- Briefing Room
Center for Innovative Finance Support Academy Web-Based Course
April 25, 2012
Center for Innovative Finance Support
Texas Division Office
Texas Division Office
Michael Kay: I would like to welcome everyone to today's Advanced P3 Training, where we will be using Colorado as a case study, and we will also hear from representatives from Florida, Texas, and Virginia. My name is Michael Kay and I am with the U.S. DOT in Cambridge, Massachusetts. I will moderate today's webinar as well address any technical problems. The webinar will run to about 4 PM Eastern time today and the course is divided into four sections. At this time I would like to point out a couple key features of our webinar room. On the top left you will find the audio information. Below that is the download box which you can use to download today's presentation as well as supplementary materials. Highlight the file then click "save" and follow the instructions. On the bottom of the screen is a chat box that you can use to submit questions to our presenters during the webinar. You can also ask questions by phone and I will ask our operator to provide instruction.
Operator: If you wish to ask a question you may do so by pressing star one on your touch tone telephone and you will hear a tone indicating you are placed in the queue and a voice prompt on your phone will indicate when your line is open.
Michael: We will queue up any questions at the end and time permitting we might have additional time for Q&A. There are many people who cannot take part so we are recording the session so they can listen at a later date. We'll also post our presentation and eventually the recording and transcript from today's webinar on the Center for Innovative Finance Support website. Before we begin we would like to take a few poll questions.
The first question is to inquire about your affiliation, whether you are with a Federal Highway Division office, Federal Highways outside of the Division, another DOT or other Federal agency, a state agency, MPO, or other. We will leave that open for about five more seconds. And I'll go ahead and close that out, thanks so much.
Our second question will help us get an indication on how many people are participating with you today. We are happy to learn that many of you are participating in groups of five or even six or more. We'll leave that open for 10 seconds or so. And I'll go ahead and close out.
Finally, we would like to inquire as to your level of knowledge of P3s, whether you have no prior knowledge, a very basic understanding, some knowledge, a lot of knowledge, or whether you're already an expert and looking to refresh your skills. This will help provide an opportunity to tailor our presentation to the audience.
I will turn the webinar over to Patrick and he will provide introductory remarks and a little bit about the background of speakers and format of today's webinar.
Patrick DeCorla-Souza: Thank you. First, let me go over the agenda for this webinar. As you'll see on this slide, there are four segments. The first is going to be on general outreach and communications and that presentation will be led by Florida DOT. The Florida DOT has been doing design-build projects for over 20 years and completed hundreds of design-build projects as its normal course of business and is now recognized as a national leader in innovative finance and has contracted 10 public-private partnerships projects worth over $4 billion, including 2 long-term concession agreements, eight design-build-finance projects of which five have been successfully completed. To help us with this presentation we will have Leon Corbett who is a project finance manager in Florida DOT and Paul Lamprey who is the I-595 construction project manager in the Florida DOT.
Our second segment will be on tolling and managed lanes. The Texas Department of Transportation will take the lead on this presentation. The Texas DOT has been implementing P3s since the development of segments 1 through 4 of the Central Texas Turnpike. Four major projects are under construction across the state representing $6 billion in construction costs. They are being implemented as concessions and as design-build public sector managed lanes. TxDOT is also procuring and implementing five additional design build or concession-based Â projects. To lead that presentation we will have Matthew McGregor who is Texas Department of Transportation's procurement manager in the strategic projects office.
The third segment of this webinar will be devoted to contractor performance. And to lead that presentation will be Virginia DOT which has had P3 enabling legislation since 1995. Virginia DOT has closed on 8 roadway projects and one transit P3 project with a portfolio of $5 billion roadway P3s and $5.5 billion for transit. In addition, Virginia has three P3 projects currently under development with an estimated value of over $6 billion. In 2010 VDOT opened the Office of Transportation Public-Private Partnerships, which focuses on the identification, selection, prioritization, development and procurement of multi-modal P3 projects in Virginia. To lead that presentation we will have Dusty Holcombe who is the Deputy Director of the Office of Transportation Public-Private Partnerships for the Commonwealth of Virginia.
Finally, our final segment will be on Federal requirements relating to P3s and FHWA will lead that presentation with Brett Jackson from the Texas Division of FHWA. He is the major projects coordinator and locally administered projects program manager in that office. With him will be Anita Wilson who is the urban program engineer in FHWA's Texas division.
So what I want to do before we begin with the first presentation, is to give you some background on what motivated this webinar. As many of you know we had an introductory webinar on public-private partnerships a couple of months ago and you are welcome to review that on our website as we indicated in the announcement that we sent out.
This webinar grew out of an interest by the Colorado Department of Transportation in learning more advanced information on public-private partnerships and of course the expertise all resides with the states. We at FHWA are in a coordinating role, and facilitating role. We asked Colorado DOT to come up with the questions that they would want answered from these experts and Colorado was good to pull together these questions which we gave to the presenters and you will see them during our presentation.
If possible, for a minute we will have Michael Cheroutes, the Director of the High-Performance Transportation Enterprise at Colorado DOT to say a few words.
Michael: A few words by way of introduction, the Colorado High-Performance Transportation Enterprise. The origin of part of that name is unknown to me. The enterprise part, however, is significant in that, enterprise organizations in the state of Colorado are exempt from certain constitutional limitations that would otherwise apply to CDOT, for example.
The Enterprise was formed four years ago by the state legislature as a successor to the tolling enterprise which had existed within CDOT for five or so years, and was created with a fairly abundant bushel basket of P3-type powers ranging from tolling authority to debt authority, to all kinds of flexible procurement possibilities. I have been in the director's seat for about one year and a half. I come out of the private sector, I have been a lawyer for 40 years, the last 10 focused on these types of financing transactions. The Enterprise, without going into all the details, in my view, it's best thought of as a financing subsidiary to CDOT. I have my own board of directors and report to them, but as a division of CDOT, also report to the executive director and to our transportation commission.
In the last year and a half we have been focused on several different projects one of which is now in a procurement stage of a P3 concession. We are learning, I wouldn't say learning as we go, but dealing with issues as they come up. And so this is a helpful exercise for us and we do have a number of specific questions. Â That particular transaction is a managed lane project with a total construction cost of $450 million. We have started down the first phase under the design-build concept which is being financed in part with the TIFIA loan that we closed last fall. We are proposing to operate the whole roadway as a concession in return for completion of Phase 2 of the roadway itself.
Phase 2 of the roadway has an approximate cost of about $120 or $130 million. We were invited yesterday to apply for a second TIFIA loan. We received in response to an RFQ last Friday - four serious substantive proposals and seem to be qualified teams and we're looking forward to moving this process through.
Also in the room today we have Craig Siracusa who was the chief engineer at CDOT and has come back to direct the procurement process for what we call a co-development project which will ultimately lead to a concession, if successful. Craig is here trying to piggyback on this to learn some lessons.
Patrick: Thank you Michael. You and your team will be contributing with additional questions through the course of the webinar and so what I would like to do in order to make sure we have time for everybody's presentation is to get started. Let's go first to the General Outreach and Communications segment which will be presented by Florida DOT -- Paul Lampley and Leon Corbett.
