SEP 14: Initial Report
Submitted to: Federal Highway Administration, Virginia Division
Submitted by: Virginia Department of Transportation
Northern Virginia District
Mega Projects Program Management Group
Prepared by: Roger Boothe, Jr.
Deputy Project Manager
- Background of PPTA Legislation in Virginia
- Summary of Project Development for SEP-14 Approval
- Summary of Procurement Procedure and Process
- Design-build PPTA Project Delivery Methodology
- PPP Design Methodology for 495 HOT Lanes Project Delivery
Figure 1- I-495 HOT Lanes Project Area
The Capital Beltway HOT Lanes in Virginia Project is being undertaken by the Virginia Department of Transportation (VDOT), in partnership with Capital Beltway Express, LLC (CBE), under the auspices of Virginia's Public-Private Transportation Act (PPTA). This project will deliver four new High Occupancy Toll (HOT) lanes on the Capital Beltway (two in each direction), between the Springfield Interchange (I-95/395/495) to the south and the Dulles Toll Road / Airport Access Highway to the north, as shown in Figure 1. All of the existing interchanges along this 14-mile stretch will be reconstructed. New direct ramp access to the HOT lanes will be constructed at five of these interchanges (Braddock Road, Gallows Road, I-66, and Route 7). In addition, new interchanges with HOT lanes-only access will be constructed at Route 29 to service the Dunn Loring Metro Station, and at two new connector roads linking the highly-urbanized Tysons Corner area – Westpark Drive and Jones Branch Drive. Ultimately, the two existing inner lanes in each direction will be repaired, instrumented, and operated by CBE as HOT lanes (see Figure 2). The project will provide a regional link between existing HOV facilities on I-95/395, I-66, and the Dulles Toll Road.
Figure 2 - I-495 Typical Section
In coordination with FHWA regarding the use of PPTA for advancing federal-aid projects, VDOT received approval for the use of innovative contracting under FHWA's Special Experiment Project 14 (SEP-14). In accordance with this approval, this Initial Report documents the history and progress of the project to date since the Initial Work Plan approval in April 2005. The intent of this report is to review and analyze the differences between this project and traditional contracting methods. Since the preparation of this report, the Design Public Hearings have occurred, which were the final milestones required prior to the start of construction.
On March 25, 1995, the Governor of the Commonwealth of Virginia signed into law the Public-Private Transportation Act, which was amended and re-enacted by Chapters 504 and 562 of the 2005 Acts of Assembly and signed into law by the Governor, effective July 1, 2005 (as amended, the "PPTA").
In re-enacting the PPTA, the Virginia General Assembly found and declared, among other things, that:
- There is a public need for timely development and/or operation of transportation facilities within the Commonwealth to address the needs identified by the appropriate state, regional, or local transportation plan by improving safety, reducing congestion, increasing capacity, and/or enhancing economic efficiency and that such public need may not be wholly satisfied by existing methods of procurement in which qualifying transportation facilities are developed and/or operated;
- Such public need may not be wholly satisfied by existing ways in which transportation facilities are developed and operated; and
- Authorizing private entities to acquire, construct, improve, maintain, and/or operate one or more transportation facilities may result in the availability of such transportation facilities to the public in a timelier or less costly fashion, thereby serving the public safety and welfare.
On July 1, 1995, the Virginia Department of Transportation (VDOT) adopted Implementation Guidelines developed by the Commissioner for the selection of solicited and unsolicited proposals for negotiation under the PPTA, which were revised in April 2001 and October 31, 2005.
On April 6, 2002, the Governor signed legislation (2002 Va. Acts Ch. 593) amending the PPTA to permit tolls to be levied on existing interstate highways that are reconstructed to provide for increased capacity.
Under the PPTA legislation, Fluor presented an unsolicited proposal to build the 495 HOT Lanes Project in 2002. The historical timeline on the progress to date is provided below:
- June 26, 2002: Pursuant to the PPTA, Fluor submitted an unsolicited conceptual proposal (the "Conceptual Proposal") to the Department for improvements to approximately 14 miles of I-495 from the American Legion Bridge to the Springfield Interchange by, among other things, adding high occupancy toll (HOT) lanes. In accordance with the Implementation Guidelines, the Department duly posted and published notice of the Conceptual Proposal and referred it to the Initial Review Committee for preliminary review. The notice was advertised competitively for 120 days. No competing proposals were received in response to the posted and published notice.
