file under: Government, Transportation, United States

Harnessing Private-Sector Creativity in Dallas-Fort Worth

Innovative financing and delivery approaches advanced the Texas Department of Transportation’s State Highway 183 Managed Lanes P3 procurement

Congestion relief is on its way for the Dallas-Fort Worth (DFW) Metroplex. The Texas Department of Transportation (TxDOT) is adding managed lanes and widening portions of State Highways 183, 114, and Loop 12 in Dallas through a public-private partnership (P3) and design, build, finance, operate and maintain agreement with consortium developer SouthGate Mobility Partners. By harnessing private-sector creativity, TxDOT is greatly enhancing mobility and connectivity between both downtowns and to the DFW International Airport.

Before securing the deal, TxDOT had tried twice before to procure a P3 but ran into the 2008 financial market collapse and, later, developer hesitancy to bid on a full revenue and risk transfer concession. In 2013, TxDOT turned to CDM Smith and a team of financial and legal advisors to manage the procurement’s successful completion. As one of the largest and most complex projects in Texas transportation history, several unique procurement approaches were developed to meet TxDOT’s objectives.

Gap Financing—CDM Smith and the advisory team structured a transaction model gap financing that will be used by CDM Smith and the project’s advisory board to lessen TxDOT’s financial burden. The model allows TxDOT to pay for all work above $600 million on a deferred basis, making it one of the largest receivables financing in national transportation history.

“Naked” Operations and Maintenance (O&M)—To secure similar long-term life cycle benefits realized by concessions or availability payment transactions, the procurement required the developer to take full O&M and lifecycle risk on rebuilt highway segments for a 25-year period. Unlike a concession or availability payment structure, the developer is not required to have any equity at risk during the term of the agreement. In order to provide performance guarantees for this “naked” O&M commitment, CDM Smith worked with TxDOT and it advisors to structure a security package, including parent guarantees, surety bonds and letters of credit, which provided the necessary backstop for the developer’s long-term obligations.

Tiered Bidding—As TxDOT only had $850 million for an estimated $1 billion project, incentivizing maximum value for available funding was critical to the procurement. The bidding process was structured so that proposers had to submit a base scope and had the option to add up to four additional components, as long as they were within budget. Bidders were then grouped into tiers based on the number of components included in their proposals. This tiered setup produced the winning proposal from the tier with the most added scope items, allowing TxDOT to finance the $1 billion project for $850 million.

TxDOT reached commercial close in November 2014 and substantial completion is expected in spring 2018. By taking innovative approaches to the P3 procurement, TxDOT has progressed this complex project to significantly improve the transportation network and mobility around the DFW Metroplex.

Texas Department of Transportation

3 Factors for Successful P3 Procurement
Is your project a P3 contender? CDM Smith's P3 expert John Muñoz has "Three Factors for a Successful P3 Procurement" to help you incentivize private-sector participation.