January 16, 2013
In the Matter of:
MODEL P-3 CONTRACTS
Pages: 1 through 144
Place: Washington, D.C.
Date: January 16, 2013
IN THE FEDERAL HIGHWAY ADMINISTRATION
Department of Transportation
1200 New York Avenue, S.E. Washington, D.C.
The meeting commenced, pursuant to notice, at 12:06 p.m. , before the Federal Highway Administration, Regina McElroy, Director, presiding.
Director of Legislative Affairs
Owner-Operator Independent Drivers Association
The Surety & Fidelity Association of America
RBC Capital Markets
Project Finance Manager
Booz Allen Hamilton
University of Maryland
Senior Director, Highway and Transportation
AGC of America
Deputy Policy Director
Transportation of America
Program Director, Energy and Transportation
National Governors Association
Center for Best Practices
Transportation for America
Counsel/Director of Underwriting
The Surety & Fidelity Association of America
Booz Allen Hamilton
Chadbourne & Parke LLP
Virginia Department of Transportation
Allen & Overy LLP
Chadbourne & Parke LLP
Associate Dean for Research
George Mason University
Manager, Business Development
Freshfields Bruckhaus Deringer US LLP
Baker Botts LLP
USDOT Volpe Center
Infrastructure Management Group, Inc. (IMG)
RebelGroup Advisory bv
Infrastructure Management Group
High Street Consulting Group
Allen & Overy LLP
National Conference of State Legislatures
Counselor to the Deputy Administrator
Environmental Protection Agency
The World Bank
USDOT Volpe Center
Orrick Herrington & Sutcliffe
Ernst & Young LLC
McCann Capital Advocates
USDOT Volpe Center
Ernst & Young LLC
SETH MILLER GABRIEL
P-3 Project Manager
Assistant Secretary, DOT
Counsel and Staff Director
Fulbright & Fulbright L.L.P.
Public Works Financing
Vice President, Strategic Initiatives
PCL Construction Enterprises, Inc.
Senior Research Assistant
The Brookings Institution
USDOT Volpe Center
George Washington University
McCann Capitol Advocates
State Innovative Program Delivery Engineer
Universidad Politecnica de Madrid
Evans & Peck
Managing Director, P-3 Division
Private Sector Liaison
Federal Transit Administration
ING Capital LLC
Manager, Contract Innovations Office
Ontario Ministry of Transportation
(12:06 p.m. )
MS. MCELROY: Okay. Thank you very much. I was just commenting that the acoustics in here reminds me of church and I'm looking at the front tables here and nobody is sitting in the front just like church. Anyway, I want to say thank you very much for coming to our P-3 listening session. Welcome. Everybody hear me okay? Anybody hearing me too much? Okay, we're good.
My name is Regina McElroy and I am the Director of the Office of Innovative Program Delivery in the Federal Highway Administration. And my office is charged with developing Model P-3 contracts, those contracts that we're going to be talking about today. We have about 100 people here, I think a really good turnout and I think it speaks to the importance of this effort and certainly the interest in this effort.
As you know, Congress directed us via Map 21 to develop standard public-private partnership transaction models. The good news is that other than saying that we should encourage their ultimate use, Congress didn't tell us anything more about what we need to do with these contracts. So what that means is that we have the ability to kind of shape the look and feel of these templates and that's very much where you guys come in.
This is our first effort to solicit input. We're doing this listening session. We also opened a public docket that will stay open for a number of months and we encourage you all to write to the docket as well. So I'm very happy you're here and it's going to be enormously helpful to us to hear your comments, so that we can do a good job on developing these templates and that they can be templates that are actually used and valued.
I have a little bit more to say about this; but before I really get started, I want to introduce Beth Osborne. Beth has graciously accepted our invitation to provide a few opening remarks. Beth is the Department's Deputy Assistant Secretary for Transportation Policy. She started with USDOT in 2009 and I tell you, she has been very, very busy since the first day that she arrived. She has overseen the implementation of TIGER, a huge, huge job, and she supported the Secretary's livability initiative. And right now she is at the lead for MAP 21 implementation.
So let me ask Beth to step up and give us a few opening comments. And again thank you for coming.
MS. OSBORNE: I'm glad everybody is here today. This is a good room. I'm really excited to be here and we at the Department are excited about the growing use of P-3s. State and local leaders around the country are spearheading efforts to bring P-3 into their toolkit in terms of delivery projects and data as a use of delivery method.
At the federal level, we are trying to come up with ways to be more helpful in this. We are trying to utilize our tools to a greater extent to support those efforts and encourage them where possible. And we are very excited particularly at these difficult funding times to see their growing use. We know that it's going to be essential to delivering particularly large and important projects.
We also recognize the benefit, and we've seen it in TIGER. We've seen -- we're allowed to do more innovative financing through TIGER, as well, and we've seen the P-3s spur innovation through a competitive procurement process. We see that it accelerates project delivery and reduces project costs. We see that it promotes efficient and effective decision-making process. These are all things we would like to see become more of a regular part of DOT's processes.
But we also recognize that there are challenges here, especially for those that don't have a lot of experience in this area. P-3s have to be well structured to balance risk and responsibilities between the public and the private sector. They also need to deliver value in comparison to traditional public approaches to funding, and delivery. And finally they need to target public sector objectives.
And on those last two, comparing the benefits with regard to a P-3 versus traditional project delivery methods, you can look at it in terms of justifying the actual transaction and what it's going to cost, which saves the state more money. But I think that analysis has to include some of the other structural challenges for those states particularly that might be new to this or institutions that might be new to this. There is the institutional expertise that needs to be developed, but there's also the communications with the public at large.
I used to work for a Senator from Delaware and I saw what happened when a P-3 was not properly communicated to the public and was not made clear to them what are the public sector benefits of a project. And it doesn't matter how good your numbers are if you haven't done that part right. And so doing all three of those aspects and managing that properly is really key to getting this done well.
Map 21, our authorization bill which is dominating all of our lives here at DOT, has charged us with compiling best practices for P-3 and as Regina just mentioned, developing model contracts for the most popular types of P-3s. As with our broader Map 21 outreach, we want this outreach to be extensive and broad. We want to bring people from the public and private sectors, from developers and operators, from lenders, from equity investors, from technical and financial and legal advisors, and labor all into a room together, separately, every way you can imagine, in order to extract as much information from you all and from your experience as we can.
We also want to make sure that we produce materials that are useful to our customers, state and local governments, no matter where they are in the P-3 process, whether are you a state that has a very sophisticated program and has several already under way, or whether you're a state that's taking the first steps into the process. So part of what we would like to hear today is how can we be all things to all people, I suppose.
Anyway, we're very glad to have you here today. We're looking forward to what you have to tell us and look forward to working with you as this process moves forward. Thanks.
MS. MCELROY: Thank you, Beth, appreciate it. Got off us to a good start here. Okay. So what I want to do now is to go over the goals for this session, walk through the format for this afternoon, and then go over just a few logistical details.
So as I indicated earlier, this is an assignment that we received from Congress. And let me ask for the next slide, and let me just walk through what Congress has asked us to do.
First of all, you see that we have to have our work completed by the end of this year, in December of this year. This is a very, very big task to do in a very short period of time.
Second, you will note that we are charged with developing standard P-3 transaction model contracts for the most popular types of public-private partnerships for the development, financing, construction, and operation transportation facilities.
And finally the language calls for us to encourage state's public transportation agencies and other public officials to use the model contracts as a base template when developing their own P-3 agreements.
So next slide. So what you can see here is, as I said earlier, is there is considerable room to define what these templates will look like. And frankly there's considerable space to figure out how they should be used, what purpose they should serve. For instance, should they be more educational or more prescriptive. These are important considerations, but important questions that Congress has not given us to answer to. And that's very much what we're looking for from you. We're looking for your thoughts.
So what we're going to do is we're going to walk through that agenda. What we're going to start with is the format of the contract. And again this is where we're going to get into so what's the purpose, how do you think that these contracts will be used. We have the given that we're going to have contracts. And then the next question is, so how are they going to be used.
So we'll spend some time talking about that, as a matter of fact 45 minutes. And then we're going to talk about the scope of the templates and that is in general, what should be included in these templates. Once we finish that conversation, what we want to do is to talk about the specifics, the specific provisions that should be included in the templates.
And then finally we want your input on what sorts of transactions we should start with when we're developing these templates. You know, there's a lot of ways you can kind of slice and dice this exercise. Should we look at types of facilities? Should we look at types of concessions? And that's again -- we're looking for your input on that.
So what we're going to do is we're going to have Deborah Brown-Davis, who is sitting her, tee up each subject. She's going to ask a few questions. By all means these are not all inclusive. Again, we're looking to you for a whole lot of thinking on these points. And then we'll have 45 minutes of discussion and then we'll just walk right on through that agenda.
So Deborah has been with Federal Highway for a number of years now and she's leading the team that's responsible for public-private partnerships in Federal Highway. She came to us immediately before this assignment from the Virginia Department of Transportation, where she was a very key player in the Capitol Beltway Hotlinks project. And of course this was one -- it was the first P-3 in Virginia and one of the early P-3s in the country.
Now there are going to be three of us kind of roaming around the room: myself, Mark Sullivan, and Jake Falk, who is back there. We're all going to have microphones. You won't have to get up and go -- pardon me -- oh, I'm listening to the people behind me -- we're all going to have microphones and you won't have to get up out of your seats, just raise your hand and there we will be.
So let me introduce Jake a little bit. He's the Director of the Office of Infrastructure Finance and Innovation in the Office of the Secretary of Transportation. And he advises the Office of the Secretary on policy matters related to infrastructure finance and innovation, to include the Department's credit assistance programs, P-3s, and tolling and pricing.
Jake also plays a very key role in implementing the Department's TIGER program, something that occupied his time for a number of years, that he did a really great job on. And I think significantly for this effort, Jake came to DOT from the private sector, where he worked for Chadbourne, and in that capacity he negotiated a number of P-3 arrangements which today are considered to be truly groundbreaking.
So we're happy to have him. And I should say that Jake and Mark and myself are all going to feel free to ask follow-up questions and spur the conversation as necessary.
So Mark Sullivan again will also have a microphone. Mark is the Senior Advisor for the Office of Innovative Program Delivery. He has enormous experience with project finance and indeed served as head of the TIFIA program for a number of years. So we're happy to have him.
And a said, I too will have a mic. So again let me just underscore the ideas, raise your hand when you have something to say and we will be right there to help you say it.
Now my hope with this listening session is that you will hear very little from the USDOT folks in this room. We put this session together -- you know, we could have just said you're welcome to provide comments to the docket, but we didn't want to do that. We wanted to put a session together where we would literally encourage dialogue and encourage the exchange of good ideas. And what I'm hoping is that DJ will say something and somebody else will say to themselves, ah, that doesn't make sense or it does make sense, it gives me a good idea, and raise their hand and follow along on those lines.
So what we're hoping for is that we're very much the -- the USDOT folks are very much in the background. We're facilitating. We're not directing. And I think in that way we will get some good ideas.
And I also want to stress that we really do have a clean slate here. We're not going into this with a whole lot of preconceived notions. We've talked a lot about it back at the office and what we have -- the conclusion that we've come to is that this is a big difficult, challenging task. There's a lot of ways we could approach it. And so we're very excited and enthusiastic to hear from the folks in this audience as kind of our first effort of reach out.
Before I hand it off to Deborah, let me just say a few more things. First, regarding logistics, we're not going to have any formal breaks. We've got four hours, which seems like a really long time. But I don't think it will be when you look at the agenda and how it's broken out, so we didn't want to waste time on breaks. So feel free when you want to get up and take care of whatever, you can go back through that side and just keep walking and you'll restrooms on the lefthand side. So again it's up to you whenever you want to take a break. It won't hurt our feelings.
Second, I want to introduce Prabhat Diksit and I'm looking for Prabhat. There he is. He's got two hands up there in the back. Prabhat has done a fabulous job organizing this. Everything that you see here is a result of his efforts. He drafted the Federal Register notice and it will be Prabhat that leads this overall effort. So if you want to whisper in his ear at any point, by all means he's here and would love to hear your comments publicly obviously and privately as well. So he will be seeing this effort through.
And then I also want to introduce Patrick DeCorla-Souza. Patrick is also a member of Deborah's team and he serves as our P-3 project manager. I want to put in a plug for something. It's the only point that I'll deviate from our task here, but Patrick has been working very, very hard on a P-3 toolkit. He rolled it out at TRB. A number of elements are up on our website. I would certainly encourage you to Google us, Office of Innovative Program Delivery go straight to where we are. There's a lot of material there.
He put together an analytical tool that we're calling P-3 Value. And I think it's very consistent with what we're trying to do here today and that it's another effort that we have going on to help practitioners implement P-3s that are not only effective, but that are also done in the public interest. So Patrick is another resource and he would be interested to talk to you as well.
Finally, the folks from the Volpe Transportation System Center are sitting over there. If you have any logistical questions, you should ask them. Michael Kay, who just raised his hand. We also have Mirna, I guess, out in the front, and Kevin McDonald. Kevin?
FEMALE SPEAKER: He's back in the back.
MS. MCELROY: Okay. But anyway, they've done a great job setting this and there's just a lot of work that goes into putting this together.
And with that, I will turn it over to Deborah. And again, thank you for being here and I'm so looking forward to your comments.
MS. BROWN-DAVIS: Good afternoon. Just one other minor logistical thing, or maybe not so minor depending on where you're sitting, since we're going from noon to 4:00, I understand some people might get a little hungry. There's a kiosk right behind the curtain back there to the left, to my left, where you might be able to purchase something if you would like a snack before we wrap up.
Okay. As Regina said, I'm just going to introduce the topics. And the bullet points or the questions that you see here are again not indicative of the direction in which we're headed. They are just here in order to spur your thought processes. If you have something else that's not specifically addressed by a particular question, please feel free to add in your other thoughts related to the broad topic.
But we want to start off talking about the framework for what the model contracts should look like. Do you think we should be working towards developing fully flushed out model contracts with recommended language covering all the possible provisions that might be required in any P-3 agreement?
Or should we look towards focusing on recommended language for common provisions that where across the board there may be some commonality of approach or desired commonality of approach with only placeholders for some of the other provisions that are likely to vary widely?
Should we simply outline what the minimum provision should be in any contract and include a menu of options that might be chosen to address particular projects, sponsors, policy objectives or goals?
Also should there be any attachments that we look to develop, such as common definitions or performance measures? Maybe we should look towards simply a suggestive list of attachments that are likely to be needed in any agreement.