Here are the questions up on your screen that Colorado DOT sent to us.
To help answer these questions, we turn to the Florida DOT who is in the forefront in outreach and communication and we ask Paul and Leon to do a presentation for us.
Paul Lampley: Thank you to the Federal Highway Administration to allow us to present in this webinar. We will try and keep our presentation to eight minutes.
This is an outline of what we're planning to present. We are going to give you all an overview of our interstate I-595 P3 project in the Fort Lauderdale area and will go through some of the predevelopment cost for the P3s. Then we will talk about building long-term partnerships with the concessionaire and some successful P3 outreach that we've done from the planning study all the way through to construction.
This is an example of one of the projects we are doing here in Florida and it's a $1.8 billion concession agreement for 35 years. The design and construction of this project involves a five-year period. We are three years into the construction and expected the finish around the end of the year 2013. We have a 35-year operation and maintenance period which started in July of 2009. We're re-building 10 miles of Interstate 595 and two-and-a-half miles of Florida's Turnpike. The job is availability payments - that's the repayment mechanism on the P3. It's the first availability payment project in the United States.
This gives you an example of where I-595 is. It connects I-75 on the west side and also Sawgrass Expressway, and that connects Florida's Turnpike with I-595, and also connects to the Hollywood- Fort Lauderdale International Airport and Port Everglades.
Some of the pre-development costs that Colorado was interested in hearing about was how we manage those in our work program. The things that the DOT paid for in this project: we did a planning study originally and went through the NEPA process where we got location design concept acceptance from Federal Highway. We also identified what right-of-way we would need in the corridor and the Florida DOT paid for that right-of-way that we knew we needed in our original, indicative preliminary design. We paid for the expertise as we needed to develop the P3 and that was our design team which was RS&H. They were the lead on the planning study and they did the procurement for us and now are our corridor design consultant. They're out in the field on the construction job. We added financial advisors and a technical team and that was Jeff Parker and Associates and we added a toll and revenue study done by Wilbur Smith Associates. We had a procurement team which is our outside legal counsel, which was Nossaman, and we met with industry representatives from all over the world to get input on what type of P3 they would be interested in bidding.
These are some of the costs we were able to transfer in our P3. Any additional right-of-way that the concessionaire needed, they were required to pay for it even though the department had to go out and do that acquisition. They have been able to avoid any additional right-of-way takes, which has been good. All of the utility relocations on our project cost were transferred to the concessionaire and that is a big sum of money -- probably on the schedule of values of about $30 million that they built into the cost for those utility relocations. We do not know the actual cost. To clean up contamination we are able to transfer the majority to the concessionaire and they're responsible for the first $10 million of any cleanup. The second $15 million was a 50-50 split with the Department of Transportation and after $25 million it would be 100% for the Florida DOT. To date we have not had any contamination cleanup on our project.
Long-term partnerships was another one of the topics we had been asked about. You may be dealing with a foreign concessionaire so they are not going to come in and trust the government or trust the DOT. So you have to build a relationship with them. They have to know that they are going to be treated fair. Obviously they need to make money and they have a board, and an internal rate of return, but if you're treating them fair, they would have a tendency to treat the department or the owner fair.
Another thing that's important is understanding the mutual goals of both teams and getting support from the government. For example, at the groundbreaking we had the governor there, and full support from everyone in the state of Florida and the legislature, governor, secretaries and that really trickles down. The same thing on the concessionaire side.
The owner can assist us by developing a business plan and we published that on our website. We have measurable results and it's good to show those to the public to show that the project is moving along. In a real sense, a lot of outreach is with coordination of elected officials and local government and regulatory agencies such as permit agencies. They will know the DOT and the owner and they will not know the concessionaire, so you can bridge those gaps and help them do their process. We even went out and said that we will pay the people of the water management district to help process the permits in a timely fashion, so the number one priority is keeping our job moving.
On the internal coordination, you'll need to modify the internal policies, procedures, and processes that you have on the books. They may not be suited for P3 but you will need to tailor those or do slight modifications.
Another way an owner can assist with the P3 and partnership is to remain open and flexible and to be clear, consistent, and persistent. The concessionaire can come in with an idea of how they would do something and the next day you may have a completely different idea of how something will be done. You have to be flexible and be open and listen to their ideas. Ultimately it is their money and they have to build the job and you need to let them build it the way they need to build it in order to meet their schedule. You need to be proactive and anytime you have a problem you need to have workshops with them. We do workshops almost on a daily basis whether it's traffic control or signing or lighting or ramps. The workshops are very important and once the concessionaire understands that you are there to help them with this process, it can be mutually beneficial to both parties. They can start taking your ideas and the level of trust begins to get developed.
Leon Corbett: The coordination in Florida between our district office and the project manager on a project like I-595 and the central office and working kind of at a program level for P3 is really important. Our thoughts immediately turn to the P3 statute and the authority we are given in that statute. Â I have listed that on the slide. In your spare time, I would encourage you to take a look at our statute. It gives us pretty flexible authority, some of the flexibility Paul just talked about. It is spelled out in our statute and that is very important. Certainly as you are pursuing P3s, having the ability to pursue a long-term availability payment deal like I-595 or the Port of Miami tunnel is given in the statute.
There are also some controls in place that will give our stakeholders some comfort over the program. One example would be the 15% cap. That is a commitment to not exceed 15% of state or Federal funding the DOT receives in any given year towards our P3 project. That's one control that is in place. Another one would be the statute that requires us to do a cost effectiveness evaluation. That is conducted in the central office using financial advisors or an internal project finance team working with the district. Coordinating that evaluation to make sure we're doing what is best in the public's interest in moving with the P3.
Continuing to educate stakeholders is very important and there is a broad range of stakeholders. You definitely have your state government officials; making sure you are in step with the governor and briefing the legislature as you are moving forward with the projects and giving them regular updates on the project status. Referring to our statute, there are measures in there to make sure we report when we are going to be advancing projects in our work program via the P3 delivery method. Thinking about internal stakeholders, making sure, again, that coordination between the district and central office is happening. Between the different disciplines within the department, engineering, financial, legal, making sure you are meeting with a group, a central office P3 finance team, is getting together regularly to discuss P3 issues.
That education of both internal and external stakeholders is very important and reaching out on existing projects, getting updates from the districts from the project managers like Paul but also preparing key agencies like the division of bond finance in Florida. We need to keep them up to speed on how our P3 projects are going, even thinking into the minutia of how payments are structured and making sure you are working with the CFO. Again, that outreach and coordination and communication is very important as we move forward with the P3 program.
Paul: Thanks, Leon. We will go into a little more about the public outreach, more on a local level. Some of the things we have done that have been successful on the job. We start out with preconstruction. We had one-on-one meetings with the local officials, the state officials and Federal officials. We had individual meetings with all the neighborhoods along the corridor, talked to them about noise impacts and noise abatement.
During construction there are a lot of things that have been real successful. We have branded our logo. We go out and eat lunch at local businesses. We tell them about the project. They know who their customers are. We have had over 2,500 people working directly at the company at one time, over 180 companies. It is important that the businesses along the corridor know who their customers are.
