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24 construction, and provide innovative warranties for the Both the Regional Plan Association of New York, New 118-mile highway segment. The warranties expire based Jersey, and Connecticut (Regional Plan Association 2007) and on time (20 years for pavement, 10 for structures), money the U.S. Public Interest Research Group released position ($110 million for pavement, $4 million for structures), or papers highlighting the importance of transparency as vari- equivalent single axle loads (ESALs) ($4 million for pave- ous states (including New Jersey, Pennsylvania, and Texas) ment, $2 million for structures), whichever comes first. An unveiled their intentions to pursue long-term concessions on ESAL is defined by the FHWA as "the damage per pass to existing and new toll facilities. The RPA (2007) suggests full a pavement caused by a specific axle load relative to the disclosure of: damage per pass of a standard 18,000 pound axle load mov- ing on the same pavement." The warranties cost $60 mil- · Current and proposed contract standards, lion for pavement and $2 million for structures, essentially · Toll policy under PPP, leaving the private partner with a maximum monetary risk · Revenue losses related to tolls used for other invest- of $50 million for pavement and $2 million for structures ments, (from the total monetary value of $114 million of the war- · Noncompete clauses or potential limitations to expan- ranty). New Mexico DOT has been independently verify- sion of other transportation infrastructure, and ing ESAL calculations provided by the private contractor. · Transaction costs incurred by public sector. Accurate calculation of current ESALs and projection of future ESALs is important because over-calculation could RPA further suggests that adequate opportunities for pub- result in early termination of the warranties, and much of lic input and legislative review are needed. Baxandall (2007) the expensive maintenance work is expected to take place proposed that contract documentation should be available for towards the end of the contract. Findings of a recent report public scrutiny at least six month before a deal is signed, and indicate that whereas expected ESALs in the early part of that legislators should have a vote on the final terms of a PPP the contract were overestimated, the growth rate of ESALs deal. However, private parties may not be able or willing to was underestimated. However, recent data suggest growth hold their financial offers for such extended periods of time, in ESALs appears to slowing down (McClure et al. 2008). and the political risk that this would entail could discourage Yet, if the higher growth experienced over the first few private entities from submitting proposals. years is sustained, the date of warranty expiration might be accelerated, requiring the New Mexico DOT to incur pave- ment maintenance expenditures toward the later years of the infrastructure life cycle. Opinion/Comment from "Other Individuals/Interest Groups" Survey: Balance needs for temporary confidentiality with full dis- TRANSPARENCY closure of selection criteria, scoring, and concession agree- ment details. PPP agreements are complicated, and there have been criti- cisms over deals being rushed through without the public or their elected officials understanding the implications. The In our survey of state DOTs, only one state considered following sections address issues related to public participa- transparency as a "not important" concern, and this state has tion in general, and involvement of the legislative branches not considered or used PPPs to deliver highway projects. of state government. Approximately 30% of the interested parties survey respon- dents mentioned transparency as one of the main concerns related to and a factor to consider by decision makers on Transparency and Public Participation PPPs. When asked about measures used to protect the public The lack of transparency in the PPP process has been voiced interests, only one state (of 26 respondents) indicated that as one of the main concerns throughout the literature review, public access to information related to a PPP proposal was not important, whereas six states indicated this measure to be including the newspapers and media reports, and it is men- not applicable in their PPP process. tioned as an important issue by both supporters and opponents of PPPs. Buxbaum and Ortiz (2007) noted that transparency in the PPP process is key for public support of long-term con- cession agreements. The Chicago Skyway and the Indiana Opinion/Comment from "Other Individuals/Interest Toll Road concessions are particularly noted as examples in Groups" Survey: which transparency was lacking from the public perspective The private entity needs to be held to the same standard (as reported through the news media), even though public of access to documents and information as a state DOT officials involved in these deals believed the process to be would be and implement full, effective public engagement transparent and both transactions were subject to legislative methods. review and approval of final terms.
