Refer to: HCC-l
Michael W. Behrens, P.E.
Texas Department of Transportation
Austin, TX 78701-2483
Dear Mr. Behrens
The Federal Highway Administration (FHWA) has completed its review of the Texas Department of Transportation (TxDOT) "Texas Toll Roads Statewide Open-Road Toll Collection System Project" (System) Special Experimental Project No. 15 (SEP-15) application. The application was submitted to the FHWA Texas Division Office (Division Office) on March 8, and was forwarded to the SEP-15 Steering Committee on March 14. The Office of Chief Counsel was tasked with the lead for reviewing the application and coordinated the review with the Office of Planning, Environment, and Realty, Office of Infrastructure, Office of Policy, and the Division Office. Based on the comments provided by these offices, the SEP-15 Steering Committee recommended, and I concur, that the System be accepted for administration under SEP-15. FHWA's response to each of the proposed experimental features for the System is discussed below.
FHWA's acceptance of the System for administration under SEP-15 does not commit Federal-aid funding for the System. Until there is formal FHWA project approval, FHWA retains the right to deny Federal funding for the System at anytime. If you wish to proceed with the System under the SEP-15 program, the next major action will be to work with you to draft an Early Development Agreement (EDA) for the System. The EDA will contain parameters to guide key elements of the System such as project planning and design, environmental review, right-of-way acquisition, procurement method, regulatory compliance, time lines, financing, construction, and operation. The EDA will also identify the performance measures that will be used to evaluate the success of the System's experimental features.
We will also work with you to address any Intelligent Transportation System (ITS) National Architecture conformance issues. Pursuant to Section 5206 of the Transportation Equity Act for the 21st Century, any ITS project carried out with funds made available from the Highway Trust Fund must conform to the national ITS architecture. Since Texas does not have a statewide ITS architecture, an architecture for the System will need to be developed. Developing an ITS architecture would require that TxDOT implement standards, or be prepared to incorporate future standards, to ensure the System will be part of a uniform, nationwide, system of toll tags and transponders.
Based on your application, we understand that TxDOT would like to execute a Comprehensive Development Agreement (CDA) with a developer which will include concept development, design, construction, installation, integration services, and maintenance of an integrated statewide open-road toll collection system (System) on one or more toll roads. The CDA also may include the operation of a customer service center for toll processing, collection activities, customer account maintenance, and enforcement activities. The estimated cost of the System exceeds $5 million and thus falls within the definition of a qualified ITS design-build project.
It is FHWA's understanding that the System would be implemented on State-owned and operated toll roads, including the 22 miles of existing toll roads, 72 miles of toll roads under construction, and 250 additional miles of toll roads that are expected to come on line over the next 5 years. We understand that you are in the process of determining the System's requirements and the scope of services to be provided under the CDA. We also understand that you currently anticipate that the CDA will require the developer to develop, design, construct, and install components of the System on individual toll road segments identified by TxDOT (Segments) and to provide maintenance services for the completed Segments. Construction work would constitute a small fraction of the services to be provided under the CDA.
The CDA would have an initial la-year term and give TxDOT the right to issue notices to proceed with separate Segments at any time during the initial 5 years of the CDA. The first notice to proceed would obligate the developer to develop the overall System concept and to design and install a prototype of the System, potentially on one or more initial Segments. Segments could be located anywhere within the State and will likely involve several different roadway configurations. The developer's maintenance obligation for the System components on each Segment would commence on completion of each Segment and would continue until the end of the la-year term. Your application also indicated that you would potentially hold options to extend the operations and maintenance obligation on a Segment-by-Segment basis for subsequent I-year terms, up to an additional 5 years.
Experimental Feature 1: TxDOT requests a wavier to use a modified procurement approach. The sub features, discussed below, include: (a) the ability to ask for supplemental information after opening the initial responses to the request for detailed proposals (RFDP) that could be considered in the evaluation of a proposal; (b) the ability to enter into negotiations with the selected firm(s) prior to award; (c) the ability to incorporate ideas from unsuccessful proposers; and (d) the ability to issue an RFDP and enter into the CDA without having received final approval under the National Environmental Policy Act (NEPA) for all, or any, of the individual highway Segments on which the System will be installed.
