FHWA Publishes Core Toll Concession P3 Model Contract Guide

The FHWA published its final Core Toll Concessions P3 Model Contract Guide (“Guide”) on September 10, 2014 as part of its mandate under MAP-21 to develop “standard public-private partnership transaction model contracts for the most popular types of public-private partnerships.”  The Guide serves as an educational tool to assist states, public transportation agencies, and other public officials in developing their own public-private partnership agreements. 

The FHWA determined an educational approach is preferred to prescriptive requirements based on feedback received during a “listening session” in January with industry representatives.  Prior to publication of the final Guide, the FHWA also considered written comments received after publication of the draft Core Toll Concession Model Contract Guide in February of this year. 

The Guide covers many of the most important (and most commonly misunderstood) contract provisions in the toll concession P3 model.  It includes an explanation of tolling regulations and the risks of user demand for the project.  The Guide also explains benefit-sharing contract provisions, which are common in toll concession projects and generally require the Developer to share certain financial benefits with the project owner during the term of the contract. 

Because project risks are apportioned differently in a public-private partnership model than in more traditional contract models, the Guide explains how the P3 model may impact supervening events, such as force majeure events or other delay events.  The Guide also details many of the risks associated with potential changes in the equity interests of a contract bidder’s team. 

The FHWA plans to publish an Addendum to the Guide that will address in less detail secondary contract provisions such as performance standards, contract duration, Federal requirements, and performance security. 

The FHWA will also publish for public comment additional draft guides for other contract models in coming months and will publish an Availability Payments Model P-3 Contracts Guide in 2014. 

Federal Highway Administration Publishes New Rule for Value Engineering

On Friday, September 5, 2014, the Federal Highway Administration (“FHWA”) published its final rule for Value Engineering (“VE”) for road and bridge projects.  The new rule implements changes made to VE requirements under Moving Ahead for Progress in the 21st Century (“MAP-21”), the last surface transportation authorization law that was signed into law in July 2012.

The FHWA’s final rule for VE increases the project thresholds that trigger a VE analysis, eliminates the VE analysis requirement for design-build projects, and defines the requirements for a state Department of Transportation (“DOT”) to establish and sustain a VE program.  Particularly, the prior project thresholds that prompted a VE analysis included federal-aid highway projects on the National Highway System (“NHS”) costing $25 million or more (as established in the National Highway System Designation Act of 1995) and bridge projects with an estimated total cost of $20 million or more and any other projects as determined by the Secretary of Transportation (as established in SAFETEA-LU in 2005).  Under the new rule, the project thresholds for VE are $50,000,000 or more for projects on the NHS that use federal-aid highway program funding assistance and $40,000,000 or more for bridge projects on the NHS that receive federal assistance.

In addition, the new rule eliminates the requirement for VE on design-build projects.  It should be noted, however, that under the new rule the FHWA continues to “encourage” a VE analysis for design-build projects on or off the NHS with an estimated cost of $25 million or more.

Finally, the new rule establishes the requirements for state DOTs to create VE programs for all applicable projects.

The final rule for VE goes into effect on October 6, 2014.

Obama Administration Introduces Significant Changes to Federal Tolling Law

In our prior posts we noted the important changes in federal tolling law under MAP-21 and some of the issues raised by those changes.  MAP-21 modestly loosened the federal reins on tolling the nation’s Interstates and federal-aid highways.  The Obama Administration just released its federal surface transportation reauthorization legislation, the “Grow America Act”.  In section 1405, the Administration proposes further constructive steps to expand tolling rights, but reintroduces some constraints that MAP-21 relaxed.

Probably the most important proposal is to create the right to toll an Interstate facility in connection with its reconstruction.  Today this is permitted only for a maximum of three projects nationwide under the Interstate Reconstruction Pilot Program.  Section 1405 would replace the pilot program with a statutory tolling right for Interstate reconstruction, without any limit on the number of eligible projects.  The significance of this proposal cannot be overstated.  It proposes that previously free, general purpose lanes could be tolled in order to fund Interstate reconstruction.  Except for the small pilot program, this has been forbidden since the inception of the Interstate system 60 years ago.