- July 17, 2003: Following a determination by the Initial Review Committee that the Conceptual Proposal merited further review, the Commonwealth Transportation Board (the "CTB"), adopted a resolution approving the Conceptual Proposal for further evaluation. The Deputy Secretary of Transportation invited a detailed proposal for consideration by the Public-Private Transportation Advisory Panel (the "Advisory Panel") in accordance with the Implementation Guidelines.
- September 25, 2003: VDOT and FHWA signed a Value Pricing Private Program (VPPP) and Cooperative Agreement.
- September 29, 2003: Fluor filed a notice of intent with FHWA to apply for credit assistance for the I-495 HOT Lanes in Virginia under the Federal Transportation Infrastructure Finance and Innovation Act ("TIFIA").
- October 1, 2003: Fluor submitted its detailed proposal (the "Detailed Proposal") for the Project to the Advisory Panel for consideration.
- June 28, 2004: The Advisory Panel recommended to the Commissioner that the Detailed Proposal for the Project be further developed pursuant to the PPTA.
- October 5, 2004: At the direction of the Commissioner, negotiations for a comprehensive agreement with respect to the Project commenced. The Department and Fluor became cognizant of the need for a facility operator skill set on the project team. The Department's Chief Engineer accepted Transurban Limited, a new participant on Fluor's Project team, as an additional project partner participating in the negotiations.
- March 8, 2005: FHWA and VDOT revised the VPPP Scope of Work and Agreement.
- April 22, 2005: FHWA (a) approved the Department's Work Plan for the Project under Special Experimental Program 14 for Innovative Contracting (the "SEP-14"), which asserts that the Department will negotiate a comprehensive agreement that sets forth general terms and conditions of the public-private venture, with a prospective Concessionaire, and (b) confirmed that its review of such agreement did not identify significant concerns requiring changes at this time, while noting certain assumptions and understandings to be addressed in the final comprehensive agreement or related documents.
- April 28, 2005: The Department, Fluor and Transurban (USA), Inc., a Delaware corporation ("Transurban") entered into a Comprehensive Agreement to develop, design, finance, construct, maintain and operate the I-495 HOT Lanes in Virginia (the "Original Comprehensive Agreement").
- April 2006: A Final Environmental Impact Statement for the Capital Beltway was completed and subsequently signed by FHWA, recommending a preferred alternative that incorporated an HOV-HOT lanes concept with two new express lanes in either direction.
- June 27, 2006: The Federal Highway Administration Tolling and Pricing Team confirmed receipt of the Department's submission of an Expression of Interest to initiate the process for authorization for the imposition of tolls on users of the HOT Lanes, pursuant to 23 USC §166 (a).
- June 29, 2006: The Record of Decision (ROD) was approved by FHWA in connection with the environmental review process for the Capital Beltway study. The 4-2-2-4 HOV-HOT Lane alternative, as more fully described in the ROD, was selected by the Department and approved by FHWA.
- June 2006: The Department determined that the Project, as proposed by Fluor/Transurban, is consistent with the selected alternative identified in the ROD and chose to undertake improvements that include the Project
- May 9, 2007: A re-evaluation of the Capital Beltway, incorporating design updates and related impacts proposed by Fluor and Transurban, was submitted and accepted by FHWA.
- September 10, 2007: The Department announced that the Commonwealth had reached an in-principle agreement with its private partners, Transurban and Fluor Enterprises, for the design, construction, operation and maintenance of the new Capital Beltway HOT lanes. The agreement would be finalized over the coming months, with final signatures and financing to be completed by the end of the year. (See Appendix B for copies of the Commissioner's Recommended Business Terms for the Capital Beltway Highway Toll Lanes Comprehensive Agreement.)
