consumption.  The proposed line also will alleviate constraints on the expansion of air travel in Southern California and is expected to have a multi-billion dollar beneficial impact on the economies of both Nevada and California. 

The majority shareholder in DXE – The Marnell Companies – is an experienced architect and real estate developer with large-scale project development, construction and finance experience. 

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Yesterday, the Knik Arm Bridge and Toll Authority (KABATA) announced its decision to shortlist three of six teams that submitted statements of qualifications for the Knik Arm Crossing project.  KABATA is procuring an availability payment public-private partnership for the $750 million project. Nossaman acts as KABATA's legal advisor for the procurement.
 
Michael Foster, KABATA's Board Chairman, said, "The process becomes very competitive from here on out. We expect to see some top notch proposals."
 
The shortlisted teams are:

Alaska Infrastructure Access Partners
Infrared Capital Partners Limited
Bouygues TP
Colaska Inc. dba QAP
Weeks Marine, Inc.
URS Alaska, LLC
Moffatt & Nichol, Inc.
USKH, Inc.
R&M Consultants, Inc.
Macquarie Capital (USA) Inc.

Cook Inlet Passage Partners
Meridiam USA III, LLC
Meridiam Infrastructure North America Corporation
Meridiam Infrastructure North America Fund II AIV, LP
Meridiam Infrastructure North America Fund II, LP
Meridiam Infrastructure North America Fund II (Domestic), LP
Kiewit Development Company
Kiewit Infrastructure West Co.
Manson Construction Co.
VMS Inc. dba Transfield Services North America, Transportation Infrastructure
Parsons Transportation Group Inc.
Golder Associates Inc.
Dowl HKM
Dan Brown and Associates, PLLC
BMT Fleet Technologies
KPMG Corporate Finance LLC

North Star Mobility Group
HOCHTIEF PPP Solutions North America, Inc.
HOCHTIEF Aktiengesellschaft
ACS Infrastructure Development, Inc.
ACS Servicios y Concessiones, S.L.
Iridium Concesiones de Infraestructuras, S.A.
Flatiron Constructors, Inc.
Dragados USA, Inc.
Dragados SA Traylor Bros., Inc.
HNTB Corporation
CH2M Hill Engineers, Inc.
Alaska Interstate Construction LLC
Arcadis
Kodiak Map
Hart Crowser
Earth Mechanics
Bitttner-Shen
Denali Drilling
Gregg Drilling

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Southern California can’t say it’s “number one” when it comes to having the worst traffic congestion in the country, but it’s a huge economic and social problem for the region which three Southern California transportation agencies are addressing through the use of managed lanes.  That’s what we recently learned at the Women’s Transportation Seminar presentation on October 14, 2011.

On a panel moderated by Rick Backlund, an FHWA region official, we heard from Rose Casey, Program Manager for the Orange County Transportation Authority; Stephanie Wiggins, Executive Officer with LA Metro; and Michael Bloomquist, Toll Program Director for the Riverside County Transportation Commission.  After hearing a brief history of managed lanes from the first HOV lanes in the early 1960s to the first all-electronic toll facility which opened in the early 1990s, Casey briefed the audience on one of the largest highway projects in Southern California, the widening of I-405 (or “the 405” if you are from Southern California) between SR55 and I-605.  With a capital cost of between $1.3 and $1.7 billion the project is expected to have a large funding gap, even if the express lanes alternative is selected by the OCTA board (the express lanes is one of three alternatives the authority is studying during the environmental process).  As to the feasibility of a tolled alternative, Casey alluded to the positive experience of the SR91 Express Lanes in Orange County which extend east to the Riverside County line, the first all electronic toll facility in the United States.

Bloomquist picked up on Casey’s presentation by describing RCTC’s efforts to develop and finance the extension of the SR91 Express Lanes from the Orange County border to I-15, as well as the plan to add express lanes to the I-15 to create an express lanes network (note: San Diego County is already operating an express lanes project on I-15 south of the proposed RCTC project—maybe someday there could be a connection between the facilities in the two counties??)  RCTC’s plan would be to leverage off of a significant commitment of local sales tax dollars and a TIFIA loan to issue toll road revenue bonds to finance this billion dollar project which includes new general purpose lanes.  To piggyback on the success of the SR91 Express Lanes project in Orange County, RCTC and OCTA have nearly finalized a co-op agreement for the new project that would take advantage of a common toll collection system and operator, would combine marketing efforts, and would coordinate toll policy.

The LA Metro project presented by Wiggins is the farthest along of the three projects.  Taking advantage of a $210 million federal grant, LA Metro is converting several miles of HOV lanes along the I-110 and I-10 leading into and out of downtown Los Angeles into HOT lanes.  Net tolls would be reinvested in transit and additional HOV improvements in the Los Angeles County area.  A common complaint about managed lanes is how they may adversely affect low income drivers.  To address this concern, LA Metro conducted a toll equity study and has agreed to offer toll discounts as well as a waiver of account maintenance fees to qualified individuals.

These three regional transportation agencies are building upon the success of previous managed lanes projects to work smarter to increase capacity in one of the most congested and physically contrained highway systems in the country.

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Ted Houghton is the new chair of the Texas Transportation Commission. Governor Rick Perry announced Houghton's appointment, effective October 7.  Houghton succeeds Deirdre Delisi, who recently resigned.  Delisi had served as chair since 2008.

Houghton was first appointed to the Commission in 2003 and was reappointed in 2009. A native of El Paso, Houghton is self-employed in the financial services industry. He is the first resident of El Paso to serve on the Commission.

"I'd like to thank Governor Perry for his trust in me to continue TxDOT down a path of responsiveness, change and modernization,” Houghton said.  “I look forward to leading the department as it becomes a better TxDOT, living up to the expectations of the Governor, the Legislature and our stakeholders.  Texas is a national leader in infrastructure and transportation system development, and I intend to reaffirm our place among the best, strongest and most innovative states as TxDOT delivers the projects the Legislature, our local partners and Texas motorists expect."

Houghton previously served on the School Land Board, the El Paso Water Utilities Public Service Board, El Paso's Rapid Transit Board, the board of directors of the El Paso Electric Company and as president of the Sun Bowl Association. He was also a member of the 1984 Los Angeles Olympic Committee.

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