Just as important is a proposal to allow conversion of any portion, or even all, of a toll-free facility, including the Interstates, to a tolled facility in order to promote congestion management.  No HOVs could be tolled.  The tolling regime would have to consist of variable tolling to manage demand.  The method of variable tolling appears to be flexible enough to allow either time-of-day pricing or dynamic pricing.  This proposal can be explained by the Administration’s environmental priority of reducing carbon emissions and achieving air quality attainment.  This provision, too, would be a groundbreaking departure from the historic ban against tolling free, general purpose lanes.

Section 1405 proposes to expand the purposes for which toll revenues may be used.  It would authorize use for public transportation that is within the corridor of the tolled facility or contributes to improved facility operation.  It also would allow tolls to be used to mitigate adverse impacts of tolling, such as the impacts of traffic diversion.  These provisions likewise are informed by the Administration’s environment priorities and promotion of public transit.

Section 1405 would require that all toll facilities first opened to traffic after October 1, 2015 use only non-cash electronic tolling technology to allow free flow of traffic.  This is consistent with the clear trend national toward all-electronic tolling and interoperability.

The quid pro quos are the reintroduction of federal regulatory controls and elimination of several MAP-21 tolling rights:

  • MAP-21 dropped most requirements for USDOT approvals and tolling agreements.  Section 1405 would re-impose USDOT approval rights for tolling in connection with Interstate reconstruction and for conversions of toll-free facilities to managed lanes, and give the USDOT broad authority to issue regulations on what criteria must be met.  The Administration apparently shrinks from letting states decide on their own whether to pursue such tolling arrangements.
  • MAP-21 on its face seems to authorize conversion of HOV lanes to tolled lanes without conditions.  FHWA, however, has interpreted this provision to require that, among other things, HOV vehicles continue to have toll-free use of the converted lanes.  Section 1405 would eliminate any ambiguity by mandating toll-free HOV use.  The only remaining way to toll HOVs in converted lanes would be through the Value Pricing Pilot Program, if a state happens to hold one of the VPPP slots and can get the USDOT to approve HOV tolling.
  • MAP-21 created the right to toll in connection with restoration or rehabilitation of an Interstate highway.  Section 1405 would eliminate this right.  No doubt USDOT criteria for Interstate reconstruction would distinguish between reconstruction, on the one hand, and restoration and rehabilitation, on the other hand.
  • The MAP-21 right to vary toll rates by type of vehicle, and to exempt vehicles from tolls, would be eliminated.  It is unclear whether the intent is to require uniformity of toll rates (for other than managed lanes).  Toll rate uniformity would pose very serious feasibility and political issues for tolling authorities.

We and others have advocated for wholesale removal of federal restrictions on tolling, except for restrictions on permissible uses of toll revenues.  On the whole, Section 1405 of the Grow America Act is a good step in the right direction, particularly because it seeks to address the looming problem of how to pay the massive amounts that will be needed to reconstruct the nation’s Interstates.

FHWA and FTA Issue New Guidance On MAP-21 Exclusions

By Ben Rubin and originally posted on the California Eminent Domain Report blog.

On July 6, 2012 President Obama signed into law MAP-21, which, among other things, contained new National Environmental Policy Act ("NEPA") requirements for the Federal Transit Administration ("FTA") and Federal Highway Administration ("FHWA").  In January 2014, pursuant to a mandate in MAP-21, FTA and FHWA adopted new regulations, which became effective this week on February 12, governing the implementation of two new categorical exclusions. The two new categorical exclusions apply to (1) projects within an existing right-of-way, and (2) projects receiving limited Federal funding. 

The benefit of qualifying for one of these two new categorical exclusions is that the FTA and FHWA will not require the preparation of an environmental assessment or environmental impact statement, both of which often require a great deal of time and money. Of particular note, the regulations state that the categorical exclusion for projects within an existing right-of-way does not apply to "construction of a project in an undeveloped area simply because the real property interests were previously acquired," because the "use of the modifier 'existing' to describe the operational right-of-way means that a transportation facility must already exist at the location where the proposed project will be built." The regulations detail a number of other important nuances and caveats, so be sure to consult the regulations (or better yet, your NEPA expert) before you assume that a project qualifies for one of these new categorical exclusions.