Experimental Feature 1a: TxDOT requests a waiver to ask proposers for supplemental information that could be considered in evaluating a proposal, without following the procedures for exchanges of information, communications, or discussions which are set forth in the design-build regulations.
Purpose: The proposals would be evaluated in accordance with the process and evaluation factors that will be set forth in the RFDP, with selection based on a best value determination. TxDOT wishes to enhance the value of the winning proposal by being permitted to seek supplemental information after opening the responses to the RFDP. TxDOT would like to be able to allow the proposer to modify its proposal in response to this supplemental information. A decision to ask for supplemental information will be made only if TxDOT determines that such a request will not create an unfair competitive advantage.
Deviation from FHWA Requirement(s): Under the current design-build regulations, TxDOT can (I) ask for clarifications (minor or clerical revisions) of proposals or engage in communication with a proposer that would enhance the State's understanding of the proposal (23 CFF 636.403 and 406); (2) engage in communications with a proposer to address issues which might prevent a proposer from being placed in the competitive range; however, communications may not be used to cure proposal deficiencies and shall not provide an opportunity for an offeror to revise its proposal (See 23 CFR 636.407, 408 and 409); and (3) conduct discussions with proposers after determination of the competitive range (23 CFR Subpart E).
FHWA Response: TxDOT may conditionally proceed with this experimental feature. The proposed procedures for obtaining additional information should be approved by FHWA prior to inclusion in the RFDP. The circumstances under which TxDOT may need to ask proposers for supplemental information and procedures on how to obtain this information will be set forth in the EDA. Such procedures must address information on how TxDOT will avoid creating an unfair competitive advantage to one proposer.
Experimental Feature 1b: TxDOT requests a waiver to have the ability to enter into negotiations with the next highest rated proposer if negotiations with the apparent best value proposer fail.
Purpose: TxDOT intends to proceed with one-on-one negotiations with the selected proposer prior to award, for the purpose of finalizing the terms and conditions of the CDA. Negotiations would include clarification and minor adjustments, and could address other matters as deemed advisable by TxDOT and allowed by State law. TxDOT would like to have the ability to proceed with negotiations with the next highest rated proposer if negotiations with the apparent best value proposer fail.
Deviation from FHWA requirements: The design-build regulations do not contemplate negotiations with the next highest bidder in the event negotiations with the selected proposer fail. (See 23 CFR 636.513)
FHWA Response: TxDOT sets forth a reasonable approach to dealing with the second highest proposer should negotiations with the selected proposer fail to result in the execution of a CDA. FHWA concurs with this approach. However, a modification of the price or scope of services to be provided under the CDA as a result of negotiations with a proposer would be a violation of the provisions of 23 CFR 636 Subpart (E). These regulatory requirements will be waived for this project, subject to the same conditions discussed below regarding the disclosure of concepts submitted by unsuccessful proposers. The EDA will cover this issue more comprehensively.
FHWA understands that we will have the opportunity to observe and/or participate in the evaluation, selection, and negotiation processes. We also understand that the request for FHWA's concurrence in the award of the contract CDA will be accompanied by a timetable showing the major steps in the procurement process, a summary of the rationale for the selection, and a description of any material changes made to the CDA during the negotiations. Following receipt of FHWA concurrence, TxDOT will then award, execute, and deliver the CDA in accordance with the RFDP. We understand that TxDOT anticipates issuing a notice to proceed for the design and development of a working prototype shortly after execution of the CDA.
Purpose: At the predevelopment stage in which other proposal details will be shared with the selected firm, the firm will not actually be "selected" since a contract will not be in place at that time. While sharing other proposal details could give an advantage to the selected firm, the advantage of TxDOT having leverage in negotiations is a viable experiment.