We provide frequent updates. Anybody who calls, we go out and do a meeting with them, whether it is an elementary school or home owner's association group, we establish an advisory committee and we use a lot of social media, Twitter, Facebook. We have our project on Google Earth. You can look at what our traffic control plan looks like.
More things we have done for local support includes our public involvement time. We have a PIO (Public Information Officer) both on the owner's side and on the concession side. They work together on any type of outreach we have to do to make sure we are sending out a clear and consistent message. We have to tailor what we do to whatever they have already done.
If we know we have a problem on our job, we contact the local media. We have a good relationship with them and we tell them what is going on with the project. We have a problem out here with one of our traffic shifts. We will be doing restriping tonight. It is better that they hear it from the owner than the public.
Some of the things we have done on focusing our local message... We talked about how many jobs we have created, how many local companies are working out there, how guys are buying houses and pickup trucks and eating lunch at the restaurants. That goes over real well. The noise abatement for the communities that are out there. How we are expediting the construction. Our normal projects under a DOT program are "Pay as you go." We probably would have been looking at a project that is 20 years long instead of five years. That would have greater impact to the public and we are saving money. The engineer's estimate was about $200 million higher than what our bids came in at. We are at over 8% of Disadvantaged Business goals. We are meeting the State of Florida's goals on that. We have had workshops with DBEs. We have had contractor's breakfasts.
Concessions are able to do a lot of volunteer programs. Earth Day, etc. Last week we had our emergency first responders doing some training on some of our fly-over bridges. That was in the newspaper. That was real good publicity.
The last slide we have shows some of the benefits and challenges we've seen. Some of the benefits are obviously that the public can use our facility soon. In our case it is about 15 years sooner. The economy of scale. Our project came in about $200 million less than our engineer's estimate. We have price stability. We know what the price is going to be - it's fixed. The P3 provided us a mechanism to fund the shortfall that we had in our work program. Our shortfall on this project was about $700 million. You also get outside engineering and management expertise. You are bringing in guys from all around the world that have done these types of major construction projects before. Then you have risk transfer. You can appropriately allocate risk between the parties. Whether it is the owner's risks or concession's risks.
Challenges. There can be a perceived loss of control especially since this is the first one the Florida Department of Transportation has ever done. Cherry picking by the private sector. The private sector is obviously only going to do a project if the internal rate of return meets their board's desires. Just because the owner wants to do it, doesn't mean the private sector wants to do the project if they can't make some internal rate of return suitable to them. The owner has a huge learning curve. A lot of policies and procedures had to be slightly modified to accommodate the P3. The real transfer of risk will cost you real money. When we went into this, we thought we would transfer 100% of the risk, but that would cost a lot of money. You have to see what risk each party can tolerate. That's the end of our presentation.
Patrick: Thanks, very much, Paul and Leon. And now, first, let's hear from Virginia DOT and Dusty and see if there is anything that Virginia is doing that is different from what Florida has done especially in the area of outreach. Dusty, it is all yours.
Dusty Holcombe: I think Paul and Leon hit on a lot of the things that we are examining in Virginia also. Obviously for a long-term relationship you have to have common goals not only for the procurement but also for the project itself. With a long-term relationship, you've got to have a good relationship with the central office here in Richmond, a lot of the projects are done there. You have to have good relationship with the jurisdictions that are with it. You have to have a good and fair equitable risk allocation with all parties involved. I think you can do that by establishing a firm scope for the projects and having all the parties understand the cost and the risk associated. We try to transmit transparency in the exchange of information. That is not only for the project development for the public but also transparency between the concessionaire and the public sector. I think those are areas of success for the partnership itself.
For the predevelopment costs, in most cases the DOT is going to pay for that. That is, costs associated with the environmental documentation or planning. In the case of Virginia it is the business case development and feasibility analysis. Project development for the IJRs (Interchange Justification Review process) and public outreach. We have been lucky, I guess on the I-95 express project, we had in our enabling legislation that we are allowed to have interim agreements. We were working closely with the concessionaire to try to develop the project, the environmental document and the IJRs and all the other things. We had a 50-50 set up so we are taking part of the risk and they are taking part of the risk for the advancement of it.
For the public outreach, you have to engage the public. You have to identify what the benefits are not only of the P3 but of the project and how the project can benefit the daily lives of the people that are within the corridor that are affected by it. Set up specific meetings with first responders, train operators, the business community. Establish avenues of communication through websites, newsletters and e-mails. Leon hit on a lot of these things. During construction we have a full-time communication team that is putting out the message about construction updates on lane closures, or road closures or media updates. Virginia and Florida are very similar on the things we are trying to do to get the message out on the benefits of the project. If you don't, then the citizens are going to have questions and really question why are we going down this route. It is better to be up front and engage the public and the jurisdictions as soon as possible.
Patrick: Let's hear from Texas DOT. Matt, can you tell us what you do differently in Texas that is different from Florida and Virginia?
Matt MacGregor: I don't think we do that much different in Texas than in Florida and Virginia. We might have a little bit more going on at this time. If you look at the map -- we have 10 of these P3 projects going on in the state. Some have been implemented, and some are in the procurement phase. They are a combination of the basic public and private P3 projects that include toll roads and managed lanes. In addition to that we have three public-public projects and I will call this out for Houston. I know this focuses on more of the private side but by having a successful public, that helps you on the private side.
As far as the three questions, Virginia and Florida hit on it quite accurately that the owner has to bear most of the cost on the predevelopment. We need the project and we bring as much information as we can to the table, legal, financial, the procurement, engineering, the traffic and revenues are very important on the owner side.
Building that long-term relationship...it starts in the procurement process obviously. As the building blocks for successful partnership, the owner has to convey what they want and how they will get the procurement and how they will get paid once the project starts. Interactive and inclusive process during procurement through the industry review, the Q and A, one-on-one, the ATC process, all that provides achievable results and you can have a good partnership.
As far as the public involvement and public outreach side, I had one slide in here, the supplemental information I have provided is a whole presentation on the outreach of our DFW connector as mentioned. We have about $5 billion in construction for three projects. Two concessions and one is a design-build with a managed lane in it. Coincidentally they each have a great outreach program. They are all P3s or mega projects. They have to be able to adapt to changing needs. Be receptive to input and the unexpected. I couldn't echo it any different than what Florida and Virginia said.
Michael Kay: We are headed to Q and A right now. We can expand on the chat box and see all the questions that come in. I want to make sure we invite Colorado to ask questions in the chat box. I'm not sure if folks are calling in from around Colorado. If the Colorado folks want to press star 1 at any time, we would love to hear your questions.
CDOT: We are here in a room with about a dozen people and a single laptop. It is difficult to consolidate questions and maybe we can just ask them over the phone.
Michael Kay: Yes, absolutely. Let's take a few minutes to take questions from you guys if you have them now and we can return to the ones that have been submitted by chat. Go right ahead with your questions.
CDOT: I can start out -- maybe this is for the Florida folks. This was all very useful so thank you to everyone. Are you in a position to share the order of magnitude for your predevelopment costs, such as for the 595 project? Unless it's not public.
Paul: The right-of-way costs are $20 million plus. Our off-site drainage costs...we bought one golf course and then we re-sold it. We bought drainage rights in two other ones. That was another $20 million. If you look at all the planning and PD & E costs, internal costs, you are probably at least another $20 million. So, we are probably north of $60 million for sure. We would have to go back and look at the numbers.