FHWA Proposes Fix Avoiding Need for Special Approval to Include Alternative Technical Concepts in Design-Build Procurements

On August 1, 2013, the Federal Highway Administration (FHWA) issued a Notice of Proposed Rulemaking (NPRM) and request for comments regarding proposed changes to FHWA’s design-build regulation that would eliminate a requirement for proposers to submit base proposals where the contracting agency allows them to submit alternative technical concepts (ATCs) in their proposals.  ATCs have proved to be highly beneficial, encouraging innovation, cost savings and reduction of environmental impacts and increasing the overall value to procuring agencies through the best value selection process.

In 2002, when the FHWA regulation was originally promulgated, design-build procurements were experimental, and there was very little experience with use of ATCs.  The 2002 rule regarding ATCs (23 C.F.R. 636.209(b)) stated, in part, that ATC proposals may supplement, but may not substitute, for base proposals that respond to the RFP requirements.  The policy underlying this requirement was to ensure fair and open competition and to ensure that all proposers are competing for the same project. 

During the eleven years since the original rule was adopted, agencies asking proposers for ATCs have concluded that the base/option proposal requirement is impracticable.  ATCs can have a significant impact on the project design, and the cost of advancing two (or more) different design concepts and preparing alternative proposals is high.  The policies underlying the original rule can easily be addressed by placing boundaries on the ATCs, for example, by requiring that the ATC be equal or better than the underlying RFP requirements.  That is the approach that has been adopted by most of the transportation agencies using ATCs, obtaining approval from FHWA to deviate from the regulatory requirement through SEP-14 applications.

FHWA is now proposing to revise paragraph (b) of the original rule by deleting the requirement to submit base proposals where a contracting agency is allowing the submission of ATC proposals and adding a sentence providing that the confidentiality of ATCs will be maintained except to the extent disclosure is necessary for the contracting agency to maintain compliance with a permit or other applicable legal requirement.  Such disclosure may be necessary, for example, if a submitted ATC demonstrates that a feasible and prudent 4(f) alternative exists for which a 4(f) determination had concluded that there was no such alternative, in which case the alternative must be disclosed to maintain 4(f) compliance.

The NPRM can be viewed at:  http://www.gpo.gov/fdsys/pkg/FR-2013-08-01/pdf/2013-18514.pdf.  FHWA is inviting comments, in particular, regarding the anticipated economic impact of the proposed changes.  The NPRM provides that comments must be received on or before September 30, 2013 and that late comments will be considered to the extent practicable. 

USDOT Issues Temporary Exemption from Buy America for Certain Utility Relocations

Following up on our previous post regarding the uncertainty surrounding the application of Buy America requirements to utility relocations, the United States Department of Transportation (USDOT) has recently released two documents that provide further clarification on the matter.

On July 11, 2013, USDOT circulated an internal memorandum to Federal Highway Administration (FHWA) Division Administrators and the Directors of Field Services acknowledging that the broadened application of Buy America has created implementation issues for the utility industry and caused delays for ongoing highway construction projects.  To address these concerns, for non-Federally funded utility relocations, FHWA will allow utility companies until December 31, 2013 to take the necessary steps to ensure that the steel and iron products they use are in compliance with Buy America requirements.  On July 12th, the FHWA California Division issued a subsequent letter to the California Department of Transportation further noting that project-specific utility agreements executed on or before December 31, 2013, that do not have federal funding, are exempt from Buy America requirements.

Click on the following links to view the full memorandum and letter.

Thanks to Frank Liu for his assistance with this entry.

Update Regarding Buy America and Utility Relocations

As we have previously reported,  the Federal Highway Administration (FHWA) and Federal Transit Administration (FTA) recently adopted policies requiring Buy America compliance for utility relocations for federally funded transportation projects in cases where the utility performs relocation work.  On June 28, 2013, the American Association of State Highway and Transportation Officials (AASHTO), American Public Transportation Association (APTA), streetcar project sponsors, and associations representing electric, gas and broadband utilities sent a joint letter to the United States Department of Transportation (USDOT) asking for certain accommodations in implementation of the new policy.  The letter, addressed to Transportation Secretary Ray LaHood and Secretary-Designate Anthony Foxx, asks USDOT to clarify how the requirements will be applied, requests a transition period before Buy America requirements are applied to materials supplied by utility owners, and asks for USDOT to consider issuance of waivers for specialized utility products that may not be available from US manufacturers.  The letter also notes the importance of consistency in applying the Buy America requirements throughout the country, and cites a need for training and education of utility owners, suppliers and manufacturers.