What about the proposal solicitation? Do you think we should even start that early in terms of packaging together -- you know, ultimately these P-3 agreements are comprised of volumes of documents several inches thick. So how much of that should we be looking to address? Or should we simply stick to the commercial terms agreement?
So with that, I'm going to open it up to questions. Again feel free to raise your hand. By the fact that your hand is not raised, we're not going to make that assumption that you don't have anything to say. We know many of you. We have no shame about calling on you. And I've told several of you about that in advance, so be ready.
MS. MCELROY: Okay. There's DJ. Thank you, DJ. There always has to be a first.
MR. GRIBBIN: Thank you, Regina and Deborah. Let me start by just thanking you for having this listening session. I think this is the type of issue that's very hard to do with formal written comments as part of a traditional docket procedure. And I think starting off the process by actually asking what do people think and having a dialogue around that makes a lot more sense. It's far more effective.
I guess I would start with just a question. Should we have a little conversation about the end goal of this? Because when I saw the language in the statute, I thought that's very helpful because one of the challenges that U.S. has in the P-3 industry is every P-3 transaction is bespoke. It's almost as if we just start with a blank sheet of paper every time and there's not a whole lot of reliance on precedent.
And so having represented -- having both representing governments and kind of on the bid side as well, from a government standpoint it's very hard when a government for the very first time is putting together a P-3 transaction to try to understand what is commercial, what is a good deal, what makes sense, and how do we end up with an agreement that really is a good deal for our taxpayers and our citizens. So I think as part of this exercise, it would be very helpful to have less very specific contract language and more sort of like a term sheet approach with general provisions, and then help explain why some of those provisions are in the agreement and maybe a little more of a spread.
But I don't know what it is that you're aiming for, for an end document. But if the process ends with something that states could use as a tool to determine what the spectrum is, that would be very helpful.
MS. MCELROY: Let me say, and this is a good opportunity for me to underscore something, we don't have an aim right now. That's why you're here. We're trying to understand would it be better to have -- and what I hear you say is almost more of an educational document and I've seen some agreement here. You're next to talk, so I want you to think of what you want to say. So we can have kind of an educational tool or we could have something more prescriptive.
I do think that there are some tradeoffs. One, obviously there's benefit to having kind of an educational approach and I think DJ articulated that well. But on the other hand, there might be a benefit to having some standardization. It might be easier for concessionaires to deal with us. That's been a longstanding complaint. Fifty states, 50 new whatevers, you know, and that's a problem. And it might provide almost some cover and comfort for the states that are entering into these, to kind of have a good housekeeping seal of approval on something. So something to, you know -- those tradeoffs I think are worthwhile considering.
MR. WEBSTER: Thanks. Hank Webster from the American Road & Transportation Builders Association. I want to echo what DJ said. We did outreach to our members, you know, concessionaires, engineers, contractors, state officials, and one of the sort of main themes across the board was sort of a fear, not a terror, but a fear that, you know, what may start off as educational or encouragement to use, will result someday in, you know, prescription and, you know, tying to availability of funds or financing.
So I think, you know, more on the side of education will be great. I mean I think there is a lot of work to do to get some standardization, at least, you know, availability for states to be able to learn, you know, what provision should be in there, what other states have looked at, you know, sort of maybe the three best provisions from across different contracts, things like that.
But there was some fear of, you know, being locked into some things, particularly with the term "public protection. " You know, everybody wants to protect the public, but is that going to result in toll rate, caps, or, you know, you can't do things this way, you can't do things that way. We very much recognize that there is a government role still in the negotiation of these contracts, so we hope that's on the road to public protection enough.
But we were all very excited to see this in Map 21 and excited to see sort of going down the road of education on this issue because there is so much variety amongst the states.
MS. MCELROY: Thank you. Go ahead.
MR. CROOKS: Hi, if I may, Ed Crooks with Booz Allen. And I wanted to pick up I think on one of the comments, the last Steven was making, and that's -- I think I know the answer to this, but we ought to -- I would suggest that DOT be very, very clear that if a project sponsor uses one of these standard contract templates, it doesn't confer any special privileges to them with respect to access to federal credit assistance.
Now that's probably a question I think I know the answer to, but, you know, if in fact DOT was going to look say more favorably on applicant that used one of these standard contracts, in a TIFIA application or a RIFF application, then that changes the game dramatically. I don't think that's the case and we probably ought to be clear about that at the outset.
MS. MCELROY: Thank you. I think this gentleman was next, okay, and if you could introduce yourself?
MR. REIFFER: I'm Matt Reiffer with the American Council of Engineering Companies. To DJ's point about every P-3 being unique and starting sort of with a blank document, to that point, ACEC has a joint committee with ASCE and with NSPE, the professional engineers and the civil engineers, just developing and has developed joint contract documents on the role of engineers across the scope of all sorts of different projects. They've got a subcommittee that is currently developing model contracts for P-3s.
So I think there's a confluence there from that effort with our organizations and with this provision in the law and what DOT is doing. That subcommittee is meeting in February. They've been doing a lot of work already. But as that process continues, I want to be sure that our people are in touch with your people as it were. And I'll put that information into the docket in the record, so you've got all the appropriate contact information and who is who and who is doing what.
But from the engineering perspective, we are developing our own model contracts, so that the folks that are involved are starting with something when they sit down to negotiate with all the different parties that are involved. So I just want to make sure everybody is aware of that effort from ASCE and ACEC and others.
MS. MCELROY: Thank you. I wasn't aware of that and that is useful information. I appreciate that.
MR. FALK: One administrative notice, please hold the microphones close to your mouth because we're in an open room, to make sure everybody can hear. Thanks.
MS. MCELROY: Thank you, Jake.
MS. LEE: Hi. I'm Sue Lee from Ernst & Young. I just wanted to say one difficulty I think with getting too prescriptive and detailed with the contract form and responding to Deborah's question about procurement documents is that P-3 legislation isn't uniformed across the states. And so it would be really tough to try to enact a sample form of a contract that addresses all the variance in the actual legislation.
MR. FRAISER: Hi, I'm Drew Fraiser from Allen & Overy. I think, you know, our view on this is, is that this really -- I guess the overarching objective should be to produce something that will be of most value and to set off with an objective that can be achieved within your timeframe work. Because in the context of undertaking this sort of exercise, which is being done several times in different forums around the world, 12 months is actually not a very long period of time. It's actually a comparatively short period of time.
And so if you kind of take a step back and look at your question on the standardization versus education, I think as an opinion we would say as what we think encourages, is it better for one aspect of that and not of the other.
And I think on the standardization, our experience in the field right now and over the last few years is that where we would really -- projects would really benefit from standardization early is actually hearing from the Federal Government about what its requirements are for specific provisions where there's federal assistance for a project.
To be perfectly candid with you, far too many projects that are receiving federal assistance, particularly through the TIFIA program, are hearing about requirements, provisions that have to go into the contracts far too late, right, in the procurement process. So I think it would be beneficial if it's possible to standardize and actually articulate in a document what particular provisions do have to go into a contract if that project is receiving federal assistance. And my hope and belief and expectation would be that it doesn't morph into a contract in its entirety, which goes to Ed's point.
And if you then move outside of that, I think our strong recommendation would be that everything is about education. And the reason for that is that if you actually look at what's going on around the U.S. , actually -- and there's views as to whether it's a good or bad thing, but it's not that uncommon for the legal advisors, the attorneys to be brought on relatively late in the process or certainly later than the technical guys and the financial guys. And this is not a plea for state DOTs to bring lawyers on earlier in the process, but if you think about it, a contractual framework is one of the last pieces in the jigsaw really and rightly so that gets put together. What state DOTs or procuring authorities are trying to do needs to be flushed out and established before the contract is actually written.
And I think to just produce a contract is going to be a bit of a blunt instrument in terms of educating DOTs. To give an example, a little risk allocation that's set out in some of the contracts is predicated on an assumption that a certain amount of work has been done by a procuring authority in advance of releasing the contracts. And so the volume of information that you would have to give to procuring authorities to make the -- stand the contract credible would be so immense that you would certainly never achieve it in the timescale that you have.
But we think that there is endless assistance that you can give to public authorities in just educating authorities to walk these things in the steps they should be taking early on in the process that will facilitate an effective procurement.
MS. BROWN-DAVIS: Jake has someone in the back. But to your last comment, what Regina mentioned earlier with our P-3 value tools, I mean that ties in very nicely with our last suggestion. We are working very hard on developing a set of tools that gives the project sponsors a very thorough understanding of the rigorous process that should be undertaken when determining whether or not a project is appropriate for delivery via P-3. So thank you so much for saying that.
MS. MCELROY: And Deborah, you might want to also mention the work that Patrick is doing on -- it's really for our division offices, but we're developing a document that lays out all the federal requirements.
MS. BROWN-DAVIS: Exactly. Division offices in a lot of instances are coming to this process fairly new too and are asking what should I be doing, how should I be working with my states counterpart in helping to prepare a project for P-3 delivery. Federal requirements still apply, but the process and the order may be a little bit different because federal requirements were developed prior to anybody thinking about public-private partnerships as a delivery option. So we're working on that guide to better assist the states along the way in complying with the federal requirements.
MS. MCELROY: Thank you. Okay. Yes, sir?
MR. MATHEOU: Hi. My name is Mike Matheou. I'm with Hogan Lovells. Addressing your question as to whether you want complete contract or whether you want contract terms and how all that piece works, to my mind I think the first thing you need to do is step back and decide what is the risk allocation, what is the package that you've got to put together as an overall piece. And it comes to Andy's point concerning education and newbie state DOTs when they come to this and looking at it and understanding, you know, there's no free lunch and there is in very real terms retained risk for the public sector, as well as risk transferred to the private sector. Because drafting a number of contract terms as it were in isolation doesn't really make a lot of sense because one part of the contract is intimately related to another, and you push in one side and something pops out the other side.
So my suggestion would be first, you stand back and decide what the risk allocation is you need to achieve in your contract, picking up Andy's point, and give guidance to authorities where they've got to -- for example, if you're going to impose the risk of unforeseen ground conditions on the private sector, then they've got to have a reasonable amount of data that they can rely on as to what those ground conditions are, to take something that's completely obvious.
So identify the risk allocation, how you want to achieve it. And then having got that piece sorted out, then there will be some contract provisions that are definitely worth drafting, but you won't need to draft, for example, confidentiality clauses and nor would it be sensible to do so because state freedom of information legislation varies so widely, to take one example. So get the risk allocation, have that as something that's coherent, and contract drafting of particular clauses can slot into that overall picture.
MS. MCELROY: Okay, thank you.
MR. GILL: This is Matt Gill with Transurban. I think the goal of this should be to formalize and make available on a national scale what's already happening kind of on an ad hoc basis already. If you see that Pennsylvania is writing their legislation, setting up their P-3 office based on Virginia, or if you see that, you know, at Transurban, our '95 documentation was very similar or we borrowed heavily from the work that we had done on Capitol Beltway, you see the learning process is happening organically already. You see, you know, the western infrastructure exchange that California, Oregon, and Washington, B.C. is setting up, that's meant to share best practices. And I think this effort should be to kind of formalize that and bring it up to a national scale and make that more widely available versus, you know, one off efforts as they are today.
MS. MCELROY: So are you saying something more educational, more of a cafeteria menu approach
MR. GILL: I think it should be a shortened -- the goal should be to shorten the learning curve. I think standardization is kind of off the table because of the unique nature of these projects and the unique nature of the political jurisdictions. But if you were to say -- you know, if you were to go to Virginia or Texas or a state that's done this a lot of times and say here's now your model contract, they'd probably say, no thank you, we already know how we like to do it. And so I think the goal should be to bring others who want to join this market, you know, up to speed, so they don't spend a couple of years spinning their wheels on stuff that has already been established by the market players.
MS. MCELROY: Thank you.
MR. FALK: Thanks. And the general impression so far in the room is that this should be swinging more towards the educational side. Certainly if there's anybody who disagrees or thinks that the pendulum should be swinging more towards the standardization side, please feel free to let us know. We'd like to hear from you.
MS. MCELROY: You were thinking exactly what I was thinking. I was just fixing to ask that. And really if there's anybody that has a contrary view, we would like to hear that.
Do we have anybody from a state DOT in the room? Okay. If I could impose on one of you gentlemen to kind of give your perspective and where are you from?
MR. FARAJIAN: Virginia.
MS. MCELROY: Oh, Virginia. You're up there on the learning curve. And you?
MALE SPEAKER: (Away from microphone. )
MS. MCELROY: Okay. Okay, good. Well, do either one of you have anything that you'd like to contribute? And maybe tomorrow, if you'd wanted to weigh in because you've been in the mix -- tomorrow is working on the Ohio River Bridges Project and certainly to Kentucky and Indiana, that was a very new concept, very new approach. In fact, it's new for the country, the approach that they're taking. So I'll start with you.
MR. FARAJIAN: Well, thank you. Morteza Farajian from Virginia DOT. This year, as you know, we procured three P-3 projects: a midtown project in Hampton Road, we had I-95 express lanes, and finally we had Route 460 corridor improvements project. And one of the things that we learned is that even though we have three different P-3 projects, each one of them are different. One of them is a tunnel project, the other one is HOT lanes, and the other one is a greenfield project -- three different projects.
Something that I want to mention is that even though we have three different contracts, there are a lot of provisions that are similar. And maybe we can just talk about how we can split the contract into different sections or different pieces. One piece is talking about all this program-level provisions, for example, provisions related to DEB or SWaM, provisions related to security package that is required. It could be specific to the project; but in general, the state might have a level that they want to retain or retain it in general, I mean, how FHWA wants to deal with retainage, because I remember that was one of the discussions that they had with the FHWA Virginia division quite late in the process and it was difficult for us to go back and make changes. So those program level provisions are the ones that I think we can focus on right now.
And back to Andy's comments and DJ's comments, maybe we can just focus on what has to be in the contract from FHWA's perspective. And then after that, we can move to what has to be in the contract from state level perspective. That could be a little bit different between different states because each state has a different business model, business decisions. There are different risk mechanisms that one state could be familiar with and is ready to take, the other state cannot take. So it's a little bit more difficult to talk about a state level or project level provisions, but at the program level provisions are probably easier to tackle first.
And another thing is that since this is -- I believe that you are going to develop only one standardized contract, not one for tunnel projects and one for HOT projects, one for -- right. So that's another thing because if you stay at the program level, we can talk about some stuff, some provision that goes to all of those contracts. But if you want to get more and more focused, it's going to be more and more difficult.
And each project is different, negotiations are different. Depending on how competitive the procurement is, depending on characteristics of the project, many provisions can vary and it would be very difficult to come up with one set of documents.
