Cintra to receive $3.6m for failed bid costs in Texas

The payment will reimburse the Spanish toll road developer for post-award bid costs related to the procurement of the $5bn State Highway 121 project in North Central Texas. The US Department of Transportation has previously argued that Texas' procurement process for the project violated federal law.

The Regional Transportation Council of the North Central Texas Council of Governments has approved a $3.6 million payment to Spanish toll road developer Cintra in recompense for failed bid costs it incurred for a $5 billion toll road project in 2007.

For Cintra and its equity partner, JPMorgan Infrastructure Investments Group, the payment marks a final chapter in a long and controversial procurement process in 2007 that some say violated federal law.

The project was a development of five sections of State Highway 121 in North Central Texas under a public-private-partnership arrangement with the Texas Department of Transportation. The all-in $5 billion contract for the completion of the road, a 52-year operating concession and ongoing maintenance, was conditionally awarded to Cintra’s consortium in February 2007.

However, the passage of Senate Bill 792 in May of that year allowed a public transportation entity, the North Texas Tollway Authority (NTTA), to submit a proposal for the project even though it originally decided not to participate in the procurement process.

The NTTA decided to put in a proposal, which it said was superior to the Cintra proposal because it gave the region more money upfront for the concession – $2.5 billion versus the $2.1 billion offered by Cintra and JPMorgan – and more money in revenue sharing over the life of the contract.

In June 2007, Texas Governor Rick Perry signed Senate Bill 792 into law and the Regional Transportation Council recommended the NTTA proposal to the Texas Transportation Commission, the executive body of the Texas Department of Transportation (TxDOT), over Cintra’s consortium.

TxDOT then began to negotiate a procurement agreement for the 121 highway project with the NTTA, even though it had not formally terminated private sector procurement for the project with the Cintra consortium. Cintra and JPMorgan were still the preferred bidders for the project.

In August 2007, the US Department of Transportation wrote a letter to the Texas Department of Transportation asserting that its procurement process for the 121 highway project violated federal law and that “the procurement violations are substantial and run counter to the fundamental requirement for fair and open competition”.

That same month, TxDOT formally cancelled its private sector procurement with the Cintra consortium, but not after the consortium had incurred certain post-award costs. These, costs, according to an agenda item in the Regional Transportation Council’s latest minutes, included application costs for a loan under the US government’s TIFIA (Transportation Infrastructure Finance and Innovation Act) credit programme, a stipend for unsuccessful bidders, and other post-bid costs totaling $3,615,214.

At the Regional Transportation Council meeting last Thursday, councilmembers held a voice vote for an allocation for this previously agreed-upon cost. The three counties of Denton, Dallas and Collin, through which the 121 highway project progresses, will pay $1,961,063, $253,065 and $1,446,086 of the cost.

Only one dissenting voice was recorded in the voice note, according to a council spokesperson.

The approved allocation was based upon the counties’ respective shares of transportation funding received from the NTTA’s ultimate $3.2 billion upfront payment for 121 highway concession. That payment was made in 2007 and was financed through bond anticipation notes – short term debt issued by governments in anticipation of bond issuances at a later date.

Despite its experience with the 121 highway procurement, Cintra has not been scared away from Texas toll road projects. Earlier this year, it was named preferred bidder on two projects alongside European infrastructure investor Meridiam. These include the $2 billion North Tarrant Expressway, which in June reached contract signing, and the $2.4 billion LBJ Freeway project.

Both projects were awarded under an exemption from a moratorium on PPPs for toll roads imposed by Senate Bill 792.

That moratorium is scheduled to end this year. But because the Texas Legislature did not pass a bill to extend the state’s authority to enter into PPPs for toll roads, the moratorium is de facto in effect until the state’s next legislative session in 2011.