The full letter can be found on APTA’s website.

On a related topic, FHWA has received a request for a waiver of Buy America requirements for various components related to the relocation of Pacific Gas and Electric's natural gas service facilities for a California project.  FHWA has requested comments regarding the waiver request.  View the request on FHWA's website.

Thanks to Frank Liu for his assistance with this entry.

FHWA's Expanded Application of Buy America to Utility Relocations Causes Consternation, Delays

As we have previously reported, the Federal Highway Administration (FHWA) has issued guidance holding that "Buy America applies to any utility work that is accomplished as a result of a Federal-aid highway project", unless the utility work cannot legally be reimbursed by the State.  This conclusion is based on an amendment to Buy America found in Section 1518 of MAP-21, which requires the application of Buy America to all contracts eligible for assistance within the scope of a project (as defined by the NEPA document), if at least one contract for the project is funded with Federal-aid highway funds.  The rule applies even if no federal funds are used to reimburse the utility work.

The relatively sudden application of Buy America to utility work that was not previously subject to its requirements has had serious consequences.  Utilities in many states are refusing to sign agreements that incorporate the Buy America requirements, which threatens to delay and increase costs for many projects.  Reasons advanced for this refusal vary, but many appear to be based on practical concerns; for example, a utility states that it does not have any experience in complying with Buy America, its current procurement processes do not yield the information necessary to confirm compliance, or it is not certain that it will be able to procure quality Buy America-compliant materials.

For a project sponsor, the consequences of noncompliance with Buy America could be dire.  According to FHWA (as stated on FHWA's MAP-21 website), failure to incorporate Buy America provisions where required ". . . would render all contracts within the scope of the NEPA document ineligible for Federal-aid highway funds." 

State DOTs, other project sponsors and related groups have expressed the need for guidance and practical assistance from FHWA in the application of this new law.  For example, in a February 12, 2013 letter to outgoing Transportation Secretary Ray LaHood, the American Public Works Association (APWA) and the National Association of County Engineers (NACE) requested guidance and future rule making to the effect that "Buy America requirements are not applied to contracts or work under an agreement with a utility that is not funded by title 23 programs".  Others have suggested a grace period for implementation of the new rules.  Discussion at a recent meeting of the AASHTO Subcommittee on Right of Way, Utilities, and Outdoor Advertising Control found that notwithstanding the guidance posted on FHWA's website, so far the new rules are not being interpreted or applied uniformly throughout the country. 

We understand that FHWA anticipates issuing a Notice of Proposed Rule Making for regulations dealing with these Buy America compliance issues sometime in 2013.  We urge FHWA to act quickly in developing its proposed regulations, and to pursue whatever other measures are necessary to resolve this impasse as soon as possible.

FHWA and FTA Issue Guidance on MAP-21 to Streamline Environmental Process

On January 14, 2013, the Federal Highway Administration (FHWA) and Federal Transit Administration (FTA) issued guidance on Section 1319 of the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, July 6, 2012.  MAP-21 is a measure that reauthorizes transportation funding through the end of 2014, and is the product of a robust effort by transportation advocates to streamline the lengthy, complex, and cumbersome federal environmental process.  As we reported here, MAP-21 includes several meaningful reforms that could expedite the National Environmental Policy Act (NEPA) process, thereby accelerating project delivery. 

Section 1319 attempts to expedite project delivery by providing a process by which agencies will begin to consolidate their NEPA documents.  Specifically, Section 1319 authorizes (1) the use of errata sheets attached to a draft EIS (DEIS) in lieu of the traditional final EIS (FEIS), and (2) the use of a combined FEIS and Record of Decision (ROD).  While the guidance provides details for transportation agencies regarding how to prepare and process these consolidated documents, it indicates that these devices are not likely to be applicable to controversial projects or where there are unresolved inter-agency disagreements. 

Use of Errata Sheets in Lieu of FEIS.  Pursuant to Section 1319(a), agencies may attach errata sheets to a draft EIS, in lieu of preparing a traditional FEIS.  The guidance indicates that errata sheets should only be used if the lead agency has modified the DEIS “in response to comments that are minor and are confined to factual corrections or explanations of why the comments do not warrant additional agency response.”  The errata sheets should also include the information required in a FEIS, as set forth in applicable regulations. 