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25 A PPP delivery system is characterized by a multistage practice was actually the cause of a transparency issue in process for contractor's selection (expressions of interest, con- the case of The Canada Line. Siemiatycki (2007) reviews tractors' qualifications, proposals, and best offer and nego- the confidentiality maintained during the tendering process tiation), a multi-criteria evaluation process for contractor's of the extension of Vancouver's urban rail system by obtain- submissions for each stage, and an agreement that generally ing original technical, financial, and planning documents covers all project phases of design, construction, and oper- after bidding had ended. Using standards developed by the ation (Abdel-Aziz 2007). Because this method seeks more Australian National Audit Office (2001), he found that the innovation from private partners, those partners have more tendering process followed, and in some case exceeded, best intellectual property to protect, and thus transparency is practices for maintaining confidentiality. These practices necessarily lessened. included withholding select technical and financial infor- mation from public scrutiny during the competitive tender Although public scrutiny of decision-making is impor- process, releasing entire evaluation reports at the conclusion tant to accountability of government spending, all rationales of the procurement process, and commissioning a series of for maintaining confidentiality during the proposal process independent reviews from consultants and a former Auditory relate to ensuring a competitive tendering process that pro- General of British Columbia. vides private bidders with incentives to deliver innovative designs for the lowest possible cost (Siemiatycki 2007). In Siemiatycki concludes that despite these attempts at the USC study, Buxbaum and Ortiz (2007) suggested that transparency, resulting public and elected public official dis- the public sector should be clear and up front about what type satisfaction with one of the chosen implementation methods of information should remain confidential and provide an could have been alleviated by: (1) appointing an independent explanation as to why confidentiality is necessary during the information commissioner to hear cases for and against dis- proposal process. Confidential information, however, could seminating information to the public, (2) sharing all infor- be kept at a minimum to ensure public support. A balance mation with elected officials so that they may better decide between temporary confidentiality and full disclosure of selec- whether to approve or reject a project, and (3) requiring a tion criteria, scoring and agreements was proposed in our government auditor general to certify that each summary interested parties' survey as a mitigation measure to the report released throughout the project procurement repre- concern of transparency. It should be noted that final awards sents the full range of issues contained within the full length and contracts between the public and private sectors are sub- document. ject to the state freedom of information acts. Both Victoria, Australia, and British Columbia, Canada, have developed Jeffers et al. (2006) similarly recommend that an indepen- public disclosure policies that are aimed at achieving trans- dent process auditor ensure that all necessary legal, account- parency in procuring PPP projects. The guidance developed ing, business plan, and policy issues are addressed from the by Partnerships British Columbia on public disclosure (2007) development of a PPP proposal through the final bid accep- includes guidance on the level of disclosure by milestone of tance. Furthermore, states need to develop in-house capabili- the PPP process. ties to negotiate with, and oversee the operations of, private sector partners (Jeffers et al. 2006; Oberstar and DeFazio Best practices have been developed to promote trans- 2007). Non-in-house auditors and consultants may potentially parency in the PPP procurement process (Australian National have clients on both sides of an agreement and therefore may Audit Office 2001). The International Technology Scanning have conflicts of interest. report issued by Jeffers et al. (2006) similarly notes the impor- tant role auditors play in the procurement of PPP projects. The The complexity of a PPP can make it easy to hide true scanning team's recommendations include: costs and benefits related to a project from the public (Bloomfield 2006). One of the true `innovations' brought · Implementing the use of a process auditor position for on by leasepurchase agreements is that payments made to each PPP project; the contractor are treated as operating expenses rather than · Conducting audits throughout the project life cycle, not capital expenditures. Thus, the public sector can enter into just of the end construction costs; long-term leases without obtaining voter approval, maintain · Involving internal audit staff and financial experts early compliance with statutory debt limits, and avoid reporting in the tendering process to improve the quality of high- long-term lease obligations as debts. These "off-budget" or way project Request for Proposal (RFP); and "off-balance-sheet" financing methods avoid restrictions on · Specifying outcomes desired and allowing contractors debt, but do not avoid debt itself. Bloomfield recounts an the opportunity to determine the detailed specifications example in Plymouth County, Massachusetts, in which to construct, maintain, or operate the project based on misleading language suggested to the public that a private the outcome specifics. investor was paying for a new correctional facility, whereas tax payers were required to pay the entire project cost. Exam- Although specifying outcomes rather than outputs is a ples such as this underscore the need for government to make major driver of the innovation found in a PPP, this best the PPP process as transparent as possible to the public.