CDOT: That's helpful. Can you say how long you have been at that process with respect to the I-595 project?
Paul: We started the PD & E in 2003. We got location design concept acceptance in 2006 from the Federal highway. 2007 we started looking at the possibilities of going with P3. Â We made that decision in late 2007. We were able to execute our contract in March of 2009 and right now we are three years into the contract. We are three years into the design, build and construction phase. The procurement on the job was about 18 months to do the procurement.
FHWA Colorado Division: Â Just a question with respect to the DOTs. When you have these big projects, what is the typical approach of how you set it up to manage it? In the past here in Colorado, we have a set up specific and separate for each of the districts and regions, they set up a specific team to manage it. If you have had smaller ones, like 200 million, what would be your approach and do you have a standard headquarters office to help manage and provide assistance to the people who are delivering the projects?
Leon: It is really a combination of working with the district in terms of the project management and the procurement but we also have a core team in the central office that is Â embedded in the various disciplines and may do work on other types of projects outside of P3. The project manager will work on major projects that aren't P3s. That core team will work together with the district and also work with outside financial advisors, outside counsel on the legal side.
Dusty: The identification and development for the P3, that goes through the Department of Transportation for public-private partnerships in concert with the agency, for example, with the Department of transportation or VDOT. Whatever agency is ultimately administering the contract, we will work closely with them. We have staff augmentation in the areas of law and finance and business that help us out plus the 10 people we have within the office. Once the contract is signed or executed, it goes over to the agency and the agency usually has a specific set of people. For example, the Virginia Department of Transportation has the Megaprojects Office up in northern Virginia that specifically administers the contracts associated with the Beltway and I-95 projects. We work closely with the agency and then transfer the construction management and operations and management over to the agency and they have specific individuals to do that work.
Paul: To follow up, we have a really small internal DOT staff. We supplement that with staff from our consultant firms. If you need experts in a specific area, you need them immediately and you need them available pretty much 24/7, all weekend, whatever it takes to keep the job rolling.
Patrick: Thanks, Paul. Let's go to the chat box...
Question (from chat box): For those states that require a value for money analysis. In Florida that is required and Virginia is beginning to do that, can you describe how that analysis is used in the development and planning process? Florida, you want to start?
Leon: Sure. We are required by statute to do a cost-effectiveness and public benefit analysis and certainly with I-595 and the Port of Miami tunnel being major projects, we began early with using a financial advisor to do the value for money study. Perhaps the I-595 site still has that document available online. Working to evaluate the risk transfer and the additional cost of finance and help with decisionmaking to move forward with the P3, I think in Florida we are not necessarily prescribed in statute to use value for money. We have used it for the bigger projects and done other types of analysis on other projects.
Patrick: Dusty, do you want to talk about Virginia's approach?
Dusty: Sure. We put a manual on our website which talks about the process that we follow and really what we try to do... a value for money goes on throughout the process itself. You look to see that your investment under the P3 is giving the-- in this case the Commonwealth value for money. We try to do it early in the process, when we are identifying and selecting a P3 or potential P3, we want to do a value for money analysis. A sketch level. The amount of information known at that time is very little but we look at the finances, we look at the potential that is generated. We try to do a public sector comparator along with the view of what the private and public sector can bring to the investment itself.
As we go along, two or three more times through the process, and all the way up through the procurement and the bidding, we will do updates to the value for money analysis. We always want to make sure that the investment that the commonwealth is making in this project is truly making value for the procurement process we have in place. I certainly welcome those on the line to go and look at our value for money process and certainly provide any comments they have associated with it or any questions that they have.
Ben Stein (CDOT): I'm not familiar with all the projects that have been described here. In Florida, they have involved availability payments. Is that correct?
Ben Stein (CDOT): You have not transferred full revenue risk to the private partner in your case. I don't know if that's the case in Virginia or Texas. My question -- I don't know who can best answer this -- you chose to make an availability payment to avoid revenue risk. How do you make this decision and what was the cost basis of transferring revenue risk versus having availability payment to avoid that?
Leon: There was a lot examining into that decision. We looked at a true tolling, a shadow toll and a combination of different mechanisms for repayment. We have an availability payment that will run for 30 years. It will start after construction is over. We haven't paid anything for the project as of yet. Once we hit substantial completion, we will start making availability payments. We have final acceptance payments that will help to pay down the short-term debt. The concessionaire financed it with bank loans, USDOT TIFIA loans and they have their own private equity. So our repayment structure will include final payment acceptance. We have milestone bonus payments and the availability payments. When we went out to the market and had our industry forum, there was a lot of toll risk on this because we have three different facilities here. We have State Road 84 which acts like a frontage road which we are rebuilding. We have the general purpose lanes on I-595 which we are rebuilding with the new interchange and then we have three reversible express lanes in the middle of I-595. You have a lot of opportunities to use the express lanes or not use the express lanes. We will have excess capacity when we open the facility. The true toll wasn't really a viable option based on the teams we met with - all the different teams that came to the industry forum. They weren't interested because of the competing facilities. The shadow toll would have been very hard to administer because our goal was to maximize throughput, not revenue. We were looking more at the availability payment to make up the funding gap we had on our project.
Ben Stein (CDOT): It was not a matter of hitting a rate of return goal for them so much as it was absent that, you couldn't put the package together?
Paul: Yes, at the time in the crash of the financial market in the fall of 2008, we probably wouldn't have been able to package this any other way.
Ben Stein (CDOT): Did the other DOTs have experience with the availability versus pure shift and how they value that?
Matt: We don't have quite the flexibility as some of the other states. That wasn't something we could choose to do. We had design build or the concession option with the transfer of revenue risk.
Dusty: We have not developed an availability type structure into any of our construction yet. We transfer the traffic risk over to the private sector. The only caveat I would put to that is, because they are both utilizing HOV facilities, there are provisions in the contract that allow -- some people would call it a shadow toll -a shadow toll if there is a HOV on each of the facilities and the concession documents identify the timing and percentage and volume associated with each of those HOV shadow tolls. We have shifted the traffic risk over to the private sector and even on the Midtown Tunnel project, we have shifted the traffic risk over to the private sector.
Ben Stein (CDOT): Did you have a feel for what you had to pay in terms of the expected rate of pay on their equity to take on that risk Â or did you not analyze it in that way?
Dusty: We knew that with additional risk, equity was going to want to have a higher rate of return. What we defined as a reasonable... we look at it from a project perspective knowing that equity which is at the most risk will have a higher rate of return. We know from a project perspective, if we do the weighted average cost of capital, Â the rate of return will be anywhere between 7 to 9% on the project with equity probably getting anywhere between, 12, 13% because they had the biggest risk especially if they are taking on traffic and revenue.
Patrick: We are a little behind here so I want to move onto the next presentation and I'm sure these questions will come up again and please make sure you write down your questions and send them to the chat box and we will deal with them as we have time later on. The next presentation will be specifically on tolling and managed lanes and Matt from Texas DOT will try to answer these three specific questions in his presentation.
Matt: I will try to answer the questions. They are not easy questions to answer. Real briefly, I will hit the highlights of the questions and I have a couple slides to show to illustrate the points a little bit better.