MS. BROWN-DAVIS: Jake has a gentleman in the --
MS. MCELROY: Thank you. I'm sorry I put you on the spot.
MR. SHIP: Brad Ship from Parsons Brinckerhoff. I think what would be easy useful is if we get -- just help get everybody talking about the same things in the same way. So if we can frame out what some of the common issues are on projects -- so for example, who takes risk of hazardous materials. That comes up on us in almost every project and there's a range of options over which the risk can be shared. So if we can kind of go through and frame out what the different common issues are, get everybody thinking about them the same way, and then present a range of options over which people can choose, because not one option is going to work for every single project. Each project has its own unique things and has to have a different risk share in order to make it, you know, economical.
So I think to the extent we can create a menu of options, that makes it easier for people to understand, it makes everybody talk on the same level, and it makes people be able to do these things faster. But it doesn't prescribe the way in which we have to structure a deal.
MS. MCELROY: And I can't help but observing from your comment that you talked some about what should be included a model contract, a template, and also a little bit about education in terms of looking at risk and evaluating risk. Going back to Patrick, Patrick has done some work on that, that's on our website. But I'm taking note that that's probably something that we need to do more of. It's probably not so germane to this conversation, but it's an important thing for us to take back.
MR. SHIP: Yeah. I mean, I think our experience has been, certainly working with public agencies, that there's a lot of work, one, educating them on what the issues are, and then helping them understand what their range of options are, and then beyond that helping them decide what the best choice to make is.
MS. MCELROY: Okay, thank you. Was there someone --
FEMALE SPEAKER: (Away from microphone. )
I was just wondering if some people might have thoughts about what is in that matrix, what are the elements of that matrix, what are the issues that you put on that matrix.
MS. MCELROY: And we're going to get to that. We're not there right now. That's coming up later in the day.
FEMALE SPEAKER: (Away from microphone. )
MS. MCELROY: Absolutely. Thank you very much. I appreciate that. Was there somebody over here?
MS. BROWN-DAVIS: Well, Regina, I was going to ask, we've heard a lot from this side.
MS. MCELROY: That's right.
MS. BROWN-DAVIS: Mark, what are your people saying?
MR. SULLIVAN: Well, I'd just like to say that people on this side of the room are very thoughtful and they've been listening very, very closely. I do think it would be a shame for us to get to the perspective of state DOTs without talking to a representative from the great State of Florida. I'm happy to have just here at my left Leon Corbett from the Florida DOT. And I'm going to give him permission to talk about just anything he wants.
MR. CORBETT: Thanks, Mark. This might take a while. No. Thank you for opportunity to be here. And, you know, I've been nodding my head as I've heard about the educational approach that people are desiring.
And, you know, just from a public agency perspective, we have very complex documents in our concession agreements. And when you're explaining to your colleagues how things work, just having a reference tool, even for our own document, is difficult at times. Anything you can do to point to existing references and get the poet folks there quicker, I think -- you know, the matrix idea was a good idea. Just, you know, getting us to specific provisions that are out there in existing contracts -- I mean, we all kind of work in a progression off of what's out there already and certainly Florida will be working off of I-595 when it pursues its next availability payment deal.
So we have our advisors with us. We have our lawyers in the office. But anything that is educational and gets you quickly to other examples and explains the synopsis, the background behind the deal, would be helpful.
MS. MCELROY: Thank you, Leon. Any other states on this side that we missed?
Okay. It's probably time to move on, but I think -- not yet, okay. I think that the overall consensus -- yes -- the overall consensus so far is educational big time.
MALE SPEAKER: Yeah. So maybe from a -- one way to look at it or break it down is maybe to look at some set of principles. The design bid build process and that mix of federal and state funds has really served us well, I mean as far as where we are today. And there are certain elements within that, that I think, you know, to ensure that we, you know, have the safety, the cost controls, that leave us with system preservation, so that down the road -- and that I think as you said earlier kind of getting -- ensuring we get value for taxpayers and users.
And I think part of that and one of the things that we think -- believe strongly is proper oversight and inspection, which includes boots on the ground, and basically the separation, I guess, in terms of a broader -- separation between having somebody look out for the public, that works for the public, as opposed to, you know, a contractor hiring a contractor to do inspection and saying, you know, you've done a good job. And many times that works; but in the long run, I think it can't work because there's, you know, money involved with it. And so just to ensure that -- again that principle, that doesn't get lost as we move to, you know, these new ways of delivering projects.
Another piece is just the -- you know, I keep hearing project delivery, you know, as being accelerated and that being touted. But it still seems to me that in most cases, they're not really dealing with the first two-thirds of project delivery. When you have to talk about right-of-way, environmental, utility, you know, permitting, the financial stuff, that all -- you know, that's the first two-thirds I think of project delivery and most of this stuff focuses on the last third, where you're actually doing design and construction. So just something to think about.
MS. MCELROY: Okay, thank you. Tamar, did you have something to add?
MS. HENKIN: I guess echoing the comments in terms of erring towards samples and less prescriptive, from states I've worked with in terms of how -- I mean for all the issues in terms of state statute, the risk sharing comments that have been made, I think all of those sort of line up nicely to suggest that the less prescriptive approach is appropriate.
I guess adding a further reason for that to think about is that a sample document from USDOT carries different weight I think out there than a sample document, let's say, from a trade association or some other player. And so you can call it a sample; but in the hands of a given legislator or executive in a state, it may come around as well, you know, it says we have to do it this way. And it's very I think hard for some states to wiggle out of that, no, no, DOT, it's just a sample.
And so you may -- while I think there's oftentimes where it helps states to have something they can point to that says, well, we kind of have to do it this way, it also could tie their hands in a way again because it's not from a third-party entity, but rather from the Federal Government and funder -- co-funder on a lot of these projects.
MS. MCELROY: I think that's a really interesting observation and, in fact, we've talked about that internally. Is there anyone that would like to add to that? I'd like to perhaps hear just a little bit more conversation about that.
MR. FRAISER: I know I spoke earlier, but I just want to make some follow-on points just to underscore some of the points that have been said. I think the first point is that, you know, whether or not -- from my perspective, it doesn't really matter who produces a standard contract. What really matters is the extent to which the documentation that's produced explains the reason why the recommended provisions or sample provisions are the way they are.
The reality is, is that most concession agreements in terms of the provisions that really dictate value to the procuring authority of that contract are relatively similar from project to project. We as lawyers are not advocating not having standard contracts because we're worried about our lunch monies. Ninety percent of the fees that we earn are earned explaining why contracts are written the way they're written. Actually putting the words on paper doesn't take that much time, right. Once we know and the clients have agreed what's going to be written, it really didn't take that much time.
So if you look around the world at jurisdictions that have actually written very credible guidance or sample contracts, those documents run to hundreds and hundreds of pages, the more credible ones. And very few number of pages are actually sample contractual provisions. The bulk of the information is explaining -- takes the procuring authority and the private sector on a journey to explain why best practice is the way it is.
And there's some very comprehensive information around the world. A lot of the positions that have been reached in the U.S. to date are very much reflective of that guidance from around the world.
And finally I think you can't isolate the contractual terms from the holistic nature of the procurement process. And to give an example, it is very much the case that you could take a different approach to the way you write a contract and the way you allocate risk in the contract if you have a lowest priced bid type procurement as opposed to a procurement process that has evaluation criteria that are not solely focused towards price. So if you have material sensitive towards your marks and evaluation that are associated towards design, that is also going to influence the way in which the contractual terms actually work.
MS. MCELROY: Thank you. DJ?
MR. GRIBBIN: I spoke before, but also wanted to just circle back. I think one thing to be avoided that everyone agrees, we don't want a lowest common denominator type exercise. So there are states that have an incredible amount of expertise already. I would not view this exercise to be necessarily particularly helpful to them. I think what would be very, very helpful is for states that are getting to this for the first time, providing them with the tools which are about in terms of education and maybe some key ways to approach different terms of the contractual.
But one thing to be avoided, going back to the comment about if this comes from the Federal Government, does that mean that now my contract has to look like this, is that you want Texas's, Virginia's and the Florida's to kind of keep doing what they're doing because they've got it down. They've got a bit of a rhythm. Puerto Rico, I'll throw in there as well. But the new states coming on board, like Pennsylvania, that's just getting started, this could be an incredibly valuable tool for them to help understand what these provisions are, how they allocate risk, and what the market is doing.
MS. BROWN-DAVIS: Okay. Mark, I think you have someone.
MR. DEERY: Hi. I'm Brian Deery. I'm with Associated General Contractors. Again, I'm nodding my head about a lot of the comments that have been made around the room.
We too would advocate for as much flexibility, but also a lot of education. We look at it for our member's point of view. Our members could be involved on the concessionaire team as an equity partner or as a design build contractor, either way. And so the contract clauses that are included in there, the ones that are included in the concession agreement are important because it was all flow down.
There's a wealth of knowledge out there in the DOTs. I mean they've learned over the years that risk allocation is important in their traditional design bid build construction programs and they've learned that if they retain the risks themselves, certain risks, that they get a much more costly -- a cost efficient project. And I think that we can't lose that concept as we go into the PPTs. So when we talk about a matrix, I would like to see included as part of the matrix also the constructor's point of view.
MS. BROWN-DAVIS: Oh, yeah, great, great. Jake has someone.
MR. EDWARDS: I think in terms of what's going to be on the template design here and one thing that we're not -- I haven't heard mentioned yet -- I'm sorry, this is Chadron Edwards from Chadbourne & Parke. One thing to keep in mind, especially when considering the scope of what a model agreement from the DOT is going to look like, is how often are you going to be able to update this and how often are you going to be able to continue to keep this current.
If we look at other forms that certain entities put out for other types of transactions, you know, those are updated on a yearly or sometimes even more frequent basis than that, and those are forms that are very prescriptive and they have very specific provisions in them. Others that are not updated as frequently are a little bit more general and skew a little bit more towards the educational side.
But I think that's one thing that has to be kept in mind here, where if we're going to be very prescriptive, is it in the ability of the DOT to continue to update this. What we don't want to do is bring together the industry and bring together everyone in the room here, work for 12 months very hard on something that is only really useful for another year or less.
These things evolve very quickly. As we know the market into the U.S. , what you would see as a typical provision today is nothing like you would imagine it would have been five years ago. And so these things continue to evolve and if we're going to be very proscriptive, we need to consider how we can keep the document relevant.
MS. BROWN-DAVIS: That's an excellent point. Thank you.
MS. MCELROY: Thank you.
MS. BROWN-DAVIS: Steve has a comment.
MR. HOWARD: Steve Howard with Barclays. I've discussed with several people in the room here the experience we went through a number of years ago with a similar practice in the municipal waste to energy industry and the U.S. EPA that was playing a similar role in the development of that market back in the '70s and '80s. And there was a very similar process that the industry went through where the EPA set up some examples of contract terms and provisions.
And where that whole exercise ended up was something along the lines of the second bullet point. But rather than recommended language for common provisions, it was really more along the lines of commentary around common provisions that would appear and could appear in contracts. It was a fairly exhaustive list.
But frankly the primary benefit of that effort and the product of that effort was, as we already agreed, was education for the executive and legislative branches of the decision-making bodies on the public side to serve as sort of a framework and education tool for staff members, for example, to put everything in perspective as decisions were being made about specific projects, how to procure them, how to contract for them. That was frankly the most useful tool for those parties to these major transactions.
The actual implementing entities on the public side obviously had retained advisors and were taking those provisions -- the contracts included those provisions to the much more detailed level to implement. So I would -- it seems to me where we're headed is more along the lines of education, check-the-box type of concept, which was in fact the experience we went through with this other exercise 20 or 30 years ago.
MS. BROWN-DAVIS: Okay. Thank you, Steve. Mark, you had Nick.
MR. DONOHUE: Nick Donohue with Transportation for America, and I agree with a lot of what folks have kind of said here today. But I want to add one kind of slight twist to that and that's with a lot of this educational materials, particularly those related to public protections and things of that nature, I think it's important that the type of language that's used can be accessible both to like staff in the negotiating room, but also to folks that serve on a state transportation policy boards and other types of policymakers.
And example of why I think that's really important is a lot of policymakers know that they don't want a non-compete clause in their P-3 agreement because that can constrain their ability to expand capacity in the future. But at the same time, most of those folks have no clue that compensation events now can also potentially constrain their ability to expand capacity kind of in the future. And I think the knowledge base in the public sector is always a little bit slower than that of the private sector and staff sometimes in the room can keep up; but those folks who actually vote on these agreements, who kind of tell the staff what to look for in these agreements, may not be able to be as up to speed as the private sector folks.
And so I think it's really important, particularly for the public protections, but also to make sure that the public still supports P-3s as we move forward because this is something that we do need. And sometimes if they go too far you could see moratoriums or other things put in place and I think that would be a big downside.
MS. BROWN-DAVIS: Great, thank you.
MS. MCELROY: Thank you. Ed?
MR. CROOKS: Yeah. I wanted to pile on to Steve's comment about commentary. And one of the factors that I'm aware of is that I think maybe most of the audience here is oriented towards highways, but I think these standard contracts need to address all surface transportation modes, right.
So to the extent that we have transit or rail -- I'm seeing quizzical looks at the podium. Is that not correct or --
MS. MCELROY: I'm sorry, I think it's geared toward highways at this point.
MR. CROOKS: Is it? Okay
MS. MCELROY: Yeah.
MR. CROOKS: I was just looking at the Federal Register notice. It looked like it was broader than that. Right.
MS. MCELROY: And I believe that -- if I could impose on my colleague from FTA, I believe that FTA has their own requirement in legislation.
MR. YEDINAK: Yeah. My name by the way is Tom Yedinak and I work for the Federal Transit Administration. This is really -- it's great to be a part of this. And this is FHWA's show and I'm very pleased to be here to participate and listen to all of your comments.
We too, the FTA, have a little bit of a different focus in terms of our requirements in Map 21, but yet we don't have a specific deadline per se on model contracting. But yet we are required, as Ed, as you pointed out, to come up with standardized model contracts as well. So I'm pleased to be here and to be a part of -- pleased that Regina invited me and to be a part of this.
We at an appropriate time will be doing our outreach as well. But we also have a similar requirement and look forward to hearing your comments as well, as it relates -- as it could be relate to transit. So, I appreciate that.
MR. CROOKS: Okay. But in any event, I still agree with Steve's comment that commentary and guidance and to the earlier comment too about addressing this to a level where maybe less sophisticated, less experienced staff members can appreciate the arguments and the issues and keeping it broad I think will serve us all well.
MS. BROWN-DAVIS: Great. Mark?