- December 1, 2007: Master Indenture of Trust is developed between Capital Beltway Funding Corporation of Virginia (the "Issuer") and Wells Fargo Bank, N.A., as Trustee (the "Trustee").
- December 2007: Since the Springfield Interchange Phase VIII ramps project was officially included as part of a completed environmental review and related Finding of No Significant Impact, in accordance with Section 102 of NEPA with respect to the Department's Springfield Interchange project, and because the project provides a critical link between the Capital Beltway and I-95/395, the Department included construction of the Phase VIII ramps as a component of the ultimate Capital Beltway improvements.
- December 19, 2007: The Department consented to the transferring the contractual obligations of Fluor and Transurban to a new joint venture entity and released the guaranties relating to the obligations under the Original Comprehensive Agreement that was replaced with the Amended and Restated Comprehensive Agreement (ARCA). Within the ARCA, Fluor and Transurban are now referred to as the Concessionaire, Capital Beltway Express (CBE).
- December 20, 2007: The ARCA was signed by VDOT and CBE. The ARCA is the contracting vehicle for CBE to develop, design, finance and construct the I-495 HOT Lanes in Virginia Project, and to manage, operate, maintain and collect tolls on the HOT Lanes Project pursuant to a long-term concession arrangement granted to the Concessionaire by the Department by this Agreement. The following list of Initial Project Financing Agreements is found in Exhibit H of the ARCA and is provided as Appendix C. Among the types of financing received for the project are the following:
- Senior Lien Toll Revenue Bonds
- Subordinate TIFIA Toll Revenue Bonds
- TIFIA Loan Agreement with Capital Beltway Express, LLC
- Equity Funding Agreements
- VDOT Consent to Collateral Assignment
- January 2008: Capital Beltway (I-495) Improvements and HOV/HOT Lanes Project added to the CLRP.
Special Experimental Project (SEP-14) designation identifies this project as a national model and example through which to evaluate the efficacy of the Design-Build project delivery methodology. This methodology is commonly referred to as a "Public-Private Partnership" (PPP or P3). Currently, the United States Department of Transportation (USDOT) has draft national PPP legislation which has been used by some states, including Virginia, to develop their own PPP legislation. The Public Private Transportation Act (PPTA) of Virginia allows for the future development of PPPs within the state.
A PPP refers to the contractual agreements formed between a public agency (VDOT) and private sector entity (CBE) that allow for greater private sector participation in the delivery of transportation projects. The PPP project delivery methodology can provide advantages over the regular Federal Aid Construction Procurement (Design-Bid-Build) as well as over the typical Design-Build (23 CFR Parts 627, et al. Design-Build Contracting) project delivery methods in many areas.
According to the USDOT's PPP website, https://www.fhwa.dot.gov/ppp/, the primary benefits of using PPPs to deliver transportation projects include:
- Expedited completion compared to conventional project delivery methods;
- Project cost savings;
- Improved quality and system performance from the use of innovative materials and management techniques;
- Substitution of private resources and personnel for constrained public resources; and,
- Access to new sources of private capital.
PPPs provide benefits by allocating the responsibilities to the party – either public or private – that is best positioned to control the activity that will produce the desired result. With PPPs, this is accomplished by specifying the roles, risks and rewards contractually, as to provide incentives for maximum performance and the flexibility necessary to achieve the desired results. The level of responsibility shifts from public to private as more complexity and ownership is incurred by the private entity. A typical design-build contract between a private and public entity can fall within the range of PPPs; however, a traditional Design-Bid-Build would not.
Recognizing the amount of the existing federal apportionments to Virginia, the statewide need for those funds, and the existing level of state funding appropriations and allocations, it is clear that improvements planned with the 495 HOT lanes could not be achieved within a reasonable timeframe utilizing traditional methods. A concurrent project development process is the basic essential element where time and costs were planned to be reduced.