As far as the policies, in north Texas we have a combination of toll and managed lanes. The customers may or may not know the difference. You want to have the same policies as best you can. When you have the P3 private-type project, you may have a few increased costs because you have an extra player involved. We do have some managed lanes projects that will be more public-public. We may save a little bit of money, but not too much. As far as revenue sharing on our P3 projects, I have a slide that illustrates that too. We have two managed lanes that include revenue sharing and we have a toll road project that's a P3 that includes revenue sharing.
As far as lessons learned, some of the big things are related to P3s, and tolling and managed lanes, toll servicing agreements, the transactions costs, interoperability with the flow of money and how that will work with revenue. If that revenue risk is transferred, the flow of those funds and costs is one thing. If that is not transferred, it provides a whole new dynamic and you have to start on that early.
As I mentioned in Texas, we have all these projects. Folks who bid on North Texas, the emphasis of the relationship is between the tolled and managed lanes.
What I highlighted there with all the numbers in the box, all of those are managed lanes except for number 7 which is our Horseshoe project, which will be implemented as a design-build project. All the orange lines are managed lanes. We have a toll road network up in north Texas that interconnects and crosses a lot of these managed lanes. They will all use the same basic transponders.
It is important to provide statewide consistency and simplification as much as possible to put forward towards operations and pricing for the toll and managed lanes projects. You want to be as consistent with names as you can. We have all shapes and sizes of projects. We have HOV facilities at some point that will be priced kind of like the metro HOT lanes in Houston.
TxDOT has provided overall guidance as far as signing. There may be some customization in each one of our major cities, just to tailor the needs there. In particular, if you reference back the other map, you have a commute in north Texas where a driver has an option to drive on more than one of these types of facilities, so you want to have uniformity and simplification is a primary goal. Over the next few years, we will make sure our policies and signage and operational agreements are aligned to make that happen without public confusion. Federal Highways will mention this in their section. To operate these facilities, you have to have goals, monitoring measurement and reporting programs. We have included a lot of that in our contract documents but you will have to collect a lot of data and report on it annually and see how you are doing and if you can, adjust how you are operating your facility based on how it's performing.
This next slide I like to show because it captures everything in one very complicated slide. You have to think about it a little bit. It is a T and R graphic that shows the distribution of the toll rate, the volume of traffic and where your revenue might be, if you are maximizing revenue or mobility. And it is important to think through this early so when you start estimating and figuring out if you have a financially viable project, we all talk about what point of the traffic and revenue curve are you taking, what percentage. All of that is important when you are doing your financial analysis for a viable project so that you pick the correct traffic and revenue. Managed lanes are a little more volatile than a straight toll road. It seems to be a little more competitive as the person from Florida mentioned, with the network. It is important to think through those types of things.
As far as revenue sharing, we have revenue sharing on the LBJ Express which is a managed lane project. We have included a similar concept on a toll road in Austin. The extension of the 130 toll project and in north Texas we have a public-public partnership on a toll road that we jointly worked out with NTTA. On that particular project the first 80% of the toll is NTTA directed and the 20% is TxDOT. That's really a regional toll. We take that off the top. We put forward some money for right-of-way costs and that is a way for TxDOT over time and the reason to get return on the revenue right out of the gate.
For example, on our revenue share, you will agree to a revenue line for all of that is in the CDA or P3 project. That is your baseline. We have said we will let the first 15% of an upside of a predetermined agreed upon line at the contract signing, we will let the P3 have the first 15%. If it really performs well over time, TxDOT will take a 12.5% of the next 3% increase. Then we will take 20% of the next increase up to 21% above that original line and all the way up to that above that 23% mark, everything goes to TxDOT. We have nothing open yet using this. Segments 5 and 6 will be the first project where this will happen. It will open in the fall. On that project, we do have revenue we are sharing. It is a little bit different -- it has a different set of revenue bands that we will share on that project.
I use this to graphically show the flow of funds that we've developed from identification to final payment and settlement of the users account. In Texas, a local toll provider is designated as a back office operator for all priced facilities. In these cases, the in- lane P3 provider is in essence contracting out for the toll collector for a fee. They will do all the in-lane activities, transmit the information to the local toll provider (with their transponder) who has their account. These are tedious discussions and take much lead time to work out their agreements. With all the electronic tolling in our north Texas agreement, the interoperability with other toll providers, Houston has it as well. Most toll providers, they want to be paid sooner rather than later. Someone has to take the payment risk which is different than the traffic risk. That's all I have to present.
Patrick: I will remind the audience that Matt has provided some support material and you can download that information from the file download segment on your left-hand side.
Leon: Paul can chime in with more specifics on I-595. Florida has a long history of tolling and a long running turnpike enterprise. We are really in our infancy as far as operating managed lanes. We have the I-95 express lanes in the Miami area and so we are very much still learning as far as working with managed lanes. As was mentioned, they can be very volatile. We have seen the start of I-95 express occurring almost simultaneously with the economic crisis and seeing the economic downturn in Florida which impacted our early revenues.
But we have also seen success with more steady performance in the past couple of years. Generally, Florida has not transferred the toll revenue risk. We cannot specifically speak to revenue sharing other than what we discussed earlier with the availability payments. We will operate and maintain the toll operations and we will use SunPass, electronic tolling, and that's what we are experiencing.
Paul: Why we did the availability payment. The express lanes on I-595 were only a third of the cost of the total improvement we made on the corridor. That's one reason why a true toll wasn't viable for us.
Patrick: Thanks, Paul. Dusty do you have anything to add?
Dusty: Yes, we have electronic toll collection agreement. So all facilities that are operated by the Virginia Department of Transportation or private operators have to go through this electronic toll collection agreement. The reason we have that is we are a member of the E-Z Pass interagency group and we have an E-Z Pass reciprocity agreement with E-Z Pass itself and we want to make sure that all the back office, ETC services and customer service centers and all that sort of stuff are following the same protocols and interoperability with the VDOT system. The Virginia Department of Transportation controls a lot of the back office associated with the toll collection.
For the 495 and 95 managed lanes projects, we are implementing something that is kind of new to the industry - it is a fully dynamic tolling system. It changes the toll depending on the number of high occupancy toll cars that are using the facility. If there are more cars in there, the toll rises and they are signing along the facility so the users know the toll is rising for entrance into the facility. If there is additional capacity, the toll lowers. It is not set on different time of day and elements that are in other projects but the fully dynamic one and we haven't implemented it yet. It will be something of a lesson as we go through it. We are working closely with our private sector partners to make sure the public is aware of the type of tolling system it is and there is the proper signing before you get to the facility so the consumer can make a decision whether they want to enter into the lanes or not. We have revenue sharing on both of our managed lanes projects. It is tied to the gross revenues of the project or the cumulative gross revenues. Like Texas, we have bands set up that have a floor or ceiling that are tied to the cumulative gross revenues. Each band has a percentage of sharing similar to what Texas has. For each year that the project gets more and more customers, what we are hoping will be more and more customers, the amount of gross revenues changes as we go through that. You can look up on our website and see the agreements we have up there. There are exhibits within the comprehensive agreements that are specific to the game share calculations that we use for the projects themselves. Somewhat similar to Texas and I think every state will be a little different depending on the risk that they have for the projects.