Use of a Combined FEIS and ROD.  Section 1319(b) directs agencies to prepare a combined FEIS and ROD “to the maximum extent practicable.”  The guidance indicates that a combined FEIS/ROD should not be prepared if the FEIS makes substantial changes to the proposed action that are relevant to environmental or safety concerns, or there are significant new circumstances or information relevant to environmental concerns that impact the proposed action.  The guidance includes factors that an agency should consider when deciding whether a joint FEIS/ROD is appropriate, including whether the proposed action involves a substantial degree of controversy or whether there are unresolved inter-agency disagreements regarding the proposed action.  Any combined FEIS/ROD should also meet the requirements of applicable regulations. 

Prior to MAP-21, NEPA regulations prohibited agencies from approving a ROD any sooner than 30 days after the notice of availability of an FEIS.  Combining these processes, as well as encouraging the use of errata sheets to prepare an FEIS, may streamline and expedite the environmental review process for some projects.  The guidance suggests, however, that the use of these streamlining devices may not be appropriate for controversial projects or where there are unresolved inter-agency disagreements. 

The Section 1319 guidance was issued on an interim basis.  At a later date, FHWA and FTA will conduct a formal rulemaking to propose revisions to the FHWA/FTA NEPA regulations (23 C.F.R. Part 771) to reflect the changes made as a result of MAP-21.

FHWA Clarifies Broad Reach of Buy America Requirements

The Federal Highway Administration (FHWA) released two guidance memoranda in December 2012 relating to Buy America, largely in light of the amendments made by MAP-21.  On December 20, FHWA clarified the Buy America requirements applicable to utility work on Federal-aid projects.  The December 21 memorandum provided additional amplification on FHWA’s position regarding Buy America requirements applicable to manufactured products.

FHWA’s December 20, 2012 Guidance

FHWA was in the process of evaluating the applicability of Buy America requirements to utility work on Federal-aid highway projects when President Obama signed the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, July 6, 2012.  Section 1518 of MAP-21, amending 23 U.S.C. §313, “substantially broadened” the application of Buy America requirements to any contract eligible for Federal highway funding “carried out within the scope of the applicable finding, determination, or decision under the National Environmental Policy Act [NEPA], regardless of the funding source of such contracts if at least one contract for the project is funded with Federal-aid highway funds.”  In a letter to the American Association of State Highway and Transportation Officials (AASHTO), FHWA concludes that, in light of the amendments to 23 U.S.C. §313, “the application of Buy America cannot be narrowed to exclude utility work, even if such utility work is not reimbursed with Federal-aid highway funds.”  The sole case in which Buy America requirements would not apply to utility work is if such utility work cannot legally be reimbursed by the State.

Under the federal-aid highway program, Buy America applies to iron and steel projects used in federal-aid highway project.  Such products must meet the requirements for being American made, unless their use increases the total project cost by at least 25%, suitable American made products are not reasonably available, or it is not in the public interest.  These determinations or waivers are made by FHWA upon application of the state department of transportation.  Exceptions to the Buy America requirement are closely reviewed and have become increasingly difficult to obtain. 

Prior to the enactment of MAP-21, Buy America only applied to contracts actually funded at least in part with federal-aid highway funds.  Since it is typical that the project described in a NEPA document might be constructed with funds from a variety of sources, this substantially expanded the reach of Buy America provisions.  This is particularly true of utility relocation projects, which might be paid for with state funds or even by the utility by itself.  If such work is eligible for federal assistance, whether or not federal funds are used, Buy America applies.

FHWA’s December 21, 2012 Memorandum

FHWA’s current Buy America policy is based on the statutory provisions in the Surface Transportation Assistance Act of 1982, as implemented with a November 25, 1983, final rule.  The 1983 final rule, along with a 1997 clarifying memo, conclude that Buy America does not apply to all manufactured products; Buy America applies only to components made predominately of steel or iron.  FHWA deems a product to be manufactured predominantly of steel or iron if the product consists of at least 90% steel or iron content when it is delivered to the job site for installation. 

