TRANSPORTATION RESEARCH BOARD. 85th ANNUAL MEETING

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1 TRANSPORTATION RESEARCH BOARD 85th ANNUAL MEETING Panel on Public Private Initiatives: New Concepts in Transportation Project Delivery Recent Trends and Innovations January 23, 2006 Washington, DC GEOFFREY S. YAREMA NOSSAMAN GUTHNER KNOX & ELLIOTT LLP The information contained herein does not constitute a legal opinion and should not be relied upon by the reader as legal advice or be regarded as a substitute for legal advice. Copyright, 2006 Nossaman Guthner Knox & Elliott, LLP. All Rights Reserved. 1

2 Nossaman Law and consulting firm with unique specialty in procuring, contracting and financing large infrastructure projects Work exclusively for owners, not civil contractors Honored to work for more than 30 State DOTs and regional transportation authorities around the country Named by Public Works Financing as the #1 owner advisor each year since rankings began Projects named #1 of the year by AASHTO, Institutional Investor, Bond Buyer, ASCE, DBIA, ARTBA and many others Proud of our clients record of success 2

3 Concession Market A New Frontier? Nomenclature Types of Concessions Examples Where Used Examples of Market Players U.S. Market Trends Role of Traditional U.S. Design-Builders Key Contractual Elements Contracting Approaches and Competition Structures 3

4 Nomenclature Concession Franchise Public-Private Partnership (P3) Build-Operate-Transfer (BOT) Build-Transfer-Operate (BTO) Design-Build-Finance-Operate (DBFO) Private Finance Initiative (PFI) 4

5 Types of Concessions Long-term lease and operation of existing assets City of Chicago Skyway State of Indiana Indiana Tollroad VDOT Pochahontas Parkway (under negotiation) Province of Ontario Highway 407 Construction and operation of new facilities Caltrans - SR 125 Caltrans - SR 91 VDOT Dulles Greenway M6 Tollway 5

6 Types of Concessions Construction and Operation of new facilities (cont.) UK Highway s Agency - Shadow Toll Projects TxDOT SH 130/5-6 TxDOT- SH 161 TxDOT-1604 Oregon DOT Newburg-Dundee, Sunrise Reconstruction, expansion and operation of existing facilities Province British Columbia - Sea to Sky Highway [non-tolled highway] TxDOT I-635 ODOT I-205 6

7 Examples of Market Players Australia Macquarie Transurban Spain Cintra/Ferrovial Dragados Abengoa France Vinci Egis United Kingdom AMEC Balfour Beatty Germany Hochtief Bilfinger Berger Hong Kong Cheung Kong Sweden Skanska 7

8 U.S. Market Trends Current U.S. tax laws generally preclude mixing of tax exempt financing with private equity/debt or revenue sharing Over the last 5-8 years, most US highway agencies/advisors have favored the tax-exempt markets as the most efficient tool for financing infrastructure Result = Less U.S. concessions 8

9 U.S. Market Trends Recent developments suggest a larger role for the private finance/concession model SR 125 (CA) and Detroit-Windsor Tunnel purchases by Macquarie Chicago Skyway Lease between City of Chicago and Cintra Private Activity Bonds (PABs) included within current reauthorization bill would allow for up to $15 billion in tax exempt-financing to be mixed with private equity Trans-Texas Corridor 35 Agreement between TxDOT and Cintra Zachry 9

10 Role of Traditional U.S. Design-Builders TRADITIONAL DESIGN-BUILD DOT CONCESSIONS DOT Design-Builder Concessionaire Design Subs Construction Subs Design-Builder Design Subs Construction Subs 10

11 Role of Traditional U.S. Design-Builders Typical DB business model = design, build, get paid and leave Bringing significant $, retaining responsibility/risk during long-term O&M period poses challenges to them In concession, still have critical role, but less likely to lead teams unless they restructure their business model Concessionaire/Developer will award a DB contract to DB contractor team 11

12 Key Contractual Elements Developer takes over project [Completes development], operates and maintains Meets DOT standards Specified maximum term/duration Developer to provide project financing with limited/no DOT financial commitment Developer entitled to collect project revenues subject to one or more limitations Direct: Toll rate caps Indirect: ROI/ROE caps 12

13 Key Contractual Elements If revenue positive project, revenue sharing and/or upfront payment to DOT Developer obligation to add capacity as LOS degrades or based on other measure/time DOT right to terminate for convenience with payment to Developer based upon pre-determined formula Extent (if any) to which DOT should compensate Developer for unanticipated economic effects on project revenues 13

14 Contracting Approaches and Competition Structures Initiating Competition Owner selection of project for specific procurement Unsolicited proposal followed by request for competing proposers Call for project proposals Contract Approach and Competition Structures 14

15 Contracting Approaches and Competition Structures (cont.) Pre Development Agreement 2 Phase contracting approach Initial selection based on: Qualifications, Conceptual Development Plan, Conceptual Price for pre-development work Upon project feasibility, final negotiation of implementation terms 15

16 Contracting Approaches and Competition Structures (cont.) Concession Single phase contracting approach after DOT development of project Hard money commitment (high relative weight) Other factors (e.g., schedule, technical approach) 16

17 Contact: Geoffrey S. Yarema Nossaman Guthner Knox & Elliott LLP 445 S. Figueroa Street Thirty-First Floor Los Angeles, CA (213)