MR. SULLIVAN: Just to add, I'm kind of excited listening to this conversation about the opportunity for the USDOT to get educated. It's not as though we are the leading experts here and know about every deal and every nuance, every tradeoff, every question, and are just figuring out the way to deliver that.
I think the very process that we're talking about going through over the next 12, 15 months and forever on, and the process we've been on in the last four or five years, you know, is just indicative of the fact that we're all kind of marching down this road together and I think we'll all get a lot smarter. And one of the great products isn't the standard contracts themselves, but just the fact that we've all gone through that process and, you know, individually, collectively we're all a lot smarter.
MS. BROWN-DAVIS: Absolutely. Thank you for that. And with that, I'm going to tee up the next broad topic. We've already started to talk about some of these issues anyway, so let's just keep the conversation flowing. But let's just talk about, as we've started to discuss, the scope of the model contracts.
So what are the general provisions that should be addressed in the model contracts? You know, in Map 21 where Congress has provided more of an indication that they anticipate that public-private partnerships will be among the considerations for states delivering transportation projects going into the future, a common thread throughout all of the areas where they've addressed public-private partnerships is the concept of the value proposition and the goal of protecting the public interest. So in the model contracts, should we be certain to provide provisions that address the protection of the public interest?
I think I heard somebody address competing facilities. You know, the non-compete clauses were a major issue in the early days of public-private partnerships in this country, as evidenced by what happened with SR-21. So do we -- I mean 31 -- 91. So as we move into developing the set of provisions that will be addressed in the model contracts, should we be looking at -- you know, focusing on including something related to competing facilities?
Somebody talked about addressing the federal requirements. We may be particularly well positioned to do that. What are your thoughts on the types of federal requirements? I mean, we should run the gamut? Should we limit it? I mean what are your thoughts on there? Are there things that we should be certain to exclude from the model contracts, that's probably something we really need to hear from you.
So I think someone in this area had their hand up. I don't know if you're ready to comment on this topic or not. DJ, are you ready?
MS. MCELROY: Poor DJ. We know him too well. He's a former DOT'er.
MR. GRIBBIN: Yeah. And actually I've never introduced -- DJ Gribbin with Macquarie.
MS. BROWN-DAVIS: We know who you are.
MR. GRIBBIN: Yeah, thank you very much. The public protection -- this is more of a personal comment than a Macquarie comment -- these are state assets and you've got to -- let's assume we're doing the state and I'm just pouting. They're negotiating these things, so I'm not sure you would want federal guidelines under public protection, limiting what a state could or could not do with its own asset.
If you think about non-compete clauses, SR‑91 was a very difficult transaction. It was kind of first of its kind and so there were very aggressive non-compete provisions in there. Orange County had to sort of repurchase the asset -- a very happy ending, but really awkward transition to that ending.
I don't know if -- so you don't see non-compete clauses like that anymore. What you do have is your compensation events and the compensation events are important because obviously when you strike a deal as a P-3, the government is agreeing that the private sector will have rights to do certain things. But then the government in its sovereign state allows itself the ability to change those rights, but they like compensate the private partner if it does so. So if you were to come up with -- I'm not sure how you would draft a non -- you know, public protection non-compete without potentially severely limiting what a state could do with its own asset.
MS. BROWN-DAVIS: Maybe a menu of options or any thoughts on that?
MR. GRIBBIN: I'm not sure what -- to be honest with you, I'm not sure what that non-compete element would look like. I mean I think the one thing we learned from SR-91 is that the government should never give away its ability to change something in the future, right. And so we've seen that from that, that government's don't do that anymore. But if they retain the right to make changes in the future, then they should also sort of have responsibility of compensating their private partner for any impact that change has on the deal that was struck originally as part of the P-3.
MR. FRAISER: It's one thing to provide the model provision, but if you produce two pages amongst your package explaining what this sort of concept is, the reason why it's there, and issues to consider when actually negotiating that over the next five years, you will probably cost the procurement, save about a thousand, thousand month time because it's one of the key issues that is typically discussed in the first meeting. Because as any advisor sat in this room who tries, and public authorities will tell you, that they themselves go through and explain to their client the reasons why this sort of concept should be included in the project and invariably the clients respond, well, let's hear it from the market, right.
So if it's actually heard from you guys and it's positioned in the documents, it will have -- back to points earlier, it will have more credibility because, you know, it's disseminated from best practice, not just across the U.S. , but across the world, right?
MS. MCELROY: If I could key in on two things that I heard, plus what Deborah said. You know, in the first block of conversation, we kind
of -- the group kind of settled on an educational approach I would say. And I think I head more of that educational approach from you and Deborah's question certainly went to that, could we do a menu, would that be useful. But I heard from DJ that maybe even putting some of these things into a template, even in educational template, might be problematic.
MR. GRIBBIN: Yes, let me clarify. For example, if USDOT was to come out with a provision that said you should not have a non-compete clause, I think that would be problematic. I mean I totally agree with Andrew that it will be soon helpful -- sometimes the governments don't -- they -- I'm attempting to use an example -- there was an example of a procurement where the government was going to concession certain items and then wanted the right at random to come in and take the use of those items for other governmental purposes, but didn't understand the need to compensate the private party for that partial taking.
So I think what Andrew is getting at is if you, as USDOT, could come in and sort of help explain the general principles behind a P-3, which is we're going to allow you the right to use this asset in exchange for payments and we're going to allow ourselves the right to come in and change that deal, but we will compensate, would you do that, I think that would be very, very helpful.
If you would try to sort of strike the balance, which has been somewhat controversial, around, you know, what is an appropriate non-compete clause, what is an appropriate compensation clause, that can be very difficult and unwieldy. But explain education of the general principles of why in the past you had non-compete clauses and why compensation clauses now make sense would be very helpful.
MR. SWEENEY: Neal Sweeney with Kilpatrick Townsend. I think these initial comments underscore the discussion about the format, that really what needs to be addressed is contracting principles to focus on all the players on the issues at hand, because it's not just true with respect to a non-compete. You can have the same discussion about right-of-ways, about utilities, about virtually every issue. And I think -- and it's going to be impossible to come up with model clauses in the timeframe available because they're not going to be readily adaptable to every project.
So what needs to be discussed is why you need to confront issues like right-of-way and sort of the pros and cons or the tradeoff if you try to shift all of that responsibility to the concessionaire and then maybe either over time develop actual model clauses or just cite examples of how it's dealt with differently. Because even if you decide you're going to have a model clause, you can't draft a model clause relating either to non-compete or right-of-way or utilities, or you can go through a laundry list of things that have to be in these agreements that are going to be one size fit all. Because as the gentleman from the Virginia DOT pointed out, they just did three projects and each one is very unique. And that's something that you're going to have to face.
So in my mind for the product that you're seeking to achieve, first of all to achieve it and secondly, it's valuable and will be acceptable. It really needs to be along the lines of these principles, suggesting the pros and cons and by implication the best practices for consideration.
MS. MCELROY: Okay. And yes, sir? And right now we're kind of talking about, you know, the general provisions that should be included. So at some point it would be interesting to me to get from the group what would be the most general -- what would be the most important general category. Would it be federal provisions, for instance? And then maybe what would be the second most. Because I think -- and a lot of people have mentioned this, we're not going to be able to do everything all at once by December. So what would be the most important areas for us to hit on that would be useful and then we could build on over time?
MR. DUKE: Thank you. I'm Rob Duke from the Surety & Fidelity Association. And my comments kind of bridge the last block discussion and this discussion here. In terms of -- I mean certainly and I think we can agree that we can't have a prescriptive sample full contract because they're enough differences and certainly maybe even you can't prescribe the language of individual provisions. But I do think it's possible to prescribe best practices principles.
And getting into this point, you know, what are those principles that should prescribed. And in the area of public protections, one of the areas is performance bonding and payment bonding to protect the public interest. I mean certainly you're dealing with a public improvement, although privately developed. There's a strong public interest to make sure subcontractors and suppliers get paid. There's a strong interest that the public at the end of the day has an improvement that they can use and enjoy. And so one, I think, key public protection as a best practice could be or should be the performance bond and the payment bond of the construction part of the PPT.
MS. BROWN-DAVIS: Okay, thank you.
MS. MCELROY: Thank you. If I could just follow up on that for one moment though. I just heard words like best practice and guidance principle, if you could comment on how that fits in with an educational document.
I mean there's a number of models. There's a model that we could do, this is how you should do it. And then there's a model that you really don't have to do it that way, but, you know, this is what we kind of think is the best way, best practice. And then there's the model that says, well, here's what other folks are doing and here's what it means and maybe even a little bit of this was their experience.
Could you comment on kind of what you would see as the best approach? And this goes back to what Tamar was saying earlier about this notion of Federal Highway kind of being different than a trade association and what we say having some extra weight to it, and talk about the kind of flexibility that leaves or doesn't leave with individual contracts.
MR. DUKE: Well, I mean, I think it depends or I think it varies. So it's certainly conceivable that not a single approach, you know, so you don't provide education from soup to nuts on all the issues. There may be certain issues where you simply provide education. There may be some issues that identify where, you know, you provide -- you identify -- you just simply identify a best practice or you say this is what other states are doing.
But I think that there may be some issues and one is maybe public protections and there may be others, maybe just a handful where you're actually prescribing the best practice, so that we're not going to give you language, but that the contract needs to address this. It is so important that it should have this. So I'm not sure if you get to the point of saying that the overall approach is educational or the overall approach is prescriptive, but it may depend on the issue that you're dealing with.
MS. MCELROY: Thank you. Any follow up on that? Sir?
MR. BOWLEY: Hi, there. Ryan Bowley with the Owner-Operator Independent Drivers Association. I think from the user's perspective, you know, there's a lot of -- from what you just said and then what Nick said earlier in terms of not just the need to focus on public protections, I think from our perspective we want to see the maximum amount of focus on those as possible, because -- and we've frankly seen a lot of bad situations in regards to those that have impacted our members and other motorists in a negative way.
But also making sure that the political officials back at the state understand the tradeoffs. You know, these are very complex documents and necessarily so, but you've got maybe a very short term of time from an elected official to understand what they mean and understand -- get some plain language understanding of this is the tradeoff between this and this, and this is what it means for your constituents when the contract includes this type of language, and this is what it means when the contract includes that type of language, you know, whether it's a non-compete or, you know, some of the other, you know, payments out there. You know, really understanding what that means to the user out there is I think just as important as making sure that we do maximize as many of those public protection provisions in some form of a base document as possible.
MS. BROWN-DAVIS: Great, thank you. And again as Regina mentioned, I mean the public protections notion and the competing facilities ideas, I mean, they're just ideas to start your thinking. But what are some of the other general provisions that we need to be sure we include or address in the document?
MS. MCELROY: And, Deborah, we're talking about kind of general categories right now --
MS. BROWN-DAVIS: Yes.
MS. MCELROY: -- and the next block we're going to get into specific provisions, correct?
MS. BROWN-DAVIS: Right.
MS. MCELROY: Leon, I'm going to pick on you because you're kind of one of our token state people. What do you think?
MR. CORBETT: So the question is general provisions?
MS. MCELROY: What would you might be some of the more important ones that needs to be focused early on?
MR. CORBETT: Well, certainly we're an availability payment state, so I sort of immediately think about how do you structure the availability payments, where your performance requirements are tied to those payments. Hand back requirements is another category that comes to mind.
MS. MCELROY: Okay, thank you.
MS. BROWN-DAVIS: Anyone else? Okay, Neal?
MR. SWEENEY: First of all, are you saying that the next session we're going to talk about specific issues or are we listing them now?
MS. MCELROY: That was the plan. I think we can combine the two and that's okay too.
MR. SWEENEY: Okay. Well let me just respond to the second sub-bullet you have up there. I don't think this exercise should focus on identifying what the federal requirements are because that is a situation and a dynamic that you have on virtually every public work, whether or not it's federally funded. And I think it's appropriate in the course of all procurements that a public sponsor is going to identify potential federal regulation. But in effect, you don't want to become the proposer's lawyer and telling them what federal requirements do or do not apply because federal requirements that apply, apply as a matter of law.
I mean this is an issue. It's an issue
on -- I just dealt with it recently on DOE-funded power projects and things like that, and it's a thorny issue, but it exist completely separate from P-3. So I personally don't think that this effort needs to focus on that as something unique to P-3.
MS. MCELROY: Could you help me out just a little bit? I'm kind of not understanding why you wouldn't want to include federal requirements in a P-3 template.
MR. SWEENEY: From an educational standpoint, what I would say is to the public sponsors, to make certain that proposers understand potential federal requirements and how that might impact the entire project ultimately from a dollar value. Because especially when you have overseas companies coming in, they don't necessarily appreciate the impact of Davis-Bacon and other compliance issues in federal procurement. So it's important to emphasize to them and to the extent you're aware of them, to identify them. But the bottom line, that is going to be the responsibility of the concessionaires or the contractors out there.
And again my point is that's not a unique circumstance to P-3. If there are certain regulations that either by the regulations, the public sponsor has to identify, go ahead and do that. But, you know, that's an enormous exercise and I think the focus of this program should be on issues that are unique to P-3.
MS. MCELROY: Okay. So I'm glad I asked. That's a good point that you make for our consideration and it's drawing a box around this exercise, that we're just talking about P-3s and we're not talking about project requirements. Okay.
MR. FRAISER: I think obviously -- my very first comment suggested that we should have specific language to deal with federal requirements. Just to be clear, I'm not looking on behalf of foreign individuals for an explanation of what Davis-Bacon actually means. It's more the sort of provisions that I'm focused on is that personally I don't really think -- and this is a real life experience, I don't personally think it's appropriate in the context of a two- to three-year procurements for within the last month of that procurement for the procuring authority to find out from Federal Government that they don't like the change in ownership provisions in a concession agreement, right. I think that's far too late in the process.
That requirement is not personalized in federal legislation. It is a requirement that is involved over time. And that is one of many issues of a federal nature that negatively, my personal view, negatively impacts some of these procurements. And it's those issues that I think it's time to flush out and put to bed and document, so that everybody understands and knows what issues they're going to face.
And that exercise alone should not be a difficult exercise to complete because the know-how sits within a short space, a short distance in this room and it should be written down somewhere. Everybody looks and wants to find out where it's set down, but maybe finally we have the opportunity to actually document that. So that's what I'm focusing on.
MS. BROWN-DAVIS: Thank you for the clarification.
MS. MCELROY: Yeah, good point.
MS. BROWN-DAVIS: Mark, you have someone?
MR. HOWARD: Steve Howard, Barclays. I just want to circle back on two earlier comments. First is the non-compete versus compensation issue. I don't think that this exercise should take a position on either of those topics. I think they both should be identified and there should be commentary about them. But I don't think there should be a position take that non-compete is out of date and has been replaced by compensation provisions because there still could be situations where the local decision makers, for whatever reason, decide that a non-compete makes more sense.