Patrick: We will now go to the question and answer section. Those of you in the audience, you can either submit a question by chat, by typing it in the chat box or you can hit star 1 to get into the queue to be on the telephone. Questions from Colorado?
Ben Stein (CDOT): Yes, this is a little bit different question. Operations and maintenance. You have managed lanes in these cases that are adjacent to your regular general purpose roadway. I'm presuming that these are design/build/operate and maintain that the concessionaires will be maintaining the managed lanes. Is that a correct assumption?
Matt: In Texas, for the LBJ and North Express, we are doing right-of-way to right-of-way. They have to maintain the entire facility left to right, they are rebuilding everything anyway. They are maintaining everything they build.
Ben Stein (CDOT): Is that within the toll revenues or are you making separate payments?
Matt: They have to do it all with the money from...like Virginia mentioned dynamic pricing, they will have dynamic pricing with market pricing. They have to maintain everything with those costs.
Dusty: I will get into it in the presentation. It is dependent upon whether you have a barrier as separation or whether you have just lines separating it. In most cases, the private sector is maintaining the HOT lane part of it and the public sector is maintaining the general purpose lanes which in our case in Virginia are on the outside. Northbound and southbound are on the outside. We'll maintain the general purpose. They will maintain the HOV lanes.
Ben Stein (CDOT): For example, if you have a piece of roadway where you are doing some repairs, this is typically an efficient system, so if you are maintaining something at Mile Post 15, and they working at one of the other lanes at Mile Post 15 and a half, you would do that. In this case would you discuss that with them?
Dusty: If there are synergies that will be created or cost savings that will be created by working closely with the maintenance crews of the concessionaire, we will look at that as we go along. In general we try to be as clear as we can to the roles and responsibilities to each entity. Certainly if there are synergies that can be created, I think there is flexibility within the contracts to allow that.
CDOT: I have a quick question. Is anybody implementing an HOV3 plus policy on managed lanes?
Paul: On our 95 Express coming out of Miami, we did a conversion. We were under the VPPP program. We do have an HOV3 plus policy on that because it was an HOV conversion.
Dusty: HOV3 will be on the 495 and the 95. It is new for the 495 but it will be HOV3.
Matt: I think Houston has some HOV3 facilities. Their Metro Quick Ride has 3 plus and 2 plus where you can buy in. In North Texas we're 2 plus, but our regional transportation plan and mobility plan indicates that over time we may need to migrate to a 3 plus type system and we will coordinate how that fits with our P3 program.
CDOT: Do any of you guys have magic enforcement technology?
Matt: Do you? No, we don't.
CDOT: We are going through the process of making a decision on 2 versus 3 and if there are Federal issues with this during that part of the presentation, that would be helpful to know from somebody whether there's a problem.
Dusty: In Virginia, enforcement is on the private sector. There is no magic button on that. In Virginia we are utilizing a switchable transponder. If you have HOV3, you can switch the transponder to allow for a free ride. If you only have one person in the car or two people, you switch it back and you will pay for the ride. Virginia State Police will be part of the enforcement. That is being paid for by the private sector to utilize Virginia State Police as an enforcement mechanism along the corridor also.
Patrick: Let's take one question from Lisa Klein here. She is asking Texas DOT what kind of analysis was done to support the formula for revenue sharing for the various bands? Was there any analysis? How did you arrive at that?
Matt: That is a good question. I think it was more logic based. I would have to go back and do more research. We did some analysis from our financial advisors to feel comfortable with the baseline curve based on the baseline and revenues being put forth. I think the various bands above that were brought to us from the private sector, of course, and our own financial advisors and the reasonable way to step through that. You didn't want to have a huge upside and you wanted to kind of increment over time so that at some point that is enough benefit for the private sector and after that, if it got that good, it should come back to the public side.
Patrick: We will follow up with any questions that are unanswered on this webinar. After the webinar, a couple of weeks from now, we will try to get everybody's questions answered if they remain unanswered in the webinar.
Michael Kay: I want to take one moment to ask our operator Heather if there are any questions in the phone queue.
Operator: We have not at this point. It is star 1 if you have a question.
Michael Kay: Patrick, I think we will move on at this point. All remaining questions we will deal with during the last segment or we will have those questions answered within a couple of weeks and send them out?
Patrick: We want to go on to contract performance, which will be presented by Dusty Holcombe from Virginia DOT. There are a series of questions that came from Colorado DOT -- I think we answered one of them already, relating to maintenance responsibilities. For lack of time I will simply move on and let Dusty take over. Dusty, it is all yours.
Dusty: Thank you. I will try to run through the questions as quick as possible and I want to leave some time for a lot of questions. I think for contract performance, you all may have a lot of questions. There are some general principles to think about. One of the cornerstones of the value derived from the P3 arrangement is the transfer of the cost and the risk from long-term routine and life cycle maintenance. As you are going through the development of these projects, that is one thing to think about. When we do our Value for Money analysis, there is a quantitative and qualitative analysis that is done associated with the long-term maintenance for the project. What you will see and you will probably hear today is each state is different in the roles of the maintenance that they have. For example, Virginia has nearly 58,000 miles of interstate, primary and secondary roads that we maintain. Some other states give that responsibility to either the counties or jurisdictions. I think concessionaires and others will see, as they go to the other states they will see different types of approaches associated with operations and maintenance.
Going into the slide itself, what we look at in Virginia, is the scope of the project -- is it a brownfield or is it a greenfield? When we are looking at a brownfield, we are looking at what are the existing assets that is included in the project and what is included in the scope of the project? What resources does the department have in place to take any responsibilities associated with operations and maintenance, what savings can be identified if we transfer that over to the private sector and then on a greenfield, we look to fully transfer the risk. Certainly we look at the full value of that transfer, but with it being a greenfield such as the Route 460 project, we will be looking to transfer that over to the private sector.
For a managed lane project, we have to look at the barrier separation, what shared facilities are there, will there be bridges, lighting, barriers, different things like that, that are shared facilities? We look at the risk factors -- who is best able to manage the risk? I will talk a little bit about snow removal and the risk we looked at in snow removal in a later slide. That is one area in our managed lanes - is it best for the private sector to invest all the equipment and materials that are needed for snow removal or is it better for the public sector, who has a lot of that infrastructure in place? We look at the cost to either party. The cost of the activity, is it a short-term or long-term activity? We look at the risk that could be transferred back to the department on revenue. For example, if for some reason we have a maintenance responsibility and something occurs that we can't meet that maintenance responsibility, that affects access to the facility itself and impacts revenue risk. We look at all these things when we are trying to make a decision on whether we will take maintenance risk or pass that over to the private sector.
We have a performance regime, within our technical requirements and within our contract documents -- we have a regime that is set up that focuses in on specific areas of tolling and operations and inspection and maintenance consistent with the technical requirements that we have in the contract documents that we have. For each of those we have a severity scale of A through C. For each of those there is a different point system and if the private sector under-performs, then they may be assessed what we call noncompliance points. Looking on our website and in our comprehensive agreements, if you look under Article 11, it goes through what we call this noncompliance point regime. If they reach a certain level associated with the noncompliance points, we will have increased monitoring of the facility itself to make sure that the concessionaire is meeting the requirements of the contracts and providing a high level of customer service. The next level up, if they reach a certain amount of points, we will have remedial plans they have to reach so they are reaching a high level of customer service. There is a default provision in the contract too; if they are truly not meeting expectations and there is an excessive amount of points, we go through a default regime.
