Proceeding with caution

Virginia has for the past several years held first place in the US when it comes to leveraging public-private partnerships (PPP; P3) to invest in its transportation infrastructure. Last September, we reported that between 2009 and 2013 the state delivered seven projects worth $8.1 billion and had 22 P3 projects in the pipeline.

Since then, a gubernatorial election was held resulting in Terry McAuliffe assuming the office of Governor in January 2014 and the appointment of Aubrey Layne as the state’s Secretary of Transportation. Now, any P3-related news originating in Virginia has less to do with the launch of new Requests for Proposals (RFPs) and more to do with reforms.

“Following last year’s landmark legislation where new revenues were pumped into the state of Virginia for transportation, Governor McAuliffe and the legislature wanted to make sure we were good stewards of taxpayer money,” Layne said, referring to the $6 billion transportation funding bill McAuliffe’s predecessor Bob McDonnell signed into law in May 2013.

“So the Governor directed me to work with House Speaker [William] Howell to develop House Bill 2, which is a prioritization of projects across the Commonwealth,” Layne continued.

Depoliticising the process

House Bill 2, which McAuliffe signed into law this past April, requires the Commonwealth Transportation Board (CTB) – a 14-member board chaired by the Secretary of Transportation and responsible for allocating funds for transportation projects across the Commonwealth – to work with local authorities in prioritising projects based on objective criteria. These comprise congestion mitigation, economic development, safety, mobility and environmental concerns.

“The law requires that in urban areas congestion mitigation be the most heavily-weighted factor, while in rural areas it has to be economic development,” Layne explained.

“It’s part of depoliticising this process so that our Department of Transportation knows that regardless of who or what party is in office, we have a project list that has been based on objective criteria,” he added.

Once the most significant projects have been identified, the CTB will then determine which of the prioritised projects lend themselves to P3s, at which point the Office of Transportation Public-Private Partnerships (OTP3) steps in to further develop the projects.

According to Layne, the projects that will be deemed suitable candidates are those where risk can be shared by the public and private sector, the private sector can be compensated for that risk and where taxpayers will benefit from the risk being transferred.

Wanting to infuse more transparency and accountability into the P3 process, McAuliffe also directed Layne and the CTB to work with OTP3 to better define P3 guidelines.

That involves working with the General Assembly but “does not mean that we’re looking for General Assembly approval on every project,” Layne clarified. “But they should be part of the process and we understand that.”

The CTB and OTP3 have until October to present their recommendations.

The objective is “to avoid a situation again where the Commonwealth has a large investment yet no ability to move forward on the project,” Layne explained, referring to US Route 460, a 55-mile, $1.4 billion project originally conceived as a P3 which under the new rules is a design-build project.

“Had it been a design-build from the beginning, money for construction-related activities wouldn’t have been put out the door until the permits were in place,” Layne said, referring to the permits still pending from the US Army Corps of Engineers (USACE).

With a design-build project, some money would have been spent on design work that is necessary for the permitting process, but not for construction mobilisation activities, which has cost the state $300 million to date.

In March, Governor McAuliffe suspended the project until the permits had been granted. In June, the Virginia Department of Transportation (VDOT) issued a press release stating that VDOT, the Federal Highway Administration and USACE were “working at a steady pace to evaluate the environmental impacts of five Route 460 alternatives”.

While the case of Route 460 may be seen as a setback, Layne chooses to focus on the positive. “The good news is that our experiences here have made us better at delivering these types of projects. Virginia has been a leader of P3s and we will continue to be,” he said.

“Both Governor McAuliffe and I are very big believers in the P3 process and support public-private partnerships. We’re both from the private sector so we have been on that side of the deal,” he added.

The next project to move forward as a P3 is Interstate 66, which entails improving 25 miles of highway and is estimated to cost between $2 billion and $3 billion.