Deviation from FHWA regulations: This request deviates from FHWA's design-build rule in that concepts submitted by unsuccessful proposers would be disclosed to the successful proposer prior to award in violation of 23 CFR 636.507.1
FHWA Response: Experimental feature l(c) is approved on the condition that the EDA will provide specific detail on how the proposal evaluations and negotiations will be carried out (i.e., notification to the proposers in the RFDP about this feature of the evaluation and negotiation process, "fallback" provisions if negotiations fail with predevelopment contractor, etc). Also, detailed evaluation criteria should be included in the RFDP, as well as a statement that, by submitting a proposal, the proposer consents to sharing of proposal details to another proposer who is the selected firm. The EDA and RFDP, as appropriate, must address how TxDOT will avoid creating an unfair competitive advantage to one proposer.
Experimental Feature 1c: TxDOT requests a waiver to issue a RFDP and execute a CDA without having received final approval under NEPA for all of the individual highway Segments on which the System will be installed.
Purpose: TxDOT's proposed procurement approach would generally follow short listing, industry review, and RFDP issuance processes that are consistent with FHWA's design build rule.2 Upon conclusion of the industry review process, TxDOT will submit the proposed RFDP, including draft contract terms and conditions, to FHWA for review and determination as to whether the document is satisfactory for further processing. Such a determination means that FHWA has reviewed the document and has determined that it is in acceptable form for the purpose of allowing the System to remain eligible for Federal aid funding. Following receipt of such determination, TxDOT will issue the RFDP to the short listed firms. In as much as TxDOT will not have identified which facilities will be tolled and/or where the System would be deployed, it will not be possible to determine what NEPA analysis will be required in connection with installation of the System.
Deviation from FHWA Requirement(s): This step of the process deviates from FHWA's design-build rule, 23 CFR 636.109 because TxDOT is proposing to issue a RFDP and sign a CDA prior to the receipt of final NEPA approvals for any specific highway Segment that may be further developed as a turnpike facility.
FHWA Response: TxDOT may conditionally proceed with this experimental feature. The RFDP must not commit TxDOT to a particular set of transportation improvements, but rather represent a commitment to enter into detailed negotiations with one or more prospective private partners. For each transportation improvement that meets the criteria for independent analysis in FHWA's NEPA regulation (23 CFR 771.1II(f)), FHWA would expect that the CDA would be drafted to ensure that alternative solutions are fully evaluated under TxDOT and FHWA direct oversight, and that appropriate safeguards are built into both the partnership agreement and the NEPA process to ensure that conflicts of interest are avoided.
We strongly recommend that the RFDP require developers to outline the anticipated NEP A level of documentation and process, if such information is available. The RFDP should clearly state that the NEPA process could result in the selection of a no-build alternative or an alternative not originally envisioned in the CDA. The FHWA will work with the TxDOT to ensure that the RFDP and CDA are properly drafted to satisfy these and any additional Federal regulatory concerns.
Experimental Feature 2: TxDOT requests a modified approach with regard to FHWA project authorization, whereby such authorization would be sought from FHWA on a Segment-by-Segment basis after execution of the CDA, and after issuance of the applicable NEP A approvals, for those Segments.
Purpose: TxDOT anticipates that NEPA approval for the different highway Segments on which the System will be installed will contemplate tolling and, therefore, that it will not be necessary to obtain approval for the System separate from the NEPA approval for the Segment. The developer will be selected before NEPA approval has been issued for individual Segments, and certain preliminary work on the System components for a particular Segment may proceed prior to issuance of NEP A approval. TxDOT would issue a notice to proceed with final design, construction, and installation of the System components, for a particular Segment only after NEPA approval has been issued for that Segment.
Deviation from FHWA requirements: FHWA regulations currently provide that project authorization occurs upon FHWA approval of the request for proposals for a design-build project, based on the assumption that NEPA approval will already have been obtained prior to issuance of the request for proposals. (See of 23 CFR 636.119) As a result of TxDOT's plan to issue the RFDP and to award the CDA prior to final NEPA approval, a modified approach for project authorization is necessary.
FHWA Response: FHWA accepts this experimental feature. Authorization for construction would occur only for projects that include Federal-aid funds in the plan of finance and following NEPA approval. NEPA compliance is necessary for other actions that require FHWA approval. The approach to achieve NEPA approval and the plan of finance will be finalized in the EDA.
