2005.03.17

Texas DOT March 11 signed a so-called Comprehensive Development Agreement (CDA) or contract with Cintra Zachry LP (CZ) purporting to develop some 508km (316mi) of tollroad between Dallas and San Antonio in the Trans Texas Corridor 35 (TTC35). Despite its length (348 pages) and its name the agreement is not at all comprehensive. It says nothing at all about the developer's right to collect tolls, how toll rates will be set, or the term of any toll concession. The agreement commits the developer only to some 15 months and $3.5m worth of planning and study work working to the department, not even to any detailed design, not to any financing, nor to building, nor to operating anything. $3.5m doesn't go very far even in studies and planning these days. Many road projects much less ambitious than TTC35 go to $20m in planning and studies before any detailed design occurs.

There is a huge gulf between the overwrought rhetoric that accompanied the signing of this contract and the actual words of the document. This most noncomprehensive agreement which should be named a Planning Agreement merely lays out a process to bring the project in segments to the stage where they can be considered by TxDOT. No process is laid down for what happens next, if anything.

A press release notes that the developer CZ "is proposing to invest $7.2b to help build TTC35." Most of the news coverage echoed that but reporters cannot have read the 103 pages of the main contract and 245 pages of annexes. We have. It is long on lawyerly backside protection for every conceivable contingency and short on substance. It commits CZ to not one cent of investment. The $7.2b figure doesn't appear in the agreement. Nor does it grant CZ any rights to build or operate TTC-35, just to do some work for TxDOT to bring the projects to the stage where they are defined and studied, so TxDOT can decide what, if anything, happens next. As compared to the $7.2b mentioned in the hype, planning work worth a mere $3.5m is actually authorized.

The press statement quotes Ric Williamson chairman of the Texas Transportation Commission, the state's governing body for policy as stating: "This partnership brings private investment - billions of dollars in private investment - to provide congestion relief to I-35. Private sector funding will help put transportation improvements on the ground sooner."

The agreement just signed however doesn't provide for, or commit, any private investment, let alone "billions."

It remains true that TxDOT has accepted in principle the CZ proposal to spend $7.2b, $6b of which would be used for the Dallas San Antonio tollroad, and $1.2b as a tolling 'concession fee' which would be used by TxDOT to fund other rail or road improvements in the corridor. But that remains an acceptance in principle only. The so-called comprehensive agreement mentions none of it. The agreement just provides for the writing of a master development plan and a master financial plan, the necessary preliminaries to be sure, but no more.

Termination for convenience

Even this modest commitment to planning can be terminated by TxDOT at any time: "Termination for convenience 20.1 TxDOT Right to Terminate TxDOT may at any time, in its sole discretion, terminate this Agreement, in its entirety or as to a specific Facility or Facilities (a partial termination for convenience), when TxDOT determines that such termination is in the best interests of the State."

It does provide for the developer to get compensation.

The development plan will include:

• a list of specific transportation facilities that could be developed in the near-term (2005-2010), mid-term (2010-2025) and long-term (after 2025).

• an overall project schedule describing implementation of the specific facilities, subject to federal environmental approval.

• a master financial plan.

• identification of facilities Cintra-Zachry would like to develop itself (called 'self-performance') - still requiring negotiation with TxDOT

Each facility identified in the master plan is to include:

• a conceptual design, including requirements for support services such as rest stops and maintenance yards.

• preliminary traffic and revenue studies.

• preliminary cost estimates, as well as the sources of funds required for development and operation.

• identification of existing and planned transportation projects that could impact the potential facility.

• a plan for complying with mitigation and environmental requirements of permits and other necessary approvals.

• identification of potential third party agreements and approvals that will be needed to develop the facility.

Alignments will be established only toward the end of the process.

Individual parts of the project will be dealt with by what are called Facility Implementation plans. If TxDOT approves the request, the developer will finalize the facility implementation plan. This will include a detailed budget and project schedule, responsibilities of all parties, and other necessary work needed to bring the proposed project to a financial closing and potential construction in the future. If the implementation plan is approved, TxDOT will enter into a Facility Agreement authorizing the developer to proceed with the work. But significantly CZ doesn't have any special right to develop the facilities. TxDOT has the option to seek competitive bids for facility agreements from other developers.

Provision for traditional financing or toll concession at TxDOT discretion

Three different approaches may be taken by TxDOT:

(1) traditional design first, bids for construction, with traditional government funding

(2) design-build with traditional government funding

(3) design-build-operate-maintain with a toll concession

Inside run on $400m guaranteed

The only inside edge for CZ is that during the planning work one or more near-term projects with a cost of $400m or more will be identified and approved by TxDOT for 'self-performance' by CZ - a right of first negotiation.

Although this agreement gives the developer no rights to actually do anything it lays out some requirements for when such rights are granted:

• TxDOT will hold title to all right of way, structures, pavement and other improvements granting leasehold rights to CZ.

• CZ will have to abide by all state and federal disadvantaged and minority business provisions

• All CZ employees have to have licenses and skills deemed necessary by TxDOT which has the right to have them removed

• TxDOT will have the right to vet senior appointments

• Key CZ employees have to be contactable 24 hours/day, 7 days/week (during planning and studies?!?)

• during development CZ employees must be co-located with TxDOT

insurance levels are set by TxDOT

PPP definition

There's an interesting lawyerly definition of what a 'public private partnership' is and isn't: "This Agreement does not establish, and shall not be construed as, a legal partnership between TxDOT and the Developer. Rather, by 'public private partnership,' the parties intend and acknowledge that a highly cooperative, mutual collaboration will be pursued, under the terms of the Contract Documents, to engage the Developer's innovation, private sector resources, entrepreneurial skills, risk sharing and management capabilities, and technical and financial expertise, and to engage TxDOT's governmental authority, planning capabilities, risk sharing and management capabilities, and technical and financial expertise, to bring the Project and Facilities to fruition. As such, this Agreement contemplates significant roles and responsibilities for the Developer that go beyond the typical work and services provided by engineering and construction firms under contracts routinely let by TxDOT." (p6)

Standards

There are some interesting small variations from usual standards in the truck facilities:

• 3.96m (13ft) main lanes

• 4.27m (14ft) lanes on ramps

• 5.03m (16.5ft) overhead clearance under bridges

• 129km/hr (80mph) design speed

• HS25/Military Alternate bridge loading standard - 25% greater than the more usual HS20 for interstates but a standard already used by many turnpikes, and no distinction between truck and car roadways

There is no departure from normal interstate standards in pavement construction.

Toll collection must be at least present standards of "open road tolling/all electronic implementation."

A detailed dispute resolution procedure is laid down.

All state and federal requirements have to be followed whether or not there is state or federal money for a facility - including "goals" for minority hiring and union pay scales.

The CZ team is 85% Cintra and 15% Zachry, a major Texas construction firm which is also active in building US embassies in several countries. Another 16 companies are enlisted as partners.

TOLLROADSnews 2005-03-16