Non-compete clauses limit improvements the public partner can make to nearby facilities so that demand for the PPP facility is not eroded. A more appropriate name for such clauses may often be "limited compete" if they do not ban improvements outright, but contain negotiated provisions for remedies. By limiting competition, the up-front value of a concession would increase; therefore, this becomes a trade-off consideration for decision makers.
Non-compete clauses are often cited by PPP critics, who object to tying the hands of government to deliver needed transportation improvements, and most states in our state DOT survey agreed that this is an important concern. The most-cited example of the dangers of non-compete clauses in the United States is California's SR-91. In the non-compete clause, the California DOT agreed not to make improvements within one-and-a-half miles of the HOT lanes on SR-91 without consulting the private operator, California Private Transportation Company (CPTC). In 1999, when the California DOT sought to add merging lanes to the existing free lanes for safety reasons, the CPTC objected. This objection raised public opposition and ultimately led to a lawsuit seeking nullification of the non-compete clause. In 2003, the Orange County Transportation Authority purchased the toll lanes from CPTC for $207.5 million and the non-compete clause was eliminated (U.S.DOT 2004; Subcommittee on Highways and Transit, House Transportation and Infrastructure Committee 2007a).
Other instances have been cited in Australia where the public sector has been unable to improve toll-free routes owing to similar agreements. In 2006, one concessionaire convinced the local government to close several competing local roads to through traffic to force drivers to use the tolled facilities, which were lagging traffic and revenue expectations (AECOM 2007a).
As a direct result of such cases, Congressmen Oberstar and DeFazio (2007) suggested avoiding non-compete clauses alto-gether. The 2005 federal SAFETEA-LU transportation law Section 1604(c) bars states from including such non-compete agreements for the Interstate System Construction Toll Pilot Program (Regional Plan Association 2007). Samuel (2007) agrees that earlier approaches such as SR-91 were flawed, but asserts that non-compete agreements are necessary in some situations to protect private partners from unfair competition arising from government subsidies. Most recent agreements include "limited-compete" clauses, generally allowing public partners to build everything in its current long-range transportation plan. Future roadways a state might build that are not in its existing plan and that do fall within a narrowly defined competition zone, may be compensated for using a formula for any damage done to toll revenues.
Recent deals have included such limited-compete clauses. For example:
• The Pocahontas Parkway includes a 6 mile non-compete zone, whereas the Indiana Toll Road agreement defines a 10 mile competition zone in which the state could provide compensation for projected loss revenues from building a new four-lane limited access highway, but can build anything else along the corridor (Buxbaum and Ortiz 2007; Samuel 2007).
• Denver's Northwest Parkway concession agreement requires the public authority to compensate the concessionaire if road or transit projects not already planned are built in the corridor and cause a loss in revenue. If the authority cannot pay, the concessionaire may keep revenue sharing money, increase tolls beyond set limits, or extend the lease ("Northwest Parkway Set to Close in October" 2007).
• The concession agreement for the CityLink in Melbourne, Australia, allows for compensation if a new project takes away traffic from the facility, either through cash or contract extension. Transurban has filed a $36 million claim for the construction of the Wurundjeri Way, and is contemplating filing another claim if the government proceeds to build a new east west toll tunnel (Millar 2007).
The Chicago Skyway agreement is the exception in which no "non-compete" clauses were included in the lease agreement. However, the urban nature of the corridor makes it very difficult and costly for the public sector to make capacity improvements on parallel, competing facilities (Samuel 2005).
Contract terms also regulate the roles of the public and private sectors as a result of unanticipated events. For example, in Portugal, concessionaires are compensated for revenue losses owing to "force majeure" (Izquierdo and Vassallo 2004).