In addition, the Design-Bid-Build method was anticipated to reduce the Department's ability to efficiently manage the schedule and cost of the project. If Design-Bid-Build was used, VDOT would be required to manage multiple procurements to first establish the design team and later hire a contractor to perform construction, lengthening the entire pre-construction portion of the overall process. The use of Design-Bid-Build can also create challenges in maintaining an effective working relationship between the designer and contractor. The use of a PPP streamlines these elements, providing a number of benefits relating to the key measures for monitoring overall performance when compared to VDOT's traditional Design-Bid-Build method. In an effort to meet the scope, schedule and budget requirements and constraints of the Capital Beltway HOT Lanes Project, the Design-Build project delivery methodology was chosen, within the context of a Public-Private Partnership (PPP).
In exchange for the time and cost savings anticipated by using the PPP method of procurement on this project, VDOT recognizes that project risks have to be identified and mitigated early in the process and that risk mitigation processes have to be included in the comprehensive agreement with the Design-Build consortium. An essential component of this risk mitigation strategy is to thoroughly review each element of the contractor's schedule and cost proposal while identifying and accounting for such risk elements as escalation, design contingency, and resource availability. The differences between the methodologies for this project can be illustrated with regards to schedule, price and risk management.
One of the first key measures to monitor overall performance on a complex project such as the I-495 HOT Lanes is the development of a master schedule. As part of defining the PPTA relationship between VDOT and the proposer (Fluor), Fluor is required to provide a preliminary schedule based on 30% design development documents. This schedule would cover the entire scope of the work, including design and construction, and be used to establish a working baseline for the overall timeframe to be met by Fluor. As part of negotiating the PPTA agreement, VDOT performed a validation of this baseline schedule (BS00) to assess its reasonableness in forecasting the overall timeframe, proposed as five years from Notice to Proceed to Substantial Completion. VDOT hired an independent consultant to review the proposed Design-Build schedule and develop a separate Design-Bid-Build schedule (DBB) to verify that any perceived issues with the schedule would not result in added time required to complete the project. See comparison in Table 1.
Utilization of the proposed PPP presents a number of opportunities to maximize the effectiveness of scheduling for the I-495 HOT Lanes Project. There are a variety of reasons, all of which are associated with the fact that in the Design-Build (PPP) process, the Engineer and Contractor are part of the same organization. They are jointly responsible for the successful performance of the Project. The nature of the Design-Build (PPP) process creates a good deal of "buy in" for the schedule from all Project team participants at the same time.
|Activity||Base Schedule (BS00)||DBB2 (Alpha concept)|
|Start of Project Design||20DEC07||31MAY08|
|Design Public Hearing||20MAY08||05NOV08|
|Start ROW Acquisition||01AUG08||08DEC08|
|Start Utility Relocation||09JUL08||13APR09|
A comparison of the Design-Bid-Build method traditionally employed by VDOT and the Design-Build method being applied by this PPP process is provided below.
Implementation of the Design-Bid-Build process for the I-495 HOT Lanes project would limit the ability to provide significant time savings and would create the longest timeframe for delivery of the overall project by requiring distinct phases of design procurement, design development, construction procurement, and construction. This would result in longer timeframes for these phases without overlap, which would significantly increase the length of the delivery period.
A summary schedule has been prepared to reflect the distinct phases in the Design-Bid-Build process, as anticipated if applied to the I-495 HOT Lanes project. This schedule focuses on the timeframes required to procure design services, develop the complete project design and procure construction services. As the delivery method does not directly affect actual construction, and the scope of construction is considered to be unchanged between methods, the construction phase has been summarized to reflect the overall period of construction only.
The schedule is predicated on an overall start consistent with the proposed PPP process. First, VDOT would have to initiate a procurement process to establish a design team to complete the design of the HOT Lanes project. Once the design is sufficiently advanced, VDOT would then oversee the initiation of ROW acquisition and utility relocation work that falls outside the scope of the eventual construction effort. Once this preliminary work has proceeded sufficiently, and in particular, the design has been completed, VDOT could then commence the procurement process to establish a contract for the actual construction. This summary schedule indicates that the extended pre-construction phases could lengthen overall project delivery by more than a year beyond the proposed Design-Build (PPP) delivery period.