While FHWA’s general policy in this regard has not changed, the primary purpose of the December 21 Memorandum is to explain the change in view of FHWA towards waivers of the Buy America requirements.  Upon passage of the American Recovery and Reinvestment Act in 2009 (ARRA), FHWA formed national review teams to analyze the use of ARRA funding and provide recommendations for improvements.  This analysis brought up some questions, such as, does the scope of the 1983 waiver apply to off-the-shelf products?  FHWA states its concern in the memorandum that a broad reading of the statute to include off-the-shelf products “is not cost-effective to administer.”  However, FHWA ultimately concludes that “the scope of the waiver was intended to encompass miscellaneous steel or iron components and subcomponents that are commonly available as off-the-shelf products such as faucets, door hardware, and light bulbs.” 

This reflects a decision by FHWA that even when purchasing or specifying off-the-shelf iron and steel products for use in projects funded with federal aid highway funds, the state or other grantee must require that such products be manufactured in the United States.  The more expansive reading of the statute is policy based and follows the enactment of MAP-21.  It reflects both the Obama Administration’s focus on strengthening Buy America requirements and the broadening of Buy America in the new statute.  Although the MAP-21 amendment does not address the types of products to which Buy America applies, it clearly reflects a desire by Congress to expand the reach of the statute. 

The December 21 Memorandum may be found at the FHWA website


What does this mean for transportation projects?  Previously contractors could get around the Buy America requirements by splitting up contracts into pieces that would or would not be reimbursed by federal funding depending on whether or not the work involved non-compliant materials.  This work-around is no longer available.  FHWA has made clear that a broader reading of the Buy America requirements will now be followed. 

For additional Buy America information please see the FHWA website.

Edward Kussy co-authored this entry.

FHWA Holds P3 Model Contract "Listening Sessions" and Beta-tests "P-3 VALUE Toolkit"

As part of its effort to meet MAP-21’s legislative requirement to develop “standard public-private partnership transaction model contracts for the most popular types of public-private partnerships,” the Federal Highway Administration held a “listening session” with representatives from the transportation industry at the U.S. Department of Transportation in Washington D.C. on January 16.  Representatives from state departments of transportation, general contractors, trade associations, legal advisors and others were in attendance, and solicited to provide FHWA with the P3 community’s view of what the model contracts should be. 

In her introductory remarks, the Hon. Beth Osborne, Deputy Assistant Secretary of Transportation for Policy, saw the effort as “compiling best practices” of the P3 community, but one for which FHWA did not have “pre-conceived notions.”  FHWA and USDOT representatives spent the better part of four hours hearing out the industry’s hopes for, expectations about and cautionary recommendations regarding FHWA’s final product.  The resounding theme of the audience comments was that “every P3 is different,” FHWA’s effort should tilt toward educating public sponsors as to the project-specific risk-sharing and “value-for-money” considerations that makes a P3 an effective delivery tool, and FHWA should refrain from prescribing risk allocations or other contract terms.

In a companion effort, FHWA is also beta-testing an interactive model, which intends both to help educate public sponsors in alternative procurement strategies (like the public-private partnership (“P3”)) “apples to apples” comparison with conventional procurements).  The “P3-VALUE Toolkit” collects project sponsors’ (and their consultants’) project-specific risks, quantifies their value, and, with other financing assumptions and project-specific parameters considered, produces a snapshot of the value-for-money that a P3 strategy may or may not present for that project.  FHWA held an initial roll-out “webinar” of the draft toolkit on January 10, with a follow-up webinar session on January 24.

FHWA has set up a docket, Federal Register No. FHWA-2012-0126, to collect industry comments by May 31, to keep pace with the rigorous requirement of MAP-21 to produce and promulgate model contracts by December 31, 2013.

Fred Kessler co-authored this entry.

FHWA Issues Interim Guidance on P3 Assessments for Major Projects

The Federal Highway Administration (FHWA) recently issued guidance for implementing various aspects of the Moving Ahead for Progress in the 21st Century Act (MAP-21), including:  Infrastructure; Environment, Planning and Realty; Safety; Operations; and Innovative Program Delivery.  The guidance became effective October 1, 2012.

The interim guidance on Innovative Program Delivery includes provisions for implementing the new public-private partnership (P3) assessment requirement for Major Project Finance Plans under MAP-21.  The new P3 assessment requirement is, in our view, a welcome development that brings the U.S. closer to an approach that has been adopted with substantial success in Canada’s efficient and mature P3 market.