Secondly, some other individual touched on another whole broad topic area and I think we passed over it a bit too quickly and that's the whole area of compensation either in the form of availability payments or a revenue-based deal. I think that's a whole very broad area that has to be discussed. In putting context and all of the sub-provisions under a revenue style contract with revenue sharing, the sharing of the benefits of refinancings and various benchmarks for how compensation -- how revenue sharing might change depending upon how the asset performs, that I think a very important area that a lot of education could be helpful.
Then on the availability payment side, the whole issue of the source of the payment for availability payments and how the concept of appropriation, which is not familiar to many participants in the market, offshore participants in particular, how that fits into the picture and what the different mechanisms are, again not prescriptive, but commentary and how that could potentially affect how a contract is drafted.
MS. BROWN-DAVIS: Thank you. Morteza?
MR. FARAJIAN: I'm just talking from the experience that we went through recently about Rout 460 project, and the other two projects also in Virginia. As Andy mentioned, I believe we should have FHWA in the game earlier during procurement because we go to provider meetings, we sit with the private companies, we negotiate many different provisions with them, we put a contract together, we send it to FHWA division for their review, and that's the time that we figure out that there are some other provisions that either they ask us to remove entirely or change entirely or they make some recommendations that's in the interest of state or public to have this provision, so maybe it should be changed. And that's too late because it makes it difficult for them and it makes it difficult for us and everybody at that point of time to address those comments.
I will also suggest that maybe FHWA division can be very helpful because they have gone through this process with us. They know a lot of different provisions that we have used, have provided very useful comments. And maybe they can also be brought to the game because in the state level, they have been involved on a daily basis with us.
But there are a couple of things that maybe there are similar in all different types of projects, back to my comment earlier, that there are some provisions like program level that are -- no matter what type of project you have, those provisions are there. For example, I mentioned earlier about DBA provisions. We just copied the same provisions from 95 and used it for 460 just because we had gone through that exercise before with an FHWA division. Everybody was confident with us, so we just copied and pasted and we used it. There are some provisions that they asked us in the last minute to make some changes that was related to the performance security and it was mainly related to retainage on the DB contractor.
So those things are maybe things that it's better to have standard provisions from FHWA, everybody is comfortable with, everybody knows how it works, so when they go through that process at least we know that what are the minimum requirements that has to be in a contract. And after that we can go to that area which is gray; so that black and white.
And there are multiple things that I can think of and I can add maybe later because we went through this process. We have all the comments that we received from FHWA division. I'm sure that they also have it. We can provide that to you and we can start just creating that list of all the requirements that the division had when they were reviewing our contract.
MS. BROWN-DAVIS: Great, thank you.
MS. MCELROY: Very good comments. And let me just say that we are working with the divisions to kind of bring some consistency and bring folks up the curve. And that's very much what-- as an example what Patrick is doing with that manual on Fed A requirements, which goes back to the situation that we had with a Virginia project and there was some confusion on that point. And so we said, okay, we need to do a better job here and that's what we're doing.
So good comments and certainly they inform this conversation. They also inform what we're trying to do else-wise too.
MS. BROWN-DAVIS: Okay. There's a gentleman in the back.
MR. EDWARDS: Chadron Edwards at Chadbourne & Parke. I guess a question back for you that kind of goes on the same point is kind of what is the scope of your ability with what we're working on here. Would we be able to with these types of provisions that we know are acceptable kind of take a play from what we've seen other agencies like Treasury do and kind of say, look, if you've got, you know, a particular setup and it may be dictated, it may be dictated in concept or in specific language, you know, there's kind of your safe harbor and then you know later on down the road, you know, that's already acceptable. Now if you need to do something differently, then you'll still look at it. But is declaring something like that kind of within your mandate here?
MS. MCELROY: Well, again, I think that Congress has very much left that door wide open and that's what we're trying to figure out as the best approach. And I think all of us have in the back of our mind, all of us that will be working on this have in the back of our mind as we're listening to you all talk that what we probably want to do is to hone in on the model that we think will be most useful and then start building it. And we won't have it all built out by the end of December, but it will be something that goes on where it has some piece that's useful initially and then we'll build on top of that.
That would be my guess for how we will approach this. I doubt that -- especially hearing all this conversation, I doubt that we'll be able to do everything, the complete job by the end of December. But we should have a path forward and an early deliverable that will be of use. Does that answer your question?
MR. EDWARDS: Yeah, it does. Yeah, I mean, even in that situation where you may have kind of gone and given some guidance -- of course, you know, we know all the states legislations are different. You know, some already have things in place. And if there's two different things, you certainly are going to be able to put them both out there and some of them you won't be able to state.
But if there's provisions that you're specifically looking at, especially if it's a deal that is supported by a program like TIFIA, and there's provisions that you're looking at in the underlying PPT agreement, you know, kind of giving some guidance on those early on, so that people know to start with, you know, let's -- you know, if xyz is already acceptable, then let's start with that and you know later on down the road that it should be good to go. That would be something and those would be the types of provisions here that maybe could be a little bit more flushed out or take the priority.
MS. MCELROY: Yeah. And I think that -- you know, I appreciate hearing that comment. And that gives us two things to think about: one, should we have TIFIA sorts of considerations rolled into what we're doing here; or maybe not, maybe we should do something under the umbrella of TIFIA that is a little bit more prescriptive. I think somebody said early on, you know, they were concerned that this effort might influence what was going on with a TIFIA project, so that's something that I think we need to consider.
And once again, I feel like we're ignoring this side of the room. Any comments? Yes, sir?
MR. DIERKERS: Greg Dierkers with the National Governors Association. And I just want to thank you all for convening this. It has been very interesting.
In our work with states and with governors on really P-3 education, I think this overall scope that we're talking about, the contract, would be very useful. I do maybe encourage that if we are going to exclude things -- and there's been some discussion back and forth on, you know, how to broad, do we include federal requirements, other sort of non-compete questions -- if there is things that are excluded, it might be useful to list that and say we've excluded xyz and here's why, because I think governors, you know, and their advisors will probably look to this information as a first tier resource.
MS. MCELROY: Thank you. Anyone else from over here? I can't pick on Leon anymore. I've already done it enough. You'll never come back. Okay, yes?
MR. CUI: Yes. Cui Qingbin from the University of Maryland. And just back to your question here that are there any things that we should not -- should be excluded, I would say basically, you know, like the group has a consensus that it might become an educational tool. And every provision that have been used in any projects that have the merits there, that basically probably just that, you know, consider all kind of risk and mitigation strategy for that specialty project. So my suggestion here is that since we have many P-3 projects already done or undergoing here, so those provisions present some special scenario for individual projects here. And that should be documented as an alternative within this model.
So I see this model, you know, consider the flexibilities here is more like, you know, we call it a contract engineering, that you have everything laid out. Say a provision, it could be general, could be specific provision, but it's just an alternative. That's a toolkit that we have. And individual states are, you know, sponsors. They have their specialty projects and they have their risk, their responsibility they want to do. And those are toolkits that FHWA or IPD office have this toolkit provided. Those individual specifications basically describe the risk allocations between those two parties or three parties among those. And let them really see that this is a tool that are special provisions, educate them, and then they can pick up anything there.
So I see that, you know, this format and also this effort can lead to a big success when, you know, they use this as a special toolkit and educate them and use that in the future. So it's more like a -- because I'm from engineering side, so I prefer something like on the engineering side. This is more like -- you know, they can build their contracts just like, you know, a designer or engineer makes a bridge, that you probe this individual provisions to fit your need, something like that.
MS. MCELROY: So you're really talking about more of a cafeteria style approach. Yeah, and, you know, we have on our website P-3 legislation and it's kind of sliced and diced by this state did this and this other state did that, and we don't really comment on whether it's good, bad, or indifferent. But we have what others have done out there, so that when someone new is coming along they can go back and use that as a reference and get some good ideas. Is that something of what you're -- but I'm hearing maybe a little bit more.
MR. CUI: You could have that general, you know, categories that define, you know, this is the responsibility and also this is a risk that you should consider; say negotiation, whether it should include that in the contract or not; what scenario you should. But go back to the individual projects, you know, there -- individual project is unique, so you cannot really consider all the scenarios there. So, you know, basically it's that we call it incomplete contract. Whenever you, you know, design a model here, it's always incomplete. You cannot consider all the scenarios, so you've got to be flexible on this.
And why aren't all the tools available? Most of the time I believe it's to protect the public interest in better ways that to let the state, that's everybody in the game, to know what are those toolkit available.
And just give you an example, we did a case study in New Mexico for four projects, that you all know that last time that they have the design built and the operation maintenance, there's no financing mechanism within that. But the thing here is that when the private company, you know, bid on this project, do this, and they designed this contract in a way that public has not been aware of, so that is their responsibility, their risk.
The public believes that the risk has been transferred to the private sector, but because of negotiation, the contract, the individual contract totally changed the risk allocation. And so even if you have available money, and know I said that at the beginning, you know that you want to really design and allocate the risk in this certain way. But the individual contract provision really totally change the risk allocation. So that is beyond the matter for money on the United States.
So the point here is that the model contract provide a list of, you know, just -- I forgot the people talking about that -- educational tool, list all the alternatives that are available, special provisions, and then provide what is the pros and the cons for that, and then states can use that.
MS. MCELROY: Okay, thank you.
MS. BROWN-DAVIS: We have a gentleman over here.
MR. JETT: Alex Jett from the World Bank. One thing that we run into at the World Bank, which is roughly analogous to having different states with different amounts of experience conducting these projects, you have some countries that have never done P-3s at all. You have your Brazils or your Mexicos that have done many. So we've -- you know, we've made toolkits that try to be as general as possible.
But every once in a while, somebody will want to push a provision. They'll want to push like the U.K. model for contracts or the French concession design. And because you have these legal frameworks within each country, you cannot -- to kind of follow up on what he said, you cannot push this one size fits all.
But one comment I was thinking about making earlier and I guess I'll make it now, one thing we are trying to do is kind of have some common language, so that between countries when they're talking about defining concessionaire, grantor, whatever it is, you can talk to each other in some common terms.
So it's a very general comment, but that may be useful across states, so they can truly compare best practices and compare apples to apples. That's all. Thank you.
MS. MCELROY: That's a very good point. Thank you.
MS. BROWN-DAVIS: So we should look to develop a list of definitions maybe as an attachment to whatever form this takes?
MS. MCELROY: Almost a glossary I guess, yeah.
MS. BROWN-DAVIS: The gentleman back here.
MR. SMOLEN: This is John Smolen, Nossaman. Just to follow up on that, I was toying with that and quite frankly I thought that's where you were going earlier today, that we all talk about a concessionaire. We know what a concessionaire is. But I'd be remiss not to beat on the drum that's been coming before, which a definition is just like a contract provision. And so if we start telling everyone what say a concessionaire is and we define them as you would suggest, then we are in a way prescribing what it isn't or certainly the contours of what it is.
And I was in my own mind toying with the necessity for this, that we all speak about things generally the same. The gentleman from FDOT, availability payments, I'm assuming that everyone in this room knows what an availability payment is. But governor X may not have a real strong sense of what an availability payment is. There's got to be a way to educate, here's what an availability payment is without saying here's what an availability payment is. And that's -- if everybody is following me, that's the idea in my head.
So I just wanted to dovetail on what I think is a really great idea of having a taxonomy of terms that pervades P-3s, so we all start, you know, orbiting the same place, but we're not landing on the same landing platform. Thank you.
MS. MCELROY: So how would you go about doing that? How would you --
MR. SMOLEN: That's fair and at the risk of putting my firm out there telling you how to do that, I just -- I have a lot of blood ink on the education strategy being here's an availability payment at an instant in time, at a particular place, with a whole lot of we're not going to go into the weeds about why these risk allocations were the way they were, but here's an example. Here's another one. Here's how they do it in the U.K. Here's how they do it in the U.K. You describe them in the context of what they were doing and then let the user of this document or these things that you give them extract what they want from that.
But the ancillary benefit is they are educated simultaneously that there's a thousand ways that these happen, but they're also starting to use the word availability payment. And then they come into conversations with at least a starting point of a vicinity of an understanding of what we're talking about, which to the gentleman from VA saves thousands of hours of education time, at least on the part of counsel and others.
So I hope you didn't take that as an elusive answer, but I --
MS. MCELROY: No, no.
MR. SMOLEN: -- come so far as to say availability payments are this because by necessity it excludes other things.
MS. MCELROY: Well, what I was going to say is for most of these things, you could probably come up with a pretty broad definition and then say that there are variations on the theme.
MR. SMOLEN: I would agree with that, although I would want the variations on the theme to be the exception as well as the rule in the description.
MS. MCELROY: Fair enough.
MS. LEE: Just to support that, I think that on the advisory side, we're seeing that that's what a lot of the agencies are asking for is just comparison charts and precedent charts and that is how often -- that's how they often arrive at some of the decisions that they make. So to the extent that this exercise can facilitate that by serving as another more consolidated data point, I think that would be very helpful to the agencies.
I mean I think that you had asked earlier what is best practice, and I think that definition would be very hard to come by because best practice for the purposes of risk allocation would look very different in a term than best practice for greatest cost savings.
So I think -- yeah, I mean, and you have to kind of let the public owner understand what the tradeoffs are between one goal and the other. So I think that to the extent that this, you know, very large undertaking could serve as a way to help consolidate information in the industry, it would be very helpful.
MS. MCELROY: And, you know, I'm sitting here thinking that it's a challenge for us to kind of figure out what to put in the various pots that we've got going on. So we have these model P-3 contracts that we need to develop. We also have case studies that Congress has mandated that we develop and that we put out there for others to use. We've got a P-3 toolkit that Patrick is working on that will have a lot of educational material in it. We're going to do a lot of outreach pertaining to that toolkit.
So I think the challenge is going to be is to make sure that these model contracts don't get too big and that we don't try to do too much in them. I'm just thinking for instance using that example of availability payments. We probably -- I'm guessing, you know, just my off-the-top thinking -- we probably don't want to talk too much about availability payments per se, unless we have an actual model contract for availability payments. And we can take care of that educational piece through one of the other activities that we have going on -- just a thought. And that's why this conversation is so important, to help us really drill down and figure out what should be in these model contracts.
MR. GRIBBIN: And to that regard what's in the model contract, we started off talking about -- you mentioned do we want something that's prescriptive, do we want something that's just general informational. I think the group was general informational with a couple of exceptions that I picked up and that was Andy mentioning when you talk about DBE or change of control.
