Texas is considered to be among the leaders in using PPPs for new transportation capacity and capital improvements, in large part because of the many projects that the Texas Department of Transportation ("TxDOT") is in the process of procuring.39 TxDOT began procuring PPP projects six years ago. In 2002, TxDOT entered into a Design-Build agreement (TxDOT refers to PPP/concession agreements as "Comprehensive Development Agreements" or "CDAs") with a consortium made up of Fluor Corporation, Balfour Beatty Construction and T.J. Lambrecht for the approximately $1.5 billion Central Texas Turnpike (SH-130) toll road project. In 2004, TxDOT entered into a Design-Build CDA with Zachry Construction Corporation for the $167 million SH-45 East toll road project. After executing these two Design-Build CDAs, TxDOT turned to long-term, concession-based PPPs for the design, construction, financing, operation and maintenance of new capacity and capital improvements, including the landmark Trans-Texas Corridor ("TTC") projects.
The TTC is a proposed network of super-highway corridors in Texas that could include separate lanes for passenger vehicles and large trucks, freight and high-speed commuter railways, infrastructure for water lines, and oil and gas pipelines, and transmission lines for electricity, broadband and other telecommunications services.40 Specific corridors will be determined in line with Texas' transportation priorities and will be completed over the next 50 years. While TxDOT will oversee planning, construction and ongoing maintenance, two of the guiding principles for the TTC are: (i) "The Trans-Texas Corridor must be built with public/private partnerships in order to minimize costs to taxpayers," and (ii) "Government does not have all the answers to the transportation challenges facing Texas and needs the innovation of the private sector."41 TTC facilities will be delivered using innovative, long-term, concession-based PPPs which include significant private sector responsibility for design, construction, financing, operation and maintenance of the facilities.
On March 11, 2005, TxDOT signed a CDA for the first TTC corridor, TTC-35, with a private consortium made up of Cintra and Zachry Construction Corporation (the "CZ Consortium"). The TTC-35 corridor is a proposed tolled highway running more than 600 miles from the Oklahoma border through Dallas, Austin and San Antonio to Mexico or the Gulf Coast, depending on final alignment. The proposal submitted by the CZ Consortium specified that it would invest $6 billion to design, construct and operate for up to 50 years the portion of TTC-35 between Dallas and San Antonio and that it would make a payment of approximately $1.2 billion to TxDOT for the right to build and operate this segment as a toll facility.
The CDA required the CZ Consortium to produce a $3.5 million master development and financial plan. The CDA also provides the framework for the CZ Consortium to collaborate with TxDOT for the planning of a combination of facilities making up the TTC-35 corridor, and to be responsible for some or all of the development, design, construction, financing, operation and/or maintenance of such facilities. The corridor is to be built in segments and the CDA specified that before any individual segment of the corridor proceeds to development, a "Facility Agreement" would need to be entered into with TxDOT for that particular segment.
The first Facility Agreement entered into by TxDOT for the TTC-35 corridor granted the CZ Consortium a 50-year concession to design, build, finance, operate and maintain Segments 5 & 6 of SH-130. The $1.36 billion, 40-mile project provides two segments of SH-130, an alternative route between San Antonio and Austin, and is a critical connecting facility of the TTC-35 corridor. The deal included a $25.8 million upfront concession payment from the CZ Consortium to pay for other projects in the region and a revenue sharing provision pursuant to which Texas will receive a yearly share in the toll revenues. As discussed in Section IV(D), the project's financing, which includes private equity and a senior bank debt facility, also includes a $430 million secured loan from the USDOT's TIFIA program. The project reached financial close in March 2008 and demonstrates the private sector's readiness to invest in U.S. transportation infrastructure, including major capacity improvements.
The second TTC corridor being developed is the I-69/TTC corridor running approximately 650 miles from the Texarkana/Shreveport area in northeast Texas through Houston to Mexico. A competitive bidding process was launched by TxDOT for this corridor on April 7, 2006, and two private sector teams were shortlisted to compete on September 28, 2006. On June 26, 2008, TxDOT announced that it had selected a consortium of Zachry American Infrastructure and ACS Infrastructure for the project. As with the TTC-35 corridor, the CDA for this corridor will require the consortium to develop a master development plan and master financial plan for the corridor and will include the right of first negotiation for the consortium to perform work on certain projects. US-77 in the southern portion of the corridor will be the first facility to be developed under the CDA pursuant to a separate Facility Agreement.
