There are a number of legal requirements to PPPs that arise out of federal law. This is largely attributable to the significant role that federal funding has played in U.S. highway development since the 1950s and the his torical use of the design-bid-build method of procurement in federal-aid highway projects. As noted above, the Federal-Aid Highway Act and Highway Revenue Act of 1956,91 which authorized the creation of the Interstate Highway System pursuant to President Eisenhower's vision of a coordinated network of free high-ways providing dependable and efficient mobility routes for goods and people across the country, established a statutory and institutional framework for federal funding of road development that remains largely in place today.
Federal highways laws impose a general prohibition on using federal-aid highway money for toll roads.92 Federal participation is permitted in 1) the construction or reconstruction of a toll highway that is not part of the Interstate System, 2) the reconstruction of a toll highway that is part of the Interstate System, 3) the conversion of a bridge or tunnel to a toll facility, and 4) the conversion of a toll-free federal-aid highway not part of the Interstate System to a toll facility. However, FHWA is prohibited from allowing federal participation in the initial construction of a toll highway, or in the conversion of an existing free highway into a toll facility as part of a reconstruction project that is part of the Interstate System. This general prohibition on tolling Interstate highways is a significant limitation on the ability of state and local governments to explore innovative financing methods for developing and improving highway assets.93
These exceptions are contingent on several other requirements that could restrict innovative contracting or financing solutions. For example, a private entity may own a facility that with FHWA approval can be financed with federal funds as long as the public authority remains responsible for complying with all federal requirements that apply to the facility.94 In addition, the public and private entities must agree that "all toll revenues received from operation of the toll facility will be used first for debt service, for reasonable return on investment of any person financing the project, and for the costs necessary for the proper operation and maintenance of the toll facility."95 Any revenues collected by the state in excess of these uses may be applied to other projects eligible for assistance.96
In addition to this impediment to the use of federal monies for certain toll facilities, federal highway law contains a number of requirements that reflect the historical use of design-bid-build procurement on FHWA-sponsored projects. In traditional federal-aid highway construction contracting, cost is generally the one criterion that determines the winning bid. Highway construction contracts generally are awarded competitively to the lowest responsive bidder.97 A state using federal-aid highway funds must use such competitive bidding procedures unless it can demonstrate to FHWA that some other method is more cost effective or required because of an emergency. In addition, engineering service contracts are awarded using qualifications-based selection procedures (instead of best-value procurement).98 Innovative contracting techniques that consider factors other than cost (such as quality, delivery time, road user impacts, life-cycle costs, innovative construction and management techniques, and the use of innovative technologies) require legislative exceptions in the awarding of highway construction contracts. Finally, there are various Buy America requirements under state and federal laws that could be viewed as a legal impediment by the private sector because it limits their ability to source materials from all qualified and cost-competitive suppliers. As a general matter, the use of any federal funds or other assistance (such as TIFIA financing or private activity bonds) on a highway project will trigger the application of federal Buy America requirements. The Federal Buy America statute man-dates that all steel and iron used in such projects be produced in the United States unless FHWA grants a waiver because such materials and products are not produced in the United States in sufficient and reasonably available quantities, such materials and products are not produced in the United States of a satisfactory quality, or the inclusion of domestic material will increase overall project cost by more than 25 percent.99
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91 84 Pub. L. No. 627, 70 Stat. 374 (June 29, 1956).
92 The general prohibition set forth in 23 U.S.C. § 301 specifies that, except as provided in 23 U.S.C. § 129, all highways constructed with federal assistance "shall be free from tolls of all kinds."
93 23 U.S.C. § 129.
94 Id.
95 23 U.S.C. § 129(a)(3). If the relevant state certifies annually that the tolled facility is being adequately maintained, the state may use any toll revenues in excess of the amount required under § 129(a)(3) for any purpose for which federal funds may be obligated by a state under Title 23.
96 Id.
97 23 U.S.C. § 112(b)(1).
98 23 U.S.C. § 112(b)(2).
99 See 23 C.F.R. § 635.410(b).