Experimental Feature 3: TxDOT anticipates that proposals will include a lump-sum, fixed-price contract for initial services (e.g., development of a prototype, information for NEPA, and preliminary design of the System) under the CDA. For future services (e.g., final design, construction, operation, and maintenance for Segments of the System) it may be possible to obtain unit prices in the proposals, and provide a mechanism in the CDA for adjusting such prices based on changes in conditions or pricing assumptions. However, due to the uncertainties inherent in the development process, TxDOT may decide that it would make more sense to negotiate the price for future services once the parties are able to ascertain the true scope. This approach would allow TxDOT to negotiate a reasonable price prior to execution of a contract for the initial services and retain the ability to negotiate prices for future services when the scope of these services is determined.
Purpose: The purpose of this experimental feature is to allow TxDOT the flexibility to negotiate pricing with the developer at points in which sufficient details of the services are identified. By doing so, the risk assumed by the developer and TxDOT would be reduced since the costs will be based on a more definitive scope and content of work.
Deviation from FHWA Requirements: Price negotiations after the selection of best the proposer conflict with the provisions of 23 CFR 636.ll9(b )(2), which requires price to be considered prior to the selection of the developer. Here, price will be established after the execution of the CDA.
FHWA Response: One of the fundamental aspects of the TxDOT SEP-15 application for the System is the ability for TxDOT to experiment with the concept of contracting with a developer early in the project development process. By doing so, TXDOT has the ability to work with the developer to identify the best composition of the project by utilizing the ideas and expertise of that developer (e.g., development of a prototype). As such, certain elements of the contract may not be well-defined at the time of soliciting and evaluating the proposals. FHWA recognizes the potential benefits of including the same developer in the formation of project in actual implementation (design and construction). This experimental feature is approved with the understanding that the CDA will include cancellation clauses if subsequent negotiations with the developer fail to result in a mutually agreeable cost for services.
Experimental Feature 4: TxDOT requests the ability to establish subcontractor selection requirements that are different from Federal-aid procurement procedures applicable to State departments of transportation.
Purpose: There may be a cost benefit to allow the selected developer to utilize their own subcontracting procurement procedures rather than following Federal-aid procurement procedures.
Deviation from FHWA Requirements: Under the provision 23 of 23 CFR 636.119(b)(1), subcontracts executed by the developer are not subject to Federal-aid procurement requirements as long as price and an assignment of risk is established between a State and the developer. Based on our interpretation of the TxDOT application, it appears that price and risk will be assigned with the developer prior to the work being undertaken for any given Segment of the project. If so, the proposed experimental feature is not a deviation from current FHWA regulations.
FHWA Response: Provided that price and assignment of risk are determined between TxDOT and the developer prior to work on Segments being undertaken, then all subsequent subcontracts signed by the developer are not subject to the Federal-aid procurement requirements per 23 C.F.R. 636.119(b)(1). Therefore, no waiver under SEP-15 is needed.
Experimental Feature 5: TxDOT may modify Form 1273, "Required Contract Provisions for Construction Projects" to strike out the portion of Section VII that requires a specified percentage of work to be self-performed.
Purpose: FHWA's design-build rule modified 23 CFR 635.116 to provide that the self performance requirements do not apply to design-build contracts, but did not include authorization to allow State departments of transportation to modify Form FHWA 1273 by deleting the conflicting portions of Section VII.
Deviation from FHWA requirement(s): None.
FHWA Response: Under 23 CFR 635.ll6(d), percent self-performance requirements of paragraph (a) are not applicable to design-build contracts. Therefore, a waiver of this section is not required. FHWA will revise Form FHWA-1273 to reflect this change in the regulation in the near future. Until then, TxDOT may include a contract provision that indicates the provisions of 23 CFR 635.ll6(d) have superceded the percent self performance requirements of Section VII of form FHWA-1273.
Experimental Feature 6: TxDOT requests the ability to place restrictions on the method of procurement used by the developer in selecting subcontractors, as deemed appropriate by TxDOT.