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26 The Virginia DOT has developed a process to review PPP demanded that the administration make the study public, submission that incorporates transparency and public par- even resorting to court action, after being denied access to the ticipation. PPP proposals are reviewed by an Independent report. The governor released his plan during his State of the Review Panel that is comprised of members from various State address in January 2008, and in an effort to gain sup- stakeholder groups. Furthermore, proposals are distributed to port, the administration held public meetings in each county affected jurisdictions, and these are provided with a 60 day to present the plan. period to review and submit comments. Almost 60% of the respondents (26 states) in our state Transparency is not limited to the procurement process, DOT survey consider the lack of opportunities for public and it is important that it remain beyond the procurement input as a "very important" concern. Only 7% (three states) process, particularly when revenue sharing provisions are considered this issue to be "not important," all three of which included in the PPP agreements (Samuel 2005). The public are not considering highway PPPs. should have access to annual traffic and revenue information, audited financial statements, and other documents used to As mentioned earlier, several respondents of our inter- determine the toll revenue returned to the public sector. The ested parties' survey included transparency as one of the concession agreements for Chicago Skyway, Indiana Toll main concerns and factors to consider in a PPP, citing items Road, and SR 125 in California mandate public disclosure of such as public access to concession documents, applying annual finances and performance (Replogle 2007). the same standards of public disclosure in the public sector to private entities in a PPP, delineation/limitations of what is proprietary information and what is not in the contract, Public Participation and public oversight at all stages (i.e., from procurement, throughout construction, and operations of facility). Any transportation planning exercise involves public partici- pation to varying degrees. PPPs are new, and there are so According to the recent GAO report on long-term conces- many misconceptions about how they really work. Therefore, sions (GAO 2000b), both Victoria and New South Wales, in public participation in PPP projects is even more important. Australia, require transparency in their PPP process, by keep- ing the public informed, as laid out in the public interest cri- The decisions surrounding the long-term lease of the Indi- teria shown previously in Table 4. ana Toll Road to a private concessionaire was the subject of intense debate and controversy both during and after the Adequacy of Legislative Branch Review actual transaction. There are conflicting accounts on how well the public was kept informed about the facts of the trans- The use of PPPs for transportation requires enabling legisla- action. Some legislature members complained that the deal tion allowing the public sector to enter into agreements with was done in "secrecy" (GAO 2000b). That the Daniels admin- the private sector to provide transportation infrastructure. istration held hearings after formally announcing the lease According to FHWA's PPP website, 23 states and Puerto was also a subject of legislative criticism (Replogle 2007). Rico have enabling legislation for PPPs. Some states' legis- On the other hand, staff from the Indiana DOT and the Indi- lation only provides authority to implement specific projects ana Finance Authority who were interviewed for the USC contained in legislation. For instance, legislation in Indiana study (Buxbaum and Ortiz 2007) indicated that legislative specifically approved the Indiana Toll Road concession, hearings were held between January and March 2006, as part and future PPPs in this state will require further legislative of the process to create enabling legislation for the Indiana approval. Design-build has been used more extensively, with Toll Road concession, and these hearings were open to the 30 of the 44 states in our survey having used this PPP option, public. After PPP legislation approving the deal was enacted, and 36 states indicating that they have considered design- additional hearings were conducted in Indianapolis and in the build. Individual PPP proposals must be approved by the leg- area where the toll road is located. islature in Alaska, California, Delaware, Florida, Indiana, Louisiana, Tennessee, and Washington State--about one- The perception of a lack of transparency has plagued other third of the states that have PPP-enabling legislation. In some recent PPP deals, (e.g., the SH-130 in Texas), but after the of these states, projects are limited by a specified number of public backlash, some PPP proponents and decision makers greenfield projects (e.g., Alaska, California, and Tennessee), took notice and are making an effort to communicate and whereas others only require legislative approval for brown- involve the public in the process. In New Jersey, the gover- field concessions (i.e., Florida). nor began to explore the feasibility of leasing public assets, including toll roads, eventually moving to pursue an asset Over the last two years, a few high-profile long-term con- monetization through the creation of a public corporation. cession agreements intensified the debate of PPPs in general, The study conducted to develop the asset monetization plan and raised concerns about the extent to which the legisla- was kept "under wraps" for several months, and legislators tive branches of government have an opportunity to review,