TxDOT intends to develop the I-69/TTC corridor using existing highway facilities wherever possible, including US-59, US-77, US-281 and SH-44. TxDOT indicated that the preliminary basis for this decision was its review of nearly 28,000 public comments submitted in connection with the environmental process. This decision is consistent with guiding principles recently adopted by the Texas Transportation Commission, which also reaffirmed that only new lanes added to an existing highway will be tolled. The consortium plans to coordinate with local authorities along the corridor to develop new toll roads to help finance the work required to develop the existing portions of the I-69/TTC corridor to interstate standards.42
In addition to the TTC corridors, several additional projects for which TxDOT is considering PPPs are at various stages of procurement. These projects demonstrate TxDOT's commitment to PPPs as a preferred approach to project funding and procurement.
1. I-635 Managed Lanes: Construct, operate and maintain a corridor of tolled managed lanes from east of Luna Road to north of I-30 in the Dallas-Fort Worth area through a concession-based PPP.
2. North Tarrant Express: Design, construct, finance, operate and maintain tolled managed lanes, general purpose lanes and related facilities in North Tarrant County through a concession-based PPP.
3. DFW Connector: Develop, design and construct (and at TxDOT's sole option maintain) tolled managed lanes on the SH-114/SH-121 corridor in the Dallas-Fort Worth area.
While these PPPs are moving forward, the enthusiasm for PPPs in Texas has been tested recently by two separate occurrences. The first, which is discussed in more detail in Section IV(C), was legislation passed in June 2007 that, among other things, (i) gives local authorities additional rights to develop toll roads before they can be procured as PPPs, and (ii) enacts a two-year moratorium on developing new PPP projects (the projects that were already identified for procurement as PPPs were exempted from the moratorium). The second occurrence was the cancelled PPP procurement for the SH-121 project.
Upon completion, the SH-121 project will be a 25.9-mile, all electronic toll road in Collin, Dallas, and Denton counties. In August 2006, despite previously having expressed interest in participating, the North Texas Tollway Authority ("NTTA", a public tollway authority serving the Dallas-Fort Worth area) signed an agreement that it would not bid on the SH-121 project, which was being procured as a PPP by TxDOT. Nevertheless, following TxDOT's approval of a private proposal worth more than $5 billion submitted by a consortium made up of Cintra and JP Morgan Asset Management, the Texas State Legislature enacted legislation directing TxDOT to waive the existing agreement with NTTA and allow the public authority to submit a competing proposal for the SH-121 project. In June 2007, the Texas Transportation Commission, acting at the recommendation of the Regional Transportation Council ("RTC"), approved the award of the SH-121 project to NTTA instead of the competitively selected private consortium.
Following the award to NTTA, the Federal Highway Administration ("FHWA") sent a letter to TxDOT advising them that this procurement process violated two Federal laws.43 First, allowing NTTA to submit a proposal after the selection process had been completed was a violation of the Federal requirement to conduct a fair and open competitive process. Having had the benefit of analyzing the Cintra-led consortium's publicly disclosed submission the NTTA was given an unfair advantage in the procurement process. Second, Federal regulations specifically prohibit a public entity, such as the NTTA, from bidding against a private entity. While TxDOT and FHWA subsequently agreed to a resolution of these violations whereby TxDOT cancelled the procurement and its approval of the RTC recommendation44 , the SH-121 procurement process raised concerns about the integrity of TxDOT's PPP procurement process. When introducing private sector involvement in transportation projects through PPPs, state and local entities need to be vigilant to ensure that the procurement process is, and is perceived to be, fair and competitive.
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39 DOT's PPP website is: http://www.dot.state.tx.us/services/texas_turnpike_authority/pub_priv_ partnerships.htm (last visited July 7, 2008)
40 The TTC website is: http://ttc.keeptexasmoving.com/default.aspx (last visited July 7, 2008)
41 The TTC website, at: http://ttc.keeptexasmoving.com/about/guiding_principles.aspx (last visited July 7, 2008)
42 Transportation Commission Picks Developer for Texas Portion of I-69, Press Release, Texas Department of Transportation, June 26, 2008
43 Letter from J. Richard Capka, Administrator of FHWA, to Michael W. Behrens, P.E., Executive Director of TxDOT, dated August 16, 2007.
44 See letter from Janice W. Brown, Division Administrator, to Amadeo Saenz, Jr., P.E., Assistant Executive Director of TxDOT, dated August 21, 2007.