The implementation of a Design-Build method as part of the PPP process allows for the opportunity to achieve significant time savings over the course of the project. In contrast to the Design-Bid-Build process, the PPP process allows the Design Team to immediately begin advancing the design, once agreement has been reached with VDOT. This eliminates a significant procurement period for design services. The PPP Design Team also has an advantage in that it is already completely familiar with the design development, as it was responsible for the initial advancement of the design and does not have to spend significant time understanding what others had begun.
Adoption of the Design-Build (PPP) process for the I-495 HOT Lanes project provides the Contractor with direct access to the design information as the design is being completed. This enables the Contractor to participate in the design process, helping to reduce the potential for coordination issues that might not otherwise be identified until the construction phase, and allowing the Contractor to begin scheduling work on the construction baseline sooner than would have otherwise occurred. This also allows VDOT to evaluate the Contractor's plan very early in the process. A preliminary construction baseline schedule was available for VDOT and its consultant to review soon after the 30% design documents were issued.
VDOT was afforded the opportunity to conduct a review and analysis of that construction baseline, and was able to return questions, comments, and suggestions to Fluor while the design and scheduling processes were ongoing.
The Design-Build (PPP) process also eliminates another significant aspect of Design-Bid-Build. Through the PPP, the Contractor responsible for constructing the project is already in place and can be mobilized to begin construction when the initial phases of design are sufficiently complete. Thus construction operations do not have to wait on a complete design that must be competitively bid. The PPP Design-Build Team can work collaboratively to address issues that arise once construction has begun. This should reduce the time required to address problems that occur in the field.
The preliminary Design-Build schedule, developed by Fluor and validated by VDOT, demonstrates that initial design work can be sufficiently progressed to allow preliminary construction activities to start within six months. As noted, this allows the project to proceed much sooner than would otherwise occur in a Design-Bid-Build scenario. In addition, as the design is completed, a complete baseline schedule is already in place as well, allowing the contractor to have the full management tool in place from the very start of construction. This is contrasted to the Design-Bid-Build process, in which the contractor would need a significant period of time to assemble a schedule while proceeding with construction.
The next key measure to monitor overall performance on a complex project such as the I-495 HOT Lanes Project is the development of a master cost estimate. As part of defining the PPP relationship between VDOT and the proposer (Fluor), Fluor was required to provide a preliminary price for the work based on 30% design development documents. This estimated price would cover the entire scope of the work, including design and construction, and be used to establish the base cost of the project.
Utilization of the proposed PPP offers a number of opportunities to optimize the pricing for the I-495 HOT Lanes project. Again, due to the fact that in the Design-Build (PPP) process, the Engineer and Contractor are part of the same organization, they are jointly responsible for the successful performance of the Project. The nature of the Design-Build (PPP) process approach requires "buy in" for the quantities and pricing from all the Project team participants at the same time. A comparison of the Design-Bid-Build method traditionally employed by VDOT and the Design-Build method applied by this PPP process is provided below.
Implementation of the Design-Bid-Build process for the I-495 HOT Lanes project could reduce the cost savings and would be expected to produce the greatest cost for delivery of the overall project. By requiring distinct phases of design procurement, design development, construction procurement, and construction, the additional phases resulting will result in a longer delivery period. As a result, a much higher cost would be likely due to inflation and the escalation of associated costs of the construction materials and labor costs associate with the expanded timeframe and loss of construction seasons.
In general, for a project of this magnitude, the traditional Design-Bid-Build method would require much more upfront funding. Due to the limited funding resources, programming a project of this magnitude within the Department would likely require that the project be broken into phased procurements with smaller design and construction packages. These smaller packages would be unavoidable for a number of reasons which include: project financing considerations, the bonding capacity required of contractors so as to promote the competitive bid process, the availability of engineering resources that would have to be procured through VDOT's professional service selection system, and the scheduling and financing of right-of-way acquisition and utility relocation. Each of these requirements would lengthen the project significantly, which is anticipated to result in major cost increases for all project stakeholders.