Purpose: The CDA for the System will establish price and assignment of risk for each segment before a notice to proceed is issued. Therefore, TxDOT requests confirmation that 23 CFR 636.ll9(b)(1) applies.3
Deviation from FHWA requirement(s): The provisions of 23 CFR 636.1l9(b)(1) provide that subsequent contracts executed by the developer are considered to be subcontracts and, thus, not subject to the Federal-aid procurement requirements if the underlying public-private agreement establishes price and an assignment of risk between TxDOT and the developer. However, the requirements of 23 CFR 635.117 - Labor and Employment (which includes EEO compliance and prohibition from putting unfair restrictions on competition) as well as the subcontracting requirements in 23 CFR 635.ll6(d) would still apply.
FHWA Response: It is our understanding that TxDOT does not intend to apply the Federal-aid procurement requirements to this project; but, rather, place TxDOT's own restrictions on the method of procurement used by a developer in selecting subcontractors for this project. Since TxDOT anticipates establishing price and an assignment of risk with the developer in the CDA for the System, Federal-aid procurement requirements will not apply to subsequent contracts executed by the developer, in accordance with 23 CFR 636.119(b)(1). Therefore, a SEP-15 waiver is not necessary.
Experimental Feature 7: The CDA may provide for an extended warranty and will provide for the developer to perform routine maintenance work.
FHWA Response: This request was subsequently withdrawn from the application and is no longer part of the System SEP-15 application.
Experimental Feature 8: TxDOT requests that the characterization of the TxDOT/developer relationship under 23 CFR 636.ll9(b) be determined on a Segment by Segment basis, once the price has been established for each Segment and the CDA has been revised (or a separate agreement or change order signed) to include price and an assignment of risk.
Purpose: This experimental feature provides a mechanism for characterizing the relationship between TxDOT and the developer on a Segment-by-Segment basis after pricing negotiations and assignment of risk are made. By doing so, this mechanism provides an opportunity for the benefits provided in 23 CFR 636.ll9(b)(1) to be given to the developer (i.e., relief from Federal procurement requirements on subcontracting).
Deviation from FHWA Requirements: Similar to Experimental Feature 3, establishment of price and assignment of risk are evaluation factors that need to be established prior to selection of the developer in order to determine the lowest evaluated price of the proposals in accordance with 23 CFR 636.302. As such, a determination of the applicability of 23 CFR 636.119 should be determined at the time of selection of the developer. However, under this proposed experimental feature, such a determination would not be made until a developer is selected for a Segment.
FHWA Response: In conjunction with Experimental Feature 3, characterization of the TxDOT/developer relationship under 23 CFR 636.1l9(b)(1) on a Segment-by-Segment basis (once the price has been established for each Segment) is important to the successful experimentation of the project development process proposed by TxDOT in this application. FHWA recognizes the potential benefits of project development process (i.e., including the same developer in the formation of project in actual implementation). As such, this experimental feature is approved.
The proposed contents of the initial report, interim reports, and a final report, described in the TxDOT application, will be reviewed during the development of the EDA and incorporated into a project timeline.
I have asked Mr. DJ Gribbin, Chief Counsel and Mr.Dan Reagan, Division Administrator for the FHWA Texas Division Office to serve as the co-facilitators for the Project. Mr. Gribbin and Mr. Reagan will establish an FHWA interdisciplinary team to work with the TxDOT to develop the provisions of the EDA.
J. Richard Capka
1A State may not engage in conduct that: (1) favors one offeror over another; (2) reveals an offeror's technical solution, including unique technology, innovative and unique uses of commercial items, or any information that would compromise an offeror's intellectual property to another offeror; (3) Reveals an offerors price without that offeror's permission; (4) reveals the names of individuals providing reference information about an offeror's past performance; (5) knowingly furnishes source selection information which could be in violation of State procurement integrity standards.
2 Shortlisting is a process of narrowing the field of offerors through the selection of the most qualified offerors who have responded to a request for qualifications. (See 23 CFR 636.103 ~ design-build definitions).
3 FHWA cannot confirm that a process is acceptable. However, FHWA can concur in a proposed experimental concept for a specific project. Accordingly, FHWA has identified the request for confirmation as experimental feature 6.