Texas’ SH 183 road reaches commercial close

The Texas Department of Transportation (TxDOT) and Southgate Mobility Partners, a Kiewit-led consortium, have achieved commercial close for the design, construction, financing, operation and maintenance of the Midtown Express, previously known as the State Highway (SH) 183 managed lanes project, according to a statement.

Southgate, which along with Kiewit comprises the Plenary Group, Parsons and Austin Bridge & Road, will design and construct the project for $847.6 million, finance $250 million of deferred construction payments and operate and maintain a portion of the project for 25 years after completion.

“The deal is a first-of-its-kind for TxDOT and for the United States PPP (public-private partnership) market,” Mayer Brown, the law firm that advised TxDOT on the transaction, said in a statement. “No procurement process has previously packaged all of the elements of the SH 183 transaction in a single PPP deal structure,” the firm said.

The transaction is unique for several reasons, according to Joe Seliga, a partner in Mayer Brown’s Government and Global Trade practice who led the firm’s team advising TxDOT.

“This transaction combines design-build-finance (DBF) elements (design-build responsibilities with short-term construction financing obligations) along with a 25-year operation and maintenance requirement in a single agreement,” Seliga explained in an e-mail. “Other DBFOM projects have either been structured as toll concession or availability payment transactions.”

While other projects have been financed through DBFs in the US, SH 183 is one of the largest such transactions in the country.

Another innovative element of the transaction was the procurement process which was based on a ‘scope ladder’ approach, in which bidders were incentivised to develop the biggest project for the $850 million TxDOT had available.

“Proposers were required to submit proposals for a base scope and four additional scope components. Southgate, which won the procurement, proposed on all four additional scope components, while the other two proposals submitted only included two additional scope components,” Seliga commented. “This is one of the first US P3s to utilize the scope ladder approach,” he said.

The project involves increasing capacity and reconstructing portions of SH 183 – built in 1959 and relatively unchanged since the 1970s – as well as SH 114 and Loop 12. It will be built in two phases, the interim phase which Southgate will build and which includes adding one managed toll lane in each direction; and the ultimate phase which will be built once financing is available.