Moving onto the next slide - Are there any examples of a DOT requiring that it provide maintenance services (for a price) to a P3 concessionaire? Whether there is a price up front or a price during the life of the project itself, we have done it both ways. For example, on the 495 Express Lanes. We have taken on snow and ice removal. We think we are in a better place to manage those assets. That's because of the proximity of the facilities. We think there is more efficiency for one entity to perform both parts of it. We want to make sure there is consistency in the applications of not only of the resources but how quickly we get the snow and ice removed. In a couple places, in several places in Virginia, there is not a lot of snow and ice removal as part of it, so we looked at the labor pool, too. How many trucks are available that have plows on them and we don't want to be in conflict with the concessionaire trying to get those limited resources in some of the areas. We looked at bridge inspections. Virginia Department of Transportation has a better structure in place to complete these inspections and maintain consistency with the general conditions rating. That is another area, especially on the 95 Express Lanes, that we have taken on that part of the maintenance.
For the HOT Lanes themselves, the concessionaire is responsible for all of the maintenance specific to the HOT Lanes. Because of the proximity, we have shared facilities. There are barriers in place and lighting and bridges. There are things that will be utilized in the HOT Lanes. We have specifically identified utilizing maps and other features within the documents, who has responsibility for those assets. I have already talked about the tolling and EZ-Pass. In Virginia, drainage is another area because of the proximity of both of the facilities drainage is going to cross both facilities. We have to be cognizant of that and make sure that within the contract documents we have taken care of drainage and who is responsible for that.
The next question has to do with how others handle maintenance when some lanes in the facility are owned by the DOT and other lanes are owned by a P3? The key to this is making sure that you have got a firm scope prior to the procurement going out. If you have, for example, on our 495 project, we have WMATA (Washington Metropolitan Area Transit Authority) and a transit going through the facility itself; so they have some assets that are owned as part of it. We have a Memorandum of Agreement with WMATA and with the MWAA (Metropolitan Washington Airport Authority) that own some property along the corridor too. In that memorandum, we identify the roles and responsibilities of each of the entities whether it is associated with maintenance, or ownership, or right-of-way acquisition or whatever the activity is and, just like we did with the concessionaire, we identified who owns each of the assets. We do an inventory of the assets to make sure we know who owns the assets before we go to the procurement. If you are doing that after procurement, you may find that there are some issues with one entity over the other. We want to try to nail that stuff down before we get to procurement.
When we are in procurement and with the concessionaire, we utilize the comprehensive agreements and technical requirements. Both of those documents have to be very clear on the roles and responsibilities especially with the proximity of the HOT Lanes and the general purpose lanes. That's where I talked about having the maps showing the maintenance area, showing where they will have incident management responsibilities versus where the Department having those incident management responsibilities. For those areas you have to be very, very clear up front to try to make sure the roles and responsibilities are defined.
How is construction oversight handled? That depends on the scope of the project itself. If the concessionaire is taking a long risk - 40-50 years -- and it is going through a life cycle of the pavement and some of the bridges, you will have less oversight associated with it. You still have to meet Federal requirements if you are using TIFIA or federal dollars but you want to take a step back and the last part of this slide talks about the design-build contractor versus the operator. That is a good conflict.
The operator and the lenders will be out there to make sure the design-build contractor is putting a facility together that is of high quality. They are taking long-term risk on the project itself. We have project development plans and QA/QC plans which are required elements before the concessionaire gets notice to proceed. We have a quality management system plan that focuses in on the design quality management and the construction quality management. All of those processes are approved and reviewed and approved by the department before we give the contractor notice to proceed on any of those. We work closely with FHWA to look at those and make sure they are comfortable with the way we are overseeing the construction of the project.
Moving onto the next slide, this is the scenario that you do not want to get in where a project is not profitable. Your concessionaire is looking at it from a business perspective and making bad decisions. Plan to succeed but also plan for other events. There are three areas I want to talk about.
In the project development process, at least within the Virginia Department of Transportation, we conduct multiple risk mitigation seminars. We conduct them with all segments of the project whether it be environmental or financial or construction or geotechnical. We try to have as many of these risk management seminars and do our analysis up front, put a matrix together showing exactly what some of these key risks are, where they lie, quantify them, try to identify whether there are mitigations that we can do during the development process that will reduce the risk associated with this, whether it is reducing it for the public sector or private sector. For example, on the Midtown Tunnel after we selected the preferred bidder, we sat down with them and had a very serious conversation with them about risk. We had a three-day seminar where we talked about the risks that they saw and the risks that we saw and how we can work as a team to mitigate these risks before we started any type of construction. I think that was very helpful.
From your contract documents you have to have a well-defined dispute resolution process. As you go along there will be disputes, interpretation of the contract documents, the technical requirements that are different. You have to have a project manager that can quickly resolve these disputes and if they can't, it has to be elevated pretty quickly. What we have is a group of individuals specifically identified to try to resolve any type of issue that comes up on the project. That includes the chief engineer and other technical advisors that can look specifically at the issue and come to a quick resolution of it. Obviously if that doesn't work, there is a full dispute resolution process that brings in mediators. If you have that well defined dispute resolution process in your contract documents, a lot of these issues can be resolved pretty quickly.
Contract administration -- you have to have common goals. You have to not only follow the contract. You have to be a little bit flexible to allow for modifications, changes, everything is not going to go right on these projects and our guys up in Northern Virginia can attest to that. There will be changes that occur. There will be lane closures, there will be other elements that I don't know up front during the process itself. If you are so rigid that you don't allow for that flexibility, it will be a long relationship and lead to problems later on. Those are some of the keys that I have for it. With that, Patrick, I will give it back to you.
Patrick: Thanks very much, Dusty. With that I will have Florida talk for a minute on contract performance and turn it over to Paul or Leon?
Paul: I will be real brief. We have a lot of performance measures in our concession agreement like Dusty was talking about. Florida DOT does a lot of asset maintenance. We have a little bit of a split responsibility. The concessionaire will manage the express lanes. Florida's Turnpike will manage the general purpose lanes. The key point I think that Dusty was making was flexibility and things will change as you move forward with the agreement and that's absolutely true with our agreement and I will leave it at that.
Patrick: Thanks, Florida, and now let's go to Texas. Matt.
Matt: We have a similar thing to what they are doing in Virginia. If you go to our website, you can go to the contract and read to your heart's content the performance regime compliance points. With our two projects LBJ and NTE, it's right-of-way to right-of-way. You have to have flexibility to make these viable. We may have to adjust the maintenance responsibilities in terms of the toll-managed or general purpose.
Patrick: Excellent. So what we are going to do is make sure you have the contact information for everybody and Michael Kay is going to make sure that all of you have their contact information so you can follow up with any questions you might have.