The implementation of a Design-Build method as part of the PPP process allows for the opportunity to achieve significant cost savings over the course of the project. Two obvious advantages are a shortened "pre-construction" period and earlier notice-to-proceed and project completion dates. The shortened preconstruction period results in lower overhead costs for all parties in the process (i.e. owner, designers, consultants, etc) and hence the project. The earlier start/finish date results in lower escalation costs and lower job overhead costs (general conditions) due to the compression and overlapping of the design and construction periods.
Another distinct advantage of using the Design-Build approach for a project of this magnitude is that it eliminates the potential need to break the project into smaller design and construction packages that might be required to achieve competitive bids.
The primary differences between the project delivery methodologies of a traditional Design-Bid-Build, a Design-Build, and the PPP (as used on this project) are illustrated the table below. In Table 2, the methodologies are compared in regards to ownership, conception of design, actual design, constructing the design, operating and maintaining the facility and financial responsibility. As can be seen below, the Department (Public) has much less invested interest as well as a much lower limited risk with using the PPP methodology.
|Methodology||Own||Conceive||Design||Build||Operate & Maintain||Financial Responsibility|
|Design-Bid-Build||Public||Public||Private by fee contract||Private by fee contract||Public||Public|
|Design-Build||Public||Public||Private by fee contract||Public||Public|
|Lease for 75 years||Private Proposal||Private by financing and toll contract||Private with limited public|
The risk associated with this project was controlled to a large degree with the language within the ARCA. For instance, as documented in Article 6 of the ARCA, the financial risk is reduced to none except for the public financed portion. The Commonwealth, the Department, CTB or any other agency, instrumentality or political subdivision of the Commonwealth shall not have any obligation to pay on Concessionaire Debt according to the ARCA. All ARCA documents can be found on the VDOT website at: http://www.virginiadot.org/projects/resources/ARCA_with_ExhibitA-Defintions.pdf.
VDOT and the independent consultant met with FHWA personnel to perform a risk analysis of the estimate. During the meeting, the FHWA's software, Crystal Ball TM, was used to perform probability simulations on each line item of the estimate to establish an overall probability of achieving project delivery within the estimated price. FHWA noted its satisfaction with the resulting rating (85% +/- ) achieved during the review.
Defining the project scope is critical to ensure an efficient procurement process. Developing the scope for the I-495 project presented a unique challenge as VDOT and its private partners pursued development via an unsolicited PPTA proposal prior to the completion of the NEPA process. Although many factors may influence the duration of a procurement from project development through financial close, owners can exert more control over the development of the final scope of a project if the bulk of project development activities takes place following the completion of the NEPA process. In order to create an efficient procurement process, owners should consider what activities will help to shape the final project scope and when those activities should be undertaken. Owners may proactively evaluate the benefits and challenges of various procurement strategies, and then choose among the range between development agreements and competitive sealed bidding.
Obtaining the required regulatory approvals can prove to be a challenge for any transportation construction project. Under the terms of the project contract documents, the private sector is responsible for obtaining all regulatory approvals needed for the design, construction, and operation of the project (including approvals from FHWA). Approval of the necessary Interchange Justification Reports (IJRs) and design exceptions and waivers was not obtained prior to financial close. The concessionaire still is working to complete the design and engineering work needed for final approval of the IJRs, design exceptions, and design waivers before full-scale construction activities can commence. When planning to undertake a public-private partnership, owners and developers should consider what regulatory approvals are required for construction and operation of the project and how the timing for obtaining those approvals fits within the overall procurement process and schedule for project delivery.
VDOT also has examined carefully the resources needed to develop a project through financial close. VDOT relied heavily on financial and legal advisors to assist in the development of the complex contract documents necessary to procure a public-private partnership of the magnitude of this project. The project also presented complex design and engineering challenges. As such, VDOT relied on engineering consultants to supplement its staff during project development and procured a general engineering consultant to augment its project management staff post-financial close. Owners should be cognizant of the internal and external resources (both personnel and financial) needed to manage both the procurement and construction of the project and plan to have needed resources in place during the appropriate stage of the project.