Interim Major Project Financial Plan Guidance – P3 Assessment

The interim guidance discusses two significant changes to the financial plan requirements for Major Projects arising from MAP-21:  (1) a financial plan may include a phasing plan in the event there are insufficient financial resources to complete the entire project; and (2) a financial plan must assess the appropriateness of a P3 to deliver the project. 

“Major Projects” means Federal-aid projects with estimated total costs of $500 million or more and other projects as may be identified by the Secretary (see 23 U.S.C. 106(h)(1)). 

FHWA will now approve a financial plan for a Major Project only if it includes an assessment of P3 appropriateness.  FHWA requires that all initial financial plans submitted on or after October 1, 2012 include such an assessment, regardless of whether a P3 is the anticipated project delivery method.  To this end, all cost estimate reviews conducted prior to the issuance of the NEPA decision document must include a component to analyze the allocation of risk in delivering the project via the P3 model.

The interim guidance provides that the P3 assessment is expected to be brief and should include:  documentation of the results of the risk allocation analysis; discussion of whether a P3 or traditional procurement could more effectively leverage the revenue stream for the project; a discussion of the current State statutory authority for P3s (including with respect to public sector debt capacity); and a concluding statement regarding appropriateness of a P3 to deliver the project.

Positive Development

The new P3 assessment requirement is a welcome development in the U.S. market, which trails more mature P3 markets such as Canada and the United Kingdom in effectively leveraging the P3 delivery model, despite our enormous infrastructure deficit.  The MAP-21 requirement for P3 assessment is an excellent first step in mainstreaming P3 as a project delivery alternative.  By requiring a preliminary P3 screen for major Federal-aid projects, it will hopefully help bring to market projects that would have either cost more (when taking into consideration lifecycle costs) or taken longer to complete, or would not have been undertaken using traditional procurement methods.

By way of comparison, jurisdictions within Canada have long applied mandatory P3 screens to potential infrastructure projects.  In British Columbia, one of the most active P3 jurisdictions within Canada, consideration of P3 suitability is mandatory for all projects having a minimum capital cost of $50 million.  At the federal level, the P3 screen is applied to projects of $100 million or more.  Municipalities, the newest front for P3s in Canada, are encouraged to undertake a P3 assessment early in the decision-making process to identify projects suitable for P3 development, and some have adopted formal P3 policies (e.g., City of Edmonton has a mandatory P3 screen for complex projects of CAD$30 million or more).  That P3 screens have been applied for years and are being expanded in application is a testament to Canadian faith in the P3 model.   Its use has contributed to the robust P3 pipeline and timely addressing of infrastructure needs in Canada, a large percentage of which could not be addressed in the absence of the P3 delivery model.
While a mandatory P3 assessment for major Federal-aid projects is not a panacea for addressing infrastructure needs in the U.S., it is arguably an important step in raising the collective awareness, consideration and appreciation of P3s at a national level, and should encourage more States and public authorities to examine P3 as a valuable project delivery alternative where appropriate. 

Further Guidance Needed

The interim guidance is relatively brief and does not contain guidance regarding details such as whether the TIFIA application/oversight, if applicable, would meet the Major Projects Financial Plan requirements.  FHWA is in the process of developing formal revisions to its guidance documents, which presumably will provide further clarity and information.

Fred Kessler co-authored this entry.

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FHWA Levels Playing Field for P3 Availability Payment Concessions

Hot on the heels of the financial close of the Presidio Parkway, the first California transportation public-private partnership (“P3”) availability payment deal and only the fourth in the United States, Federal Highway Administration’s (“FHWA”) Office of Innovative Program Delivery has issued guidance regarding the eligibility of periodic availability payments for reimbursement from federal aid funds.  Federal-Aid Funding and Availability Payments

Recognizing that availability payment concessions can offer the benefits of enhanced performance and project cost savings, FHWA will allow a portion of the state's availability payments to be reimbursed from Title 23 funds even though the state is not directly paying for the cost of construction and major maintenance.  Also, FHWA acknowledges that a component of the availability payment is profit to the private developer as consideration for taking on many of the project risks associated with project completion and life cycle costs over the 30-35 year term of a typical availability payment contract. 