Michael Kay: I wanted to mention to the presenters if they wouldn't mind letting me know in a private chat your contact information. I will share that with everyone.
Patrick: Thanks, Michael. We will go with the federal requirements and FHWA Texas Division will tell us what Federal requirements apply to P3 projects and the states will then respond with their experiences relating to these requirements.
Brett: It is interesting how we all try to think outside of the box and use P3s and the key requirements seem to hang on but I will try to help folks through a few things and we have a toolbox of information on the left-hand side that you can download. Before I get into that, some of our experience -- Matt has done a really good job. I will probably not provide too much more information than Matt did. We have design-bid-build, design-build, design-build capital maintenance agreements. Design, build, operate, finance, maintain, unsolicited and solicited proposals and tolled facilities and any funding mechanism you can think of.
Some project examples, Matt alluded to a bunch of projects. We started out with the State Highway 130, Sections 1-4, which was TxDOT's first design-build project. Everything seemed to snowball from there. It went so well.
Our standard operating procedure for P3s generally follows 23 CFR 636, which you all know is design-build rules. It provides direction for new staff or inexperienced folks. Project-specific oversight agreements -- it is also included in that package off to the left you can download. Those are helpful when you start discussing the federal requirements on specific projects. Do we really want to review minor change orders? Do we want to review traffic analysis? Do we want to review the traffic and revenue studies? There are so many documents and issues on P3 projects that we would really recommend the entity and the state and the Federal Highway Administration to sit down and hammer out a project specific oversight agreement. It really is helpful in getting positive results on your project throughout the life of your project. Other federal requirements that typically apply to P3 projects, of course include the major projects requirements -- P3 projects tend to be major projects. Cost estimate reviews, the financial plan, the project management plan. We have also developed a standard operating procedure for our office that you can also download in that package provided.
Some areas of focus we picked up over the years, going to design-build to CDA to P3s and other things such as pass through funding projects, are that you should really pay attention to firewalls set up on the project. A good example is should the developer be involved in the NEPA process and Texas has typically chosen to do the NEPA process or to have a separate consultant to do that rather than the developer to do that themselves. We highly recommend that you sit down with your FHWA and state counterparts and work out a schedule of sorts for how things are reviewed and what we need to review and what the review times are and a lot of times we find assumptions are made for review times and it creates obstacles. We all know that the schedules are drastically compressed in P3 projects.
Of course, the process is much easier when NEPA is completed. A lot of times we see developers coming on board with the state prior to NEPA close, the pre-NEPA stuff such as planning and marketing and talking to the public, that's kind of a touchy situation with respect to firewalls. The quality assurance program has come up. Unfortunately, the P3 regulations themselves really, in my opinion, have not caught up to industry and we still have to follow 23 CFR 637 when it comes to quality assurance programs. We get into trouble when contractors do acceptance testing for materials and we have a national expert, in my opinion, in our office Jim Travis. You are more than welcome to call him if you run into issues with owner verification testing and all the statistics that you need to validate contractor sampling and testing for acceptance for materials.
Another interesting observation or something we have noticed recently is downsizing of projects in the face of financial confusion or financial challenges. We are seeing a lot of projects being downsized or split into different parts or pieces. We would like to say to be careful that you don't go outside of your purpose and need -- be careful that you don't lose sight of that purpose and need and timing of deliverables such as toll agreements, financial plans, project management plans, TIFIA loan execution. They all become somewhat of an issue with the compressed schedules and -- keep your Federal Highway counterpart advised early and often so we don't miss our schedule. Public involvement -- I have heard everybody say that in P3s public involvement is paramount. I think we made a few mistakes on the Trans-Texas Corridor in that we didn't get out there early enough and market the project, talk to people what P3 means, tell people how things are working and why they work and we lost a little footing on that project because we didn't get out there early and often enough, in my opinion.
In short, unfortunately on P3 projects if there are federal monies in a federal project the federal requirements apply across the board. There is no difference in a P3 project than any other federal project unless you put forth the request for waivers. You can put that through with your division office through an experimental project, which we have done through SEP-15.
Something else we have noticed is the challenge of the value engineering requirement. Any project over $25 million has to meet the value engineering requirement. Again, it is a timing issue. When do you do that value engineering because the design is typically not really completed when we would like to see the value engineering done. But you can do it. It has been done. You can value engineer your project at any phase. Again, the major project requirements kick in if your project is over $500 million. You are welcome to call Anita Wilson and myself. If you have any questions, if you read through our standard operating procedures or any of our material provided, feel free to give us a call. Thanks.
Patrick: We will have a couple of minutes from each of the states starting with Florida, any issues you would like to bring up relating to addressing federal requirements.
Florida: No, I think that was a real good overview and we work real close with our major project engineers in Tallahassee.
Matt: We have a lot of projects and everyone is meeting often and early, we have been able to figure out appropriate solutions to move the projects forward. We are doing it everyday. They are correct. The rules, regulations to deliverables don't change. You do need sufficient time to read what you are doing to make it a fair process. If you can do it fair enough, early enough, it still works. It is a lot of work.
Patrick: Thanks, Matt. Dusty, in Virginia, any thoughts on federal requirements?
Dusty: I think Brett and Anita got most of it. The concept has been identified here with meeting with FHWA early and often. That is paramount. They are a partner in this much like the concessionaire is a partner. You are using federal-aid funds or TIFIA or some type of federal aspect of the project itself. Whether it is for tolling or project development or contract development itself, making sure they are a part of the process. Making sure that you do give them the proper time to review the documents. I know from the Virginia Division, Tom Jennings, we certainly try to push on them a lot of stuff and they respond very well whether it is a unique aspect of the contract or plan, or a cost estimate. If your state hasn't done it yet either through a P3 certainly reaching out to the divisions through Texas and Florida I think it would be helpful especially for Colorado or other states that haven't done this.
Patrick: Thanks, Dusty. Any questions?
Colorado: I think we are in good shape and I don't see any questions in the room. I will enter a quick thanks to everyone.
Patrick: I see that Michael Kay has put into the chat box all of the contact information for our speakers. I want to thank all of our speakers from Florida DOT, Leon and Paul; from Texas, Brett, Anita, and Matt; from Virginia, Dusty. I want to thank my co-moderator, Michael Kay, and I know Aaron is in the background helping him and our operator who has done such a great job in making sure we run a good webinar here. With that, I will turn it over to Michael for the final comments and evaluation.
Michael: Thanks, Patrick. We have four quick poll questions we want to pose. I want to make sure they come up properly and that you have enough room to complete them. The first question is to rank your level of knowledge in the subject matter before the web conference and the second one is your level of knowledge afterwards. Our third poll question is to inquire whether web conferencing is a good way to present this topic. Finally, our fourth poll question, whether you thought the subject matter was well organized. So we will leave those open for another couple minutes while everybody prepares to depart for the day. We appreciate you participating. If you did not capture the e-mail addresses and phone numbers of our presenters, that information will be available in this webroom for at least the next couple of days. Feel free to log back in and you will be able to access that information.
Patrick: Thanks very much, Michael. With this, thanks to everybody and thank you to the audience for staying with us to the end. I wish you all the best in your P3 endeavors, and feel free to contact me in the FHWA Center for Innovative Finance Support if you have any questions.