So I mean one way you might want to think about it is that different provisions will have different amounts of prescriptive direction that people will look for from Federal Highways. So if you think about non-competes and how those are structured, that's probably a big picture policy issue for the states to decide and give them some things to think about. Like as you're thinking about how you structure this, these are just general policy decisions. But then all the way down the spectrum where you talk about sort of change of control provisions in a TIFIA agreement, I think at that point the industry would like to know with some degree of specificity what it is that Federal Highways would like to see.
FEMALE SPEAKER: Something that speaks to what people would like?
MR. GRIBBIN: So the question is we would like that in a model contract -- I'll play your role, Regina. And I think yes. I mean on ones that are TIFIA loans, we would love to see ahead of time, and I think you heard this from both Allen & Overy and the Commonwealth of Virginia, we would love to see ahead of time what it is Federal Highways wants, so we don't run into the circumstance, which can happen and has happened, where you're almost on the verge of close and there's still a conversation going on about what's appropriate and what's not appropriate.
MS. MCELROY: There's legal requirements that are frankly non-negotiable, almost. DBE is an example, you know. Buy America is another example. And frankly that's kind of low hanging fruit for this exercise, if we decide that we want to put it in to the contract. Because it is what it is; there's no variations on that.
But what I'm hearing you say is that you'd like to see a little bit more about maybe things that are more variable and that TIFIA would be comfortable with accepting, which -- and I'm just wondering is that maybe a project for TIFIA to do, as opposed to taking care of that under the model P-3 agreements.
MR. GRIBBIN: It could be either way. But we actually had a DBE issue and a change of control issue that ran all the way to the very end. So the Commonwealth of Virginia wanted to do DBE a certain way. They thought that would actually be more efficacious than the way they had done it before and there was that kind of disagreement. So maybe going back to the Treasury safe harbor idea, where you would spell out, if you do a, b, c, you're good. It doesn't mean you can't do d and e, right, or you can't change a, b, c. we're open to variations of a, b, c; but if you do it this way, then we're done, we're finished, we're not going to need to talk about that anymore, would be very helpful.
MS. BROWN-DAVIS: Thank you. Mark has someone ready to comment.
MR. GABRIEL: Thank you very much. Seth Miller Gabriel with Jacobs. I would have to agree with a lot of the comments about having terms and definitions and some -- the point I'm getting at, an awful lot of states and NPOs and cities and counties come to public-private partnerships, would like to think out of all the best intentions, but most of the time it's out of desperation. They have no way of funding or financing a project and they really want to know how they get money from the Federal Government.
And maybe if you could set the terms and definitions and come from this is the idea of, well, this is what has worked to get you a TIFIA loan in the past or some sort of funding. That's really what they want to know, so that they can get this project done. So if you're going to put in any kind of model contract or definitions, say this is what USDOT or FHWA believes availability payments mean, that have been approved for TIFIA financing in the past, and that's really what -- if I'm the head of a NPO, I want to know. Other than that, I probably don't care because I just want to get the money unfortunately and that's what they're looking for.
MS. BROWN-DAVIS: Okay, thank you. Jake, you had something. And we're going to take this comment and then shortly after this comment, I hate to break the momentum because everything is going so well here, but we are endeavoring to produce a transcript and an audio recording, so we're going to need to switch out the tapes. So we're going to take an unscheduled 10-minute break right after this commenter and then we'll resume, okay. Thank you.
MR. SHIP: Okay. Brad Ship again from Parsons Brinckerhoff. I wanted to hit on something that I've heard a number of people say and that's best practices. I struggle a little bit with that because in a lot of ways, there aren't necessarily a best practice for any given kind of contractual term. There are options and a range of options. And to say that, you know, to define like, well, this is best practice or this is the state of the practice, you're almost pushing people towards, you know, this is what you should be doing, when it really depends on a number of factors. And what's important is that the sponsors of projects understand what the range of options are and understand where those options work best and are able to make an informed decision.
So I think we need to draw the line at making a decision for a project sponsor and instead give them options and information.
MS. MCELROY: Okay. A good place to take a break from. Thank you.
MS. BROWN-DAVIS: I have 2:00, so please try to be back by 2:10. That's when we're going to start.
(Whereupon, a brief recess was taken. )
MS. BROWN-DAVIS: Okay. Thank you for being so prompt. We're going to switch gears slightly. We're having a lot of good discussion about general, as well as some specific provisions that we wanted to be sure and address. But we're going to move forward and then come back to the discussion on provisions to include because it occurred to us based on the wonderful suggestion that we received that maybe we should spend a little more time thinking about the types of transactions that we might want to cover in the first set of model agreements or model educational tools or what have you. And then once we think more about that, that might better inform the discussion on provisions to include.
So Congress directed us to develop these model contracts based on the most popular types of public-private partnerships. So what does that mean? What types of deals do we want to reflect? Do we want to reflect a design build finance, operate, maintain transaction with maybe instructions for stop here if your deal only envisions design build finance.
We've had a lot of discussion about the need to address availability payments. Should we be sure to address availability payments as well as toll base concessions?
What about facility types. We've heard a couple of comments related to types of facilities, non-toll highway extensions, for example, managed lane facilities, intermodal facilities, you know, all types of things that enter into kind of the different menus of options that are comprised and make up these deals.
So what types of transactions in your view should we be looking to model in these agreements? I'm ready to listen.
MS. MCELROY: Everyone is thinking. Everyone is quiet. So I guess the question on the table is -- go ahead.
MS. BROWN-DAVIS: My friend from Georgia?
MR. VANMETER: This is Darryl from Georgia DOT.
MS. BROWN-DAVIS: Thanks, Darryl.
MR. VANMETER: Yes, definitely to the design build finance option. I'd like to --
MS. MCELROY: Can everyone hear Darryl?
MR. VANMETER: Let me get away from the speaker.
MS. MCELROY: Okay.
MR. VANMETER: One thing that I was going to mention earlier was the fact that a lot of these types of contracts, I think that we're not in a plateau, but we're still in the learning curve in the P-3 market and I think even design build finance represents one of the changing kind of -- rather than it being, you know, like bringing a project that is zero funded in through an availability versus just a portion of it is financed, I think that we're in a learning curve on that. So I definitely think that design build finance is something that we ought to include in addition to the traditional toll concession type and availabilities.
MS. MCELROY: Thank you.
MS. BROWN-DAVIS: Hank had a comment.
MR. WEBSTER: Going back to thinking sort of about either the cafeteria model or just having ideas and recommendations, things like that, it might be helpful to look at each different component of that, at least from which deal types question, and sort of having them segmented out because, you know, across the country, I don't know if there's going to be all one kind or the other. I think there's going to be some that have, you know, the F in it, some don't have the F in it, O&M, some don't have the OEM.
So I don't know if there's going to be a predominant type that you guys should focus on. Maybe just look at the different components of it, so that if people are going along and have a certain type of model that they're going to be doing, they can look under sort of each category and say, okey, here's the different, you know, things that we have to think about, here's how people have looked at in the past, perhaps pros and cons of different examples. So that's at least initial thoughts on that particular question.
MS. MCELROY: If hypothetically we couldn't do everything all at once -- I mean, Deborah can work miracles, but I'm not too sure all this would -- where would you say we should start? And if we can't do everything, how do we slice and dice? Do we do it by, you know, what kind of concession are we looking at? What kind of facility are we looking at? What would make sense to the community? Are you all thinking about the answer or you all wondering why we need to ask --
MS. BROWN-DAVIS: I think DJ is formulating a response.
MR. GRIBBIN: Alternatively maybe another option would be to think about focusing on the prioritized provisions in the context of different types of transactions or different types of projects. So if, as we spoke about in the earlier session, there's certain provisions are important to address, you could address those in the context of different types of transactions through the commentary and education that you provide.
MS. MCELROY: But how would you slice and -- how would you express the different kinds of transactions? I guess that's the question that's kind of on the table. What's the best -- what's the most useful way to define the transaction?
MR. GRIBBIN: I mean so to the extent that the value of this exercise is to shorten the learning curve for those entering the P-3s --
MS. MCELROY: Can everyone hear DJ over there? Okay.
MR. GRIBBIN: Okay. And kind of go back to Andy's saving thousands of hours of conversations, we maybe starting with availability payments would be good, since there have been a couple of those transactions, but more are coming.
MS. MCELROY: So you would start with the kind of --
MR. GRIBBIN: Yeah, kind of the concession model availability payment. Since the user fee, we have some precedence that people could look at and they're still quite a few questions about the best way to start your availability payment deals.
MR. FRAISER: I'm not convinced that the contents of your document would look that different for -- if it's an educational tool, would look that different for a tolled concession or availability payment. I think a lot of the issues that you'd be dealing with are common suffice. And I think to deal with both is -- and to attempt to deal with both in the time still that you have is not achievable.
I mean I think -- I think the respect the gentleman on my left, I'm not sure personally if he -- if there was of design build finance, this whole concession of availability payments, that you didn't have time to do, I'm not sure personally that -- maybe the design build finance section could wait and come later outside of your time. And I think the clarification for me is that you're not attempting to do anything on ground fields modernizations, which gives -- that's another beast in and of itself.
But I think within those two models, those basically kind of five or six buckets of issues that you -- you know, generic buckets of issues that you're dealing with, a lot of which come to face and it's not a big -- you know, it's not a big heavy lift to explain how the -- how and the ways in which those issues would be addressed, would be different in this whole concession model versus availability payment.
MS. MCELROY: So maybe even going back to where Jake was just a few moments ago, would it make sense to create something that just dealt with common provisions and then kind of make a commitment to over time dealing with variations on those depending on say the concession model used? Would that be useful? Because I doubt that we could kind of cover the waterfront between now and December.
And, you know, we haven't got much guidance as to what we're supposed to do, but one of the things that we were told is that we're supposed to start with the most popular kind of -- I don't know even know how to define most popular kind of concession when you're talking about such a small sample and there's so many variations based on each project as we've been talking about.
Jake, did you want to add anything?
MS. BROWN-DAVIS: Mark had something.
MR. SULLIVAN: You know, we talked about definitions in a different context. We talked about availability payments, not everyone might have the same definition. Do we even have the same definition of public-private partnership?
The DOT over the years has produced quite -- I'm kind of pulling a Jake here because Jake was the author of several of these. But we produced a number of documents over the years describing the phenomenon of public-private partnerships. In those, we've talked about P-3 as being anything other than a traditional design bid build.
What I'm leading to is a question that Bill Reinhardt was asking me before. He's not here now, but design build, is that for purposes of this definition of public-private partnership? There's certainly a massive number of design build contracts, you know. Are we going there or is that just
MS. MCELROY: Let me just -- that's a great thing to bring up, Mark. Let me just add that for better or for worse, the Office of Innovative Program Delivery has basically said that public-private partnership is something that involves transferring the financing risk and we've left it at that. So, you know, a regular old design build wouldn't be in our wheelhouse.
And I wouldn't mind spending a little bit of time on that if there's some differing opinions. Yes?
MALE SPEAKER: I don't disagree. I don't think design build is P-3. But I would point out that there's -- as you're having more of these very large transportation design build projects where the scope of the responsibility shifting to the design builder is increasing, there's a tremendous amount of overlap. A lot of the things that I think need to be addressed in standard P-3 contracts, like right-of-way, like utilities, like design review, and things like that, they overlap. But I still think -- I personally consider design build to be something separate and distinct from P-3 because of the finance component.
MS. MCELROY: Thank you. Steve?
MR. HOWARD: Yeah, I agree with that line. Where you get blurred though is design build finance, where the design build contractor is asked to finance what we call gap payments, which would in effect be delayed construction progress payments beyond the term of the construction period.
MS. MCELROY: And we wouldn't count that.
MR. HOWARD: I agree with that. I don't think that's --
MS. MCELROY: Okay.
MR. HOWARD: -- a true partnership.
MS. MCELROY: Yeah.
MR. HOWARD: But it's getting closer to the line.
MS. MCELROY: Yeah. We spent so much time as an office when we first started up figuring out exactly what it was that we were going to deal with. And we early on said we couldn't do everything, so we kind of had to narrow it down and that's what we got.
MS. BROWN-DAVIS: We have a comment back here.
MALE SPEAKER: I was just going to say, I mean, I think we can spend four hours, eight hours, whatever, trying to decide whether we should do, you know, availability payment or tolled first or whatever. I think if you want to get the most bang for your buck, what you need to do is look at what are the most common kind of terms across all these agreements and put something together for those, because if you do that, you're going to hit the widest swath and you're going to pick the things that -- the issues that come up the most.
So you get that set done and then you can think about, okay, what do we add on specifically. But I think if you're limited on time and you want to get the first thing out, that's where you prioritize your effort.
MS. MCELROY: Does anyone else have anything to say about that? That's a really interesting thought and it goes back a little bit to, you know, what I was talking about before and I think what Jake kind of put out on the table.
MR. SMOLEN: I hate to rain a bit on that parade. This is John Smolen from Nossaman again.
MS. MCELROY: That's okay.
MR. SMOLEN: But there will be a lot that generally overlaps between the two of them, but then there's going to be a lot that could be a bit of misdirection that is particular to a particular AP that you would look at or a particular concession that you looked at. And there may be things that appear in both in one context and don't appear in either in a different context.
So I would only ask that to the extent that we continue to beat the drum with educational, we would say if this was the very pragmatic strategy of putting out something, there would be a very permanent introduction that says things that we've all been saying. P-3s are unique. There's a lot of state input or public owner input that is a tail that wags several of the dogs. What you see is an overlap between, just to continue on Brad's point, APs and toll concessions. These are generally things that have, you know, as a sampling have been encountered. All of those things that just continues to communicate in the educational context, so the person who is coming to this fresh, this is not a plug and play exercise.
I'm self conscious that may be more derisive of the effort than productive, but I just -- I continue to have these impulses that we don't want to lose sight of the fact that homogenous is a nonstarter.
MS. MCELROY: Yeah. I think that you may have just, you know, said a really good quote, that this is not a plug and play exercise. I don't know exactly what Congress had in mind, but something tells me that they'd like to see a little bit of a plug and play and this would be very difficult. Any other thoughts?
MS. BROWN-DAVIS: Tamar?
MS. HENKIN: When you all were going your sifting, where does operate and maintain without finance come in? I mean it sounded like you were using finance as a strain that that's a P-3. But what about where a state maintains the finance piece, but does an operate and maintain piece? Would that be in or out?
MS. BROWN-DAVIS: Well, as far as our program of track is -- I mean we, since we're a finance office, focus on transactions that contain the finance aspect. However, I mean, we're interested in hearing your thoughts on whether or not we need to spend time for this particular effort focusing on the operate and maintain aspects of a transaction.