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27 understand, and influence PPP deals. Several events of 2007 Because toll roads were developed and operated almost demonstrate that state legislators are concerned about the exclusively by government and quasi-government toll author- speed and transparency of long-term concession contracts: ities for the last century, non-U.S. companies are now best positioned to finance and operate private toll roads in the United · The Texas legislature imposed a two-year moratorium States (Gilroy 2007). For example, Spain has a long history on PPPs and directed the Texas Transportation Com- of toll concessions, with enabling legislation dating back to mission to accept a new bid from North Texas Tollway the 1950s, and Spanish companies have a strong presence Authority for the construction of SH-121, which had in toll road concessions in other countries (Izquierdo and been originally awarded to a private consortium; Vasallo 2004). Cintra, a Spanish concessionaire, is an equity · In Pennsylvania, the legislature moved to enact Act 44 partner in the Chicago Skyway, Indiana Toll Road, Trans Texas to allow a "public-public" partnership between the Corridor 35, and SH-130 in Texas, and also led the consortium Pennsylvania DOT and the Pennsylvania Turnpike for the Highway 407 Express Toll Route (ETR) in Toronto, Authority, after the governor had issued a request for Canada. "expressions of interest" for the potential lease of the Pennsylvania Turnpike; Another reason foreign companies have flocked to the · New Jersey legislators filed a lawsuit against the United States is that they are attracted by the stability of the Corzine administration to make public a feasibility U.S. government and its legal system that enforces contracts study on the "monetization" of existing toll roads in the (Buxbaum and Ortiz 2007). Private investors are hesitant to state; and participate when the public partner has poor credit quality or · The House Transportation and Infrastructure Commit- political, legal, economic, and commercial circumstances tee held hearings on PPP topics, including protecting that are unstable (Zhang 2005). As the United States mar- the public interest, and Congressmen Oberstar and ket has matured, joint ventures between U.S. and non-U.S. DeFazio issued a letter cautioning states entering into companies (e.g., Fluor/Transurban, Zachry/Cintra, Kiewit/ PPP agreements for transportation infrastructure. Macquarie, and JP Morgan/Cintra), and U.S. financial insti- tutions have created multi-billion-dollar infrastructure invest- In contrast to these legislative reactions, our "state DOT" ment funds (Samuel 2007). survey found that a significant number of the respondents (18%) considered the concern of lack of time for legislative Despite increased United States participation in conces- review or no legislative branch review as "not important" sions, other concerns remain, particularly related to whether when compared with other PPP concerns from the survey. local contractors and smaller firms will have an opportunity On the other hand, a respondent of the interested parties' sur- to participate. The question is whether a private concession- vey, who represented an interest group that advocates for aire will use local contractors for construction work and/or have open bids for other tasks that might be contracted out, public interests, proposed that legislatures should not only similar to current public sector practice. In Indiana, con- provide enabling legislation for PPPs, but also approve final struction unions were demanding that the concessionaire concession agreements. sign a labor agreement to give 95% of the contracted work to trade unions, based on their estimated share of contracts Perceptions of Foreign Control of Domestic before the Indiana Toll Road lease ("Unions Want Indiana Assets and the Role of Local Contractors Toll Road Jobs" 2007). The concessionaire indicated that no such deal would be signed. The concession agreement, Concerns of foreign control of public assets are based on the however, requires that at least 90% of the concessionaire impression that allowing a foreign firm to control our expenses be awarded to companies in Indiana, and it also nation's roadways may lead to national security and/or trade sets goals for minority business enterprise and women busi- agreement issues. This concern has two potential compo- ness enterprise participation ("ITR Concession Company nents: foreign government control versus foreign private firm Contracting Goals Are Being Met" 2007). control. In PPPs, foreign control concerns are mostly related to the latter, although the former could be a factor when dis- Organizations related to the construction industry, such as agreements over PPPs may affect trade agreements with for- the National Asphalt Pavement Association, the Associated eign governments. General Contractors of America, and the American Road & Transportation Builders Association, have stated their sup- Some commentators frown upon allowing foreign com- port for PPPs as one tool to pay for infrastructure, among panies to operate, maintain, or control U.S. infrastructure other funding and financing options. (Dobbs 2007). In Tennessee, for example, the senate passed a bill (in March 2008) to limit contracting with foreign con- Foreign control of domestic assets was an important cessionaires. This type of restriction, however, may violate concern for 75% of the state DOTs that were surveyed bilateral trade agreements, such as those between the United (33 states). The Canadian respondents, however, were less States and Australia. concerned, with 60% (three provinces) reporting that this