Although adequate resources are crucial for project development, it is also important that all parties understand their roles in the management of the project. For example, key players in this project include VDOT, its general engineering consultant, the concessionaire, and design-build contractor, and the independent engineer retained by the concessionaire to provide project oversight on behalf of the lenders. Although respective roles and responsibilities are defined in various contract documents, coordination of key players can be a challenge on a project of this scale. The project team meets regularly to discuss lessons learned and consider how internal processes can be improved to ensure the various players are working together efficiently on critical tasks such as design reviews. The ongoing experience gained by the project team will help VDOT to establish more efficient processes for the management of future projects.
According to the 2005 final report from the Federal Highway Administration (FHWA) and the Office of the Secretary of Transportation from the Partnerships in Transportation Workshops, interest in public-private partnerships (PPPs) in transportation has been growing in recent years, fueled by a convergence of issues including "the escalating costs of highway system preservation, the ever increasing need to improve the performance of transportation infrastructure, the slowing growth of fuel taxes and other traditional highway revenue sources, and the downsizing within state transportation agencies."
This has led to increased efforts by federal and state transportation agencies to rely on partnerships with the private sector to help address these challenges. Public agencies determine the scope of a public-private partnership based on their specific transportation needs and policy objectives. PPP agreements usually involve a government agency contracting with a private company to construct, operate, maintain, and/or manage a transportation project, facility or system where the public sector retains final ownership of the project.
The public and private partnerships share some of the same goals and objectives, such as improved transportation services, enhanced technology and increased innovation. However, the public and private sectors also maintain independent goals and objectives for the formation of PPPs and have differing perspectives and bring differing assets and skills to the table. The public sector plays a critical role in balancing the competing goals of the public and private sector to meet the public needs for improved transportation infrastructure and services.
Public agencies have as their main goal the improvement of public services and facilities through the most efficient use of public resources. Thus, public agency objectives in P3s are to improve public transportation facilities and systems in the most cost-efficient manner while decreasing the risks and increasing the rewards to both the public and private sector. As stated by FHWA on their website (https://www.fhwa.dot.gov/ppp/), some of the primary reasons public agencies enter into PPPs include:
- Accelerating the implementation of high priority projects by packaging and procuring services in new ways;
- Turning to the private sector to provide specialized management capacity for large and complex programs;
- Delivering new technology developed by private entities;
- Drawing on private sector expertise in accessing and organizing the widest range of private sector financial resources;
- Encouraging private entrepreneurial development, ownership, and operation of highways and/or related assets; and,
- Allowing for the reduction in the size of the public agency and the substitution of private sector resources and personnel.
VDOT and the private sector were successful in creating a PPP and reaching financial close for implementing the Capital Beltway HOT lanes. It is noteworthy to examine the above bullets and reasons for doing a PPP as it applies to the Beltway project.
- Improving the Capital Beltway and reducing the congestion were extremely high priorities for the State and the region. Implementing the improvement as a PPP was a method to procure the project when many other ways were not available. It was truly innovative.
- The Capital Beltway HOT lanes improvement is a very large and complex project and the private sector has brought valuable project management ability and experience. The project is one of the largest design-build highway projects in the country.
- The concept and development of the HOT lanes is a first for Virginia. The private sector is definitely bringing new technology in the operations of the tolling for the HOT lanes.
- One of the true successes of the project is the unique financial plan for the project. The private sector brought a mixture of private activity bonds, private equity, state, Federal funds, and TIFIA loan.
- The HOT lanes facility is developed as a concession and will be operated by the private sector for 75 years. This will be a very different arrangement with the VDOT operating and maintaining the general purpose lanes and the private sector the adjacent HOT lanes.
- The private sector is bringing their resources and personnel to the operations and maintenance; thus, reducing the need for work that would be performed or contracted by VDOT.
All in all, VDOT has looked at the PPTA process as a very promising method for developing the HOT lanes and using a very innovative procurement process for a large and complex project.
PPPs offer increased economic development and innovation to meet the demand for increased transportation infrastructure that has quickly surpassed governmental capital and resources. While public sector entities bring many assets to the table in public-private partnerships, it must be realized that for P3s to truly flourish, it requires the combined strengths and resources of both the public and private sectors.