MS. HENKIN: Yeah, I think, sort of echoing comments from earlier, as long as you're -- it was over here somewhere -- as long as you're saying what's not in and why it's not in, then I think you have cover. So you can decide to, you know, focus on AP or focus on tolled, but say explicitly that one or the other isn't there for whatever reason, so that it doesn't appear to be that you're defining the universe of options for people.
MS. MCELROY: And one way that I'd say kind of how we drew our box was that if you're looking at a transaction that's a P-3 -- if you're looking at a transaction that involves a private entity along with a public entity to deliver the project and that transaction by its nature brought in kind of nontraditional sources of money, that's the transaction that we're interested in. So it's those transactions that by their nature provide kind of a conduit for funding that a state couldn't access through the traditional way, if that makes sense.
But that's a good point, Tamar, that we need to be clear on what we're talking about and what's included in our scheme.
MS. HENKIN: It will get messy when you wander down to the question about multimodal or intermodal facilities in terms of what -- you know, when you expand beyond tolled-based projects to other mixes of funding and finance and what's in there and that it's trying to be highway specific requirements.
MS. MCELROY: Yeah, I think you're right.
MR. MATHEOU: I think second somebody will use this -- sorry, it's Mike Matheou from Hogan Lovells here again. I think this echos something that you were saying earlier, that there's only so much you can do. And to have utility, I think focusing on one plain vanilla option before going for the confusing cream or the rocky road, you know, is really the way to go.
And to me the thing that needs the most education, coming back to that theme, is the full design build finance, operate, and maintain piece. Whether that's got availability payments or it's a toll concession, I think -- I don't think you can manage that degree of variability. But getting people to understand the impact of how you specify the design at the outset, the level of freedom that you give people to optimize the design so that you get efficient cycle maintenance, and the impact of setting your hand back requirements to the end of the concession and seeing that whole symmetry and how that all ties in with the finance piece, I mean, that's pretty fundamental stuff that is key learning materials that you need to get across to people.
And I think if you focus on that model and focus on it for, you know, a relatively plain vanilla road, so not a tunnel nor a bridge where other issues can come into play and get your base case sorted out, and you can look at adding the cookies and cream or the rocky road after that.
MS. MCELROY: And that's a real good thought. Any other -- any comments on what you just heard?
MR. VANMETER: I would agree that in the short term that would be a good idea.
MS. BROWN-DAVIS: Speak up, Darryl.
MR. VANMETER: I can't, not there. Having just converted a DBFOM to a design build finance, he's exactly right. I mean there's elements in there that can be pulled away and extracted to meet your individual needs. And so that's a quick way for you to cover all the bases without over prescribing.
MS. BROWN-DAVIS: Thank you.
MS. MCELROY: So this is really intriguing to me, I have to say. Any other comments on this? DJ, you're not allowed to use your Blackberry.
MR. GRIBBIN: Wow.
MS. MCELROY: What do you think?
MR. GRIBBIN: This is a tough crowd. It is, it is, when it comes to you anyway. Any comments?
MR. WEBSTER: I think that's a very pragmatic approach of doing sort of the biggest picture possible, especially on sort of the simple, you know, road without tunnels and bridges or anything else, because it does give people that opportunity to sort of digest it as much as possible, pull pieces out when they need to. And, you know, if you want to use the most popular term from the statute, you know, roads are the most populous part of the infrastructure. So it's also going to sort of have a pragmatic effect on addressing what is, you know, the most common. So I would support that kind of approach.
MS. MCELROY: Mark has somebody. Yes?
MS. MAYER: I'm just going to quickly say I completely agree that that's the easiest way to implement this, partially because if you think
about -- can people hear me okay?
MS. BROWN-DAVIS: State your name.
MS. MAYER: Jennifer Mayer, Federal Highway Administration, Innovative Program Delivery. Briefly, we think about the difference between the availability payment and the real toll concession. If we go into the AP, we have to talk about managing performance and the provisions that you put in, in the absence of the toll motivation. With the real toll concession, you can -- you just have to talk about the revenue, which is one can of worms which I'm more prepared to open up than I'm prepared to open up the can of worms about performance standards in an availability payment.
I think we would want to take on both eventually; but if I had to choose and being someone that may be called on to help with this, my bias would be towards attacking the toll concession first.
MS. MCELROY: Any other comments? Mark, Jake, Deborah, did you want to comment on this? It's an intriguing approach.
MS. BROWN-DAVIS: Was your hand on its way up?
MS. MCELROY: Pardon me?
MS. BROWN-DAVIS: No, DJ looked like his hand as on its way up. Oh, okay. Morteza has a comment on that.
MR. FARAJIAN: Maybe another thing to consider is that some states might not have the appropriate legislation for availability payment, so that might not be applicable for some states. So that's something that you may want to do some research and see what states can use an availability payment model more or which states can use a toll concession model more.
We have also received a lot of projects -- a lot of applications for TIFIA for the next or two years, so that might be a good indication of where the states are going. So that can pretty much provide some insight in the next two or three years how the projects are going to be procured. So that can be a good indication for you.
And I also wanted to mention another side that maybe we are not discussing right now and that's the -- after you sign a contract, there is a lot of things that's going to happen after that. People are going to implement it. And we talked about definitions and how we want to have similar definitions among different contracts, so we understand each other when we are talking about different terms.
Another piece of it is that after we sign a contract, there's a lot of interaction between the private partner, between the states, and FHWA. And there are a lot of provisions actually about those interactions in contracts.
So that might be actually another low hanging fruit, that we develop provisions to make sure that there is a process in place that all projects are following the same system, the same process, in terms of -- for example, one of the things that comes t my mind is the necessary approvals for instruction. It could be interactions with Army Corps of Engineers for construction permits. It could be approvals from FHWA. It could be the release of federal funds and payments or project development plans. It could be in terms of the finance plan, major projects finance plan and how it should be updated on an annual basis, whose responsibility it is. It could be in terms of communication between the concessionaire, states, and FHWA in terms of certain risks or certain activities, for example, NIPA documents, and who is responsible for who and when should it be done and whose risk it is.
So there are a lot of provisions in the contract that is related to all this process, that maybe if you can also tackle that. I would say it's a low hanging fruit because all projects have to go through this process. And if there is a certain process that is applied to all different projects and different states, it makes it easier for the concessionaire, it makes easier for the states, and it also makes it easier for FHWA.
MS. BROWN-DAVIS: All right, thank you.
MS. MCELROY: Thank you very much. Lots of stuff to think about there. Any other comments?
MS. BROWN-DAVIS: All right. Don't feel limited to the contract type. Remember we still have provisions on the table. I sort of skipped over the section on specific provisions, but if you, you know, have any thought that you were holding on to on that topic, please feel free to continue that discussion as well. John?
MR. SMOLEN: Again, my brain is working in the background with some of the things, all these wonderful things that folks have been saying. I'm thinking maybe again to abstract out that a glossary would be a really good beginning place for these sorts of things. Again, not getting in the definition morass that we discussed before, but general terminology and then that -- that can be -- that can also communicate just by the presentation of a glossary as sort of first out of the gun, that this is more complicated than the plug and play. And I'll stop there in terms of ideas about the glossary.
But I wanted to put that out there. If the goal is to discuss what would be the most bang for the buck from your efforts and then here and now in the short term to produce to the group, I'm just thinking that the glossary solves a lot of those problems. It gets us all talking about the same thing and it also gets us focused on concepts that are pervasive, but not necessarily uniform.
MS. MCELROY: You know, I like the idea of a glossary. We have a problem though with making that our kind of first deliverable, if it's going to be our only deliverable by the end of December, because it doesn't answer the mail. We've been told that we need to do these templates. And I don't think we can -- we have a leeway here, but I don't think we have enough leeway to redefine the word "template" to mean glossary. But I like your idea and perhaps we'll do it under -- in a different context.
MALE SPEAKER: Just to kind of follow up, I actually agree with John a hundred percent in this pretty much.
MS. MCELROY: Is that unusual?
MALE SPEAKER: So far, so far. But, you know, you're looking, you have your bread and butter as you said and you have your cream, your tolled, and your availability payments. I mean why limit the cream? Why not give a sample transaction with shadow tolls or something where you combine availability and toll, just to give somebody -- and I mean Columbia did a transaction where they combined availability and toll. We have some others where they have variable terms, concessions. There's a lot of things going out there in countries that are not as developed as the U.S.
And I think that it's good for us to see this menu of options. I would hate it for, you know, my own country to be a bit behind the rest of the world that we're donating money to and teaching. So I think that maybe some sample transactions with using different types would be good.
MS. MCELROY: Ah, so this is the first time I think we've heard the idea of sample transactions and maybe applied to some sort of template, and that even provides some opportunity for variation. Any ideas -- any thoughts about us producing sample transactions? How does that sit with people? I think everybody is getting tired.
MS. BROWN-DAVIS: Well, I was just going to, you know, take that a step further. I mean in the context of a P-3 transaction, what would a sample transaction look like? Any thoughts on how that could be formulated? I mean you brought up the notion, did you want to expand on that? Give us some thought?
MALE SPEAKER: I guess since I'm being a little bit open here. I mean we have -- I don't know, I mean we -- the one that we use at the World Bank, we use Ruta Del Sol. In Columbia, which is a P-3 transaction that basically you had a problem, the problem was you had difficult tunneling through sections of mountainous sections in Columbia and they wanted to connect from basically the mountainous areas in Bogota all the way to the sea. And they solved it by breaking the concession into three different sections and it happened that they achieved bankability in a situation that wasn't. And they applied to the different sections something that's more of a design build for certain sections, something that's more of a toll, and something that's more of a toll plus availability.
So, you know, sort of looking at the objective of having this whole thing be sort of under private sector provision and then thinking about the challenges and thinking about how you solve it using different mechanisms and then eventually achieve success, then you have sort of a print. But, you know, it's just one sort of sample that the advisory services has done. And there's a guy named Richard Coervail, who is sort of the expert on this over there.
That sort of came to mind when I was thinking of it. But I'm not prescribing anything. I was thinking more broadly. And in terms of what that would like it, I think it would take a bit more thinking. So I'm just telling you what was on the top of my head.
MS. MCELROY: Okay, fair enough.
MS. BROWN-DAVIS: Thank you.
MS. MCELROY: And that's what we're doing here. That's good.
MS. BROWN-DAVIS: Thank you. Steve?
MR. HOWARD: My personal view is that going the sample route is probably not a good use of limited resources, at least out of the box, and that the focus should be more for this, at least this initial effort along the lines of what we discussed earlier around sort of the traditional regular way, design, build, finance, operate, and maintain, tolling sort of project concept and developing the commentary around the common provisions for that base case concession agreement, which we all know and know well, and maybe some sample provisions or examples of how these provisions have been actually -- have actually appeared in certain contracts and leave it at that. I think that will be a huge accomplishment to pull that off by the end of the year.
MS. BROWN-DAVIS: Let me ask you a question along those lines. You mentioned that, you know, we know that model of design build, finance, operate, maintain, toll, concession pretty well. Do you think that maybe since there are some existing examples of that model out there, that maybe that's a resource that would serve a lot of new states fairly well? And perhaps value might be added by trying to focus on another type where there might not be so many existing examples? I'm just throwing that out there for thought.
MR. HOWARD: I don't think so. I mean my view is that there's still a lot of states that have a lot to learn about that basic model. There's so many stakeholders at the state level and local level around these projects that still need to be educated. I think it would be a huge accomplishment just to get a broader information base around the base model and then evolve it maybe to availability and take it from there.
MS. BROWN-DAVIS: Okay, great.
MR. FRAISER: Yeah. Because in response to Steve's point, I'm not -- I think and it stands to reason in some respects, but the private sector does understand the basic standard, you know, plain vanilla type P-3 contract and what it looks like, whether its availability or tolled revenue type deal
But the government sector doesn't actually. And even within the states that have done a lot of P-3, there is, my experience, an issue with know-how retention, right. A number of states face the issue where once they've done two or three projects, they lose the people with the know-how to the private sector. We all know that, right? And the people are then left to do the follow-on deals. They don't have this database that they can go to.
I mean, I think it's really important for you guys had a task for taking this forward, so you not underestimate the benefit of an educational tool. Just because all of these deals have happened, doesn't mean to say that there is -- there is a repository in every contract that's publicly available. And everyone in this room that is advising public authorities will tell you that we don't spend a lot of time talking about what the words of the provisions should say.
What we actually spend a lot of time talking about is the underlying principles and getting agreements on the principles. And that's why I think, you know, the commentary idea is key because it's -- you know, you can at one level provide a template contract, right? It's for every provision in which we all agreed it's probably not ideal. But it's more about, you know, every single P-3 deal has to include provisions that deal with the same issue. It's about having something -- somewhere that you can go to a manual that outlines what those issues are that you're going to have to face.
And there are tons of P-3 toolkits, right. But every single one of our government client says, you know what's really unfortunate about most of those toolkits, they only get you up to the point where you've decided that you want to do a P-3, right. They don't take you beyond that. And this document, even though it might not be an all singing, all dancing contract, it is going to be invaluable if it's just an educational tool.
And I think the moment you go away from the basic idea -- Mike's comment, which I wholly endorse- -- you will start to spiral out of control in the context of your timetable. You know, every project has common -- has issues that are dealt with on every project. Some of them those have got twists and turns; but it's a demand risk or availability deal. And then every project has project specific issues. The moment you start going down example projects and stuff, you're getting into the project specifics or examples of project specifics.
Once you've gotten this exercise out of the way, you can do as many case studies as you want on individual transactions. But I think keeping it simple is not going to result in producing something that is beneficial and arguably, you know, the government sector is crying out for.
MS. BROWN-DAVIS: Great, thank you. Morteza?
MR. FARAJIAN: Just an experience that I went through within the last year, when we talk about projects, specific provisions in a project and we talk about this sample, you know, contract -- sample projects, it's very important to understand that, as Andy said, each projects has certain characteristics. And at a certain point of time, based on certain information that was available, the team that was working on the project made certain decisions. And when now we go and look at those provisions, it's very important -- if you want to go to the detail of exploring how the contract is designed for the specific project, we need to explain all the underlying assumptions and information that was available to that team at that particular point of time.
I get this question a lot that you used this provision in project X, why didn't you use in project B, why did you change it; if it was good and it was protecting public interest in one project, why in the second project you didn't use it. And people make all these comparisons. The important thing that sometimes is lost is that each project is unique, the situation is unique, the risk for each project is different. And also the decisions that are made are based on different level of information that is available. So it's very important to understand that.