Even though the availability payment is viewed as a "unitary" payment, FHWA will look into the developer's financial model to subtract those costs that are not eligible for reimbursement (regular operations and maintenance as well as TIFIA loan repayments if TIFIA is used) over the term of the concession and arrive at a formula upfront for calculating the eligible portion of the annual availability payment throughout the term of the concession.  State DOT's will now be able to consider the use of availability payment contracts vs. traditional project delivery methods without sacrificing their ability to use federal aid funds.
A groundbreaking project for a number of reasons, the Presidio Parkway served as the model for FHWA in developing a form of project agreement between the feds and the state, which acknowledges this approach to using federal funds to reimburse availability payments.

Get Smart Part II: If Managed Lanes Can Work in the South, Why Not the North?

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.

Get Smart: How Three Transportation Agencies Are Using Managed Lanes to Reduce Congestion

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.

FHWA Extends TIFIA LOI Deadline; Tolling/Pricing Counts Toward "Sustainability"


FHWA has extended the deadline for FY2011 TIFIA Letters of Interest (LOI) to March 1, 2011. The previous Notice of Funding Availability (NOFA), issued on January 19, had allowed less than a month for interested applicants to prepare and submit LOIs. 

The January 25 revised NOFA included a new phrase addressing the role of tolling and pricing programs in enhancing environmental sustainability. Under the revised selection criteria, applicants can demonstrate that their projects help preserve and protect the environment through “the use of tolling or pricing structures to reduce or manage high levels of congestion on highway facilities and encourage the use of alternative transportation options.” 

This new tweak to the TIFIA selection criteria may indicate the Administration’s acceptance of pricing as a gateway to “greener” highways.   FHWA has found that managed lanes, which set tolls according to traffic demand, provide environmental benefits: “By reducing the number of vehicles traveling on the road and by smoothing traffic flow and maintaining freeway speeds, managed lanes help to reduce air pollution and may also contribute to a decrease in greenhouse-gas emissions.

There is still no indication of how much funding will be available for TIFIA in FY2011, so this may not be the last revision to the NOFA. FHWA also intends revise/replace the August 2010 template, and will likely update the template language on environmental sustainability.

FHWA Rules Opt for a Gradual Approach to Achieving Nationwide Interoperability for Toll Collection

On October 8, 2009, FHWA issued electronic toll collection rules in response to a 2005 SAFTEA-LU law, which in all respects reiterate the status quo for the tolling industry and provide no guidance or standards with respect to SAFTEA-LU’s goal of progressing towards a nationwide interoperable electronic toll collection system.

With regard to interoperability, Section 950.7 of the rules require the tolling agency to identify: (i) the projected users of the facility; (ii) the predominant electronic toll collection systems likely utilized by users of the facility; and (iii) the non-cash electronic technology likely to be in use for the next 5 years in that area, including a requirement that the tolling agency demonstrate that “the selected toll collection system and technology achieves the highest reasonable degree of interoperability with both technology currently in use at other existing toll facilities and with technology likely to be in use at toll facilities within the next five years in that area.” 

All of these requirements specifically focus on existing and local interoperability, but do not require a specific standard for nor set a specific path to achieving national interoperability. The comments that FHWA received in response to the Notice of Proposed Rulemaking suggested that setting a specific interoperability standard would be premature pending changes made possible with wide scale adoption of 5.9 GHz technology. Moreover, the response to comments also made clear that there was no clear consensus around what standards national interoperability should be built. Thus, FHWA adopted a rule that essentially maintained and encouraged existing trends toward achieving regional interoperability, and provided for reasonable opportunities for motorists outside of particular toll systems to pay tolls through alternative means. 

Hence, the “interoperability requirements” set forth in these rules have long been the industry standard in developing tolling collection systems. Well before these rules were promulgated, tolling agencies have spent considerable time and money researching these identical factors in developing toll collection systems. Without any federal rules requiring toll agencies to move towards a nationwide interoperable system, toll agencies will likely continue to focus its efforts on developing toll collection systems that are generally accepted and used in the local area, which is entirely acceptable under these newly promulgated federal rules.

FHWA signaled its intent to address interoperability again as new technologies come on line and if the demand to true interoperability increases.