Non-competition ("non-compete") clauses represent one of the most difficult issues when negotiating PPPs. A private company, quite naturally, wants some assurance that after it has spent hundreds of millions of dollars in capital expenditures to construct a road, the state will not subsequently destroy its hope of positive financial return by building a non-tolled parallel highway that will siphon off the expected traffic. 119
On the other hand, the public has a legitimate concern that a public monopoly - namely what is often the only thoroughfare through a certain area - will be replaced by a private monopoly with the added disadvantage that the private monopoly will remain outside the accountability to elected officials and concerned local citizens.
Currently, Texas has prohibited direct non-competition clauses, but has provided for the compensation of private participants in a CDA for the loss of toll revenues due to unanticipated competing projects within four miles of the CDA project's centerline.120 The law excludes from this provision projects that are contained in a state or Metropolitan Planning Organization ("MPO") long-range transportation plan, improvements necessary for safety, exclusive HOV lanes and work required by any environmental regulatory agency. The private participant has the burden of proving lost toll revenue.121
It is important to note that non-competition clauses are not unique to PPPs, and that such clauses are often used in the public sector as well, such as SH130, Sections 1-4.
Direct non-competes in Texas do not appear problematic, as most MPO transportation plans run 20-30 years into the future. Most foreseeable competitive development is thus excluded from PPP non-competition provisions.
Of more concern, however, are the myriad ways the state could indirectly channel traffic onto a toll road. Means found elsewhere include lowering speed limits on the "free" road, altering the timing of traffic signals to discourage users of frontage roads and side streets, reconfiguring surface streets to make them less convenient for through motorists, and closing lanes for "maintenance" on alternative routes.
Solutions would involve the toll road offering higher value for money than the "free" alternative. For instance, the SH130, Segments 5&6 contract contain provisions for 80 mph speed limits, vs. the existing maximum of 70 mph for the parallel I-35.
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119 T&R forecasts are inaccurate enough without the state adding to a project's risk. The lack of any competition limits adds an additional layer of uncertainty, leading to the private company requiring higher internal hurdle rates or discounting cash flow projections at a higher rate, leading to lower overall project valuations.
120 See Transportation Code, §371.103 Prohibition Against Limiting or Prohibiting Construction of Transportation
Projects.
121 Ibid.