Even for example for -- as simple as a compensation event, as simple as -- like when you're going this procurement, what is the level of accuracy of different studies that you have. Because based on a lot of different factors, you may make different decisions and different provisions would be added or deleted from the contract, which is very different from one project to the other project. If your survey, aerial survey level of accuracy is this much, your decision might be different than if your -- if the survey is different. If you have investment-wide traffic and revenue already done, it might be different than if you have level one or level two.
So my point is that it's very important to understand if you're focusing on one project, you need to just explain all the details of why the decision was made, so it's more educational rather than prescribing a provision.
MS. MCELROY: I think you are talking about a case study there, as opposed to a sample that we would apply a template to. Very good comments across the board. Lots of food for thought.
MS. BROWN-DAVIS: DJ has a comment.
MS. MCELROY: You have something else to say?
MR. GRIBBIN: Yes.
MS. MCELROY: Okay.
MR. GRIBBIN: I think Jen needs a challenge and I think it would be good for her to do an availability payment type deal. If you look at the projects that are coming up, more and more availability payments and there's a significant gap there even in states that have done P-3s before about some of the issues that swirl away. So if your delivery timetable is December, I think that would be more -- I agree with all, keep it simple, but I think that would be a more valuable deliverable than one that talks just about sole user fee with no state contribution.
MS. MCELROY: Okay, Jen, what do you have to say?
MS. MAYER: I very much appreciate DJ's faith in me. I'd like a lifeline and I'd like to follow up on the gentleman -- I don't know if that was Mr. Fraiser that spoke, sitting at your table.
MS. MCELROY: Andy, right?
MS. MAYER: You were saying that all the toolkits get you to the point where you're ready to consider a P-3 and they don't really get you to that extra point. Is there a toolkit that you've used overseas or in the U.S. that has been a useful educational tool that we could adapt some of our material from? What has been useful to you? And I don't want to -- I know there's many, many resources out there; but if anybody has anything that they can tell us about after this that has worked, it would be helpful because we want not to start from scratch if possible.
MS. MCELROY: Okay. Lots of good conversation. Let me throw out something right now. We're at about the 3:00 mark and maybe we have exhausted this overall subject. I don't know. But I'm going to take a sheet from my husband's playbook and his favorite question is, what should we have asked that we haven't asked. And so I would throw that out there.
You see the questions, the topical areas that we came up with, the questions under each one. What should have been up there on the screen that you didn't see that you'd like to talk about in particular? Yes?
MALE SPEAKER: I think one of the questions is, and if we're talking about best practices or at least issues to spot, one of the issues to spot is to me what could DOT do on its end in terms of how it administers funding to enhance P-3.
MS. MCELROY: I'm sorry, I didn't understand that one.
MALE SPEAKER: What could DOT do --
MS. MCELROY: You mean USDOT, okay.
MALE SPEAKER: USDOT do in terms of when it comes to TIFIA funding and other reviews and approvals to enhance the process. I mean a number of gentlemen raise the issue of 11th hour requirements being implemented that are not required by statute or regulation having an adverse effect, not just on those individual projects, but that kind of uncertainty I think ultimately has a depressive effect on the P-3 market if you will.
MS. MCELROY: That's a good point. I think some of those items can be addressed in P-3 model contracts and some of them probably should be addressed in a different context.
Jake, did we miss anything that you could think about?
MR. FALK: Maybe one more way to frame the question is certainly we want this to be a useful exercise and to produce something that will be useful for folks. If there's anything else that -- any other ways to think about these contracts or frame them that would make them more usable, that's something we definitely be interested in as well.
MS. MCELROY: And I think Jake makes a really good point. We genuinely want to develop something that is useful and at the same time we don't want to develop anything that inadvertently dampens the market, so -- and that will be a line that we're walking. Building on what Jake said, any thoughts about what could make the ultimate deliverable particularly useful? Jake?
MR. GILL: Matt Gill, Transurban. Has USDOT had any conversations with your counterparts in Canada?
MS. MCELROY: Not really. Jake has underway a project whereby we're going out and looking at what other countries have done in this area. And so we're just kind of starting on that and we're going to build on that effort. Can you recommend something in terms of Canada?
MR. GILL: Well, I attended their national conference in November and I was -- it's a world of difference from where we're at here. And they've clearly been -- they're clearly way ahead of us in contractual issues, public acceptance, the transparency, the standardization that -- well, standardization to the extent it can be, which it sounds like Congress's mandate here. And I just think that they're -- I know they were very open, both all the provinces, Ontario, B.C. , Alberta, Quebec, as well as the federal office was very open to accepting international visitors and visitors from the states to share their kind of lessons learned and best practices. And I think it would be worth, you know, someone from the USDOT throughout this process, you know, contacting some of those people.
MS. MCELROY: I think you're probably right. And Deborah has done some work in reaching out to Australia and getting some input from them as well.
MR. FALK: Yeah, I think some of the jurisdictions that we've identified in our process here of sort of due diligence include Canada, the U.K. , Australia. And I guess one question to throw out along the lines of what Jen asked earlier, which resources to the people in this room think would be most useful, most relevant, and not just which ones have developed standard contracts, but also what are the differences between those jurisdictions and the United States that limit the value of some of the exercises they've done. These are issues we're looking into and we definitely would appreciate feedback or ideas on that front.
MS. MCELROY: Steve?
MR. HOWARD: At the risk of boring people with my personal experience from 30 years ago, one of the things that the U.S. EPA did in its technical assistance program after it developed this package of information similar to what you're doing is they conducted a traveling road show that was sponsored by the government, by the U.S. EPA in that case -- in this case it would be DOT -- that went around the country and offered, you know, a day or day-and-a-half seminar to state and local officials at a very low cost. I don't remember what it was.
Not that you would want to compete with the private conference sponsors. That really wouldn't be the intent. But this would be more of a nuts and bolts type workshop, to take what you pull together through this process and present it in a very basic understandable way to state and local government officials.
MS. MCELROY: I'm glad you brought that up. And, you know, today we've been concentrating on what should this template look like or series of templates. But the second piece of what Congress told us to do is go out and promote it, so that's a good idea. And I never get tired of hearing what you've done in the past if it worked.
Mark, any comments? Observations? Things that we should have asked that we didn't ask?
MR. SULLIVAN: I'm still wondering why the Seahawks didn't kick a field goal the second quarter. So, I'm fine.
MS. MCELROY: Okay.
MR. FALK: We have a comment over there.
MR. SULLIVAN: Thank you for asking.
MS. MCELROY: Okay. Yes?
MALE SPEAKER: Sorry, Regina, I'm just focusing on what you had said your husband had recommended, what is it that you should have asked us to do. I'm again reflecting on what we've talked about today and I think from a very high level, a lot of what we have been doing is recommending what it is that the thing that Congress said you're supposed to do should look like. And I'm not sure if in your view that can be informed by an arrow sort of pointing the other way that says what are the people out here who are going to be the recipients of these things, what would they want, not how should the thing that you give us -- you know, how can we make the thing that you've mandated us to give you look, more like what do you guys want.
And I put that out in part to assume a little bit of your role as a corollary to your more generation question. I have nothing personal to offer to answer that question, but I'm wondering if that would be a useful question.
MS. MCELROY: No, I think that that's a good point. And it struck me and I mentioned to Deborah that when we get a little further down the road and we kind of have a game plan, we need to go brief the folks in Congress that came up with this idea and say, okay, this is what we're planning to do and maybe even give some of the flavor of, you know, folks were kind of scratching their heads as to what you asked for and thought maybe the question should be a little -- or the question should be a little different, what do you think of that, and have that communication with them, because, you know, there was so little in the way of detail on this.
I'm happy that they asked for it to be honest with you. I think that it really gave us a license to provide some useful information to the community that kind of didn't have it before and so this has been a huge positive. But now the challenge is figuring out how to deliver and what really is useful. So, yeah, I think we'll probably do that.
Any other questions? Comments? Anything? I think this has been just a great session. I know that I've gotten a lot out of it, learned a lot. It's not 4:00 yet. There's no rule that we have to go to 4:00, but we don't want to close before we make sure that we've heard from everyone that has something to say. Yes?
MR. FRAISER: I'd be interested to hear experience of other folk in the ring and I don't know to what extent you'd have the ability to do this. But, you know, we talked a lot about -- and DJ made comments around the benefits of addressing issues around the availability payment model.
Up and down the country more and more we speak to different DOTs that are all expressing the same concern about availability payment models, which is that there's no real guidance from GASB on how to account for those types of projects, whereas there is good guidance -- about this guidance that actually, you know, does attempt to give indications on how to deal with that. It's relevant because the rules around how to account for availability deals may well influence how the terms of those contracts should actually look.
I mean we certainly have conversations with GASB and they have use. But, you know, the sooner they can come up with guidance around that issue, I think the better because it is definitely -- it's a point that -- because of that point, until it's unlocked, there will always be a bottleneck I think in the use of that model of contracting.
So I mean I would encourage you to, to the extent it's with agreement and you can, to consult with GASB and try to get a sense of how long it might be. They are aware -- they very explicitly excluded treatments of availability payment deals from the guidance that they published last year or at the end of 2011, I can't remember when it was. And they do definitely have something in the pipeline I believe. The sooner that can come out, the better I think.
MS. BROWN-DAVIS: Well, I mean, that's great. I'm encouraged to hear that GASB is finally paying some concerted attention to this because I know it's an issue that's been kicked around for a number of years where states were concerned about whether or not availability payments would be considered as debt and how to factor that into their planning. So I don't --
MS. MCELROY: We can look into that.
MS. BROWN-DAVIS: Yeah.
MS. MCELROY: I actually have had some experience working with GASB in a past life and we can see what we can do to facilitate that conversation. And we give a lot of webinars. Maybe that would be -- once we have a better idea of where they're at, maybe that would be an idea for us to do some education on and that might spur their activities too.
Anything else? Prabhat, anything that you'd like to offer?
MR. DIKSIT: Listening and learning, it's -- I'm a finance guy learning contracting, so this has been very educational.
MS. MCELROY: Okay, thank you.
MS. DIKSIT: I'll keep my thoughts to myself for a while until I learn more.
MS. MCELROY: That's okay. That's good.
MS. BROWN-DAVIS: Hank has something.
MR. WEBSTER: Just on the very specific issue of looking to what other countries have done, to lighten Jake's load a little bit, there was a SCAN five or six years ago and an expert task group and all that, so it might be helpful to, you know, farm out some of the work. If, you know, FHWA wants to reconvene that expert task group, I'm sure -- I think a lot of the folks are still around in the industry. I was not on it. I came in after it was done. Unfortunately I didn't get to go anyway. But the expertise is still there. The people who have done work in multiple countries and can quickly sort of find the right resources to look at everything that's been done overseas might be helpful.
MS. MCELROY: And I'm looking here, Jose Manuel was here from Spain and it looks like he has gone. But he was part of that SCAN trip that you were talking about and will definitely tap into him.
Patrick, anything that you'd like to offer?
MR. DECORLA-SOUZA: Not really. I think this has been great. I learned a lot. And as Regina was saying, we have developed a tool for value for money analysis called P-3 Value and if anyone is interested, give me your card and we'll send you information. Thank you.
MS. MCELROY: And let me also mention that Jen Mayer, who has spoken up a few times, also works in the area of P-3s in our office. She just completed, I don't know, six months ago a P-3 primer that is on our website that I think personally does a very, very good job of kind of laying out the basics of P-3s. And she was also instrumental on putting together our P-3 program plan, which she kind of gave over the fence to Patrick to implement. But anything that you'd like to add or question, Jen?
MS. MAYER: I'd just like to thank everybody for coming and continuing to participate. This part of our P-3 program is gaining the expertise of everybody. So this has been a very valuable forum.
MS. MCELROY: Okay. Deborah, anything else?
MS. BROWN-DAVIS: No comments. I echo my colleagues statements in that this has been very beneficial, very educational.
MS. MCELROY: Oh, we've got one comment over here. Question? Questions are good.
FEMALE SPEAKER: Hi. Sorry if this is inappropriate to ask, but I was just wondering what are the next steps for your team in developing the actual model contract? And while I very much appreciate the opportunity to be here and I've been, you know, educated by a lot of this feedback, I'm wondering if we'll be getting a chance to provide further feedback to you on an actual draft.
MS. MCELROY: Yeah. That's a great question. The next step is for us to work on defining what it is we're going after and that's -- this was very, very helpful to get us to that point.
And then Prabhat is going to actually work with a number of folks to put together a statement of work. We will go out and get a contractor to help us do whatever it is that we decide that we're going to work on.
We will keep the docket open, so that's a continuous opportunity to provide comments. We have not decided yet, but we might very well put out a draft and then solicit comments again through a listening session. We kind of haven't figured that out at this point.
But what we do want to do -- we've got to get our job done. We've got to get to December and have a deliverable. But having said that, we want to make sure that we hear from everybody that has something to say. And we recognize this is a really big thing that we're doing and it could have some significant implications on the model in this country for implementing P-3s. And so we want to make sure that we do it right and that it is useful.
Jake, did you have anything you wanted to add to that?
MR. FALK: I think you covered it well in terms of what the next steps are. And just to reiterate, as we go through that process, we are going to be looking to keep everyone engaged and to make sure that all of the different stakeholders have the opportunity to provide input throughout the process.
MS. MCELROY: Thank you. Deborah?
MS. BROWN-DAVIS: The Federal Register docket number is posted on the web, on the screen here, along with the link for where you can electronically submit comments. That docket will remain open until May 31st of this year. There's also copies of the Federal Register notice, if you haven't already seen it, and that has the docket number and the link included for your reference.
So we're happy to receive your input today. We're very, very pleased and very grateful for everything you've contributed thus far, but this is not of course your last opportunity to let us know what you're thinking. So, please, we encourage you. We have done our best to try to record the information that you've shared with us today. But, again -- I mean you heard the acoustics in this room, so I'm not sure how well we were able to capture it. And I would encourage you to record your comments and your thoughts, even though you've shared with us today, to please also submit them via the Federal Register docket or send us an email of what have you, so that we do capture your thoughts correctly. Thank you.
MS. MCELROY: Well, I want to thank Deborah. She has done a great job facilitating this conversation and Probhat did a great job setting things up. And most of all, thank you for all your comments and participation. It's just been great. Thank you. And be safe going home. Again, appreciate it.
(Whereupon, at 3:22 p.m. , the conference in the above-entitled matter was concluded. )
CASE TITLE: Model P-3 Contracts
HEARING DATE: January 16, 2013
LOCATION: Washington, D.C.
I hereby certify that the proceedings and evidence are contained fully and accurately on the tapes and notes reported by me at the hearing in the above case before the United States Federal Highway Administration.
Heritage Reporting Corporation
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