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Virginia to recoup losses from “disaster” P3

The state’s administration has negotiated a refund from the consortium originally awarded US 460, a $1.4bn toll road project cancelled earlier this year.

A Cintra-led consortium will be refunding the state of Virginia $46 million as part of a settlement for the US 460 highway project, which was initially procured as a public-private partnership (PPP; P3) in 2012 but has since been cancelled, Governor Terry McAuliffe’s office said in a statement.

The consortium, US 460 Mobility Partners, has also agreed to cancel an additional $103 million claim it had previously filed.

“While this is a positive development, the fact remains that Virginians have already spent hundreds of millions of dollars on a project that will never be built because state officials negotiated a contract that left the Commonwealth holding the bag when the environmental risks were too great to move forward,” McAuliffe said.

US 460 Mobility Partners – which along with Cintra comprised its parent company Ferrovial Agroman, engineering firm Janseen & Spaans, consultant A. Morton Thomas and transportation contractor American Infrastructure – was selected in 2012 by McAuliffe’s predecessor Bob McDonnell to design, build and finance a new, 55-mile four-lane extension of US Route 460, estimated to cost $1.4 billion.

Last April, however, Virginia’s Secretary of Transportation Aubrey Layne announced that the Commonwealth had concluded that terminating the existing contract was in the taxpayers’ best interest.

The reason was that the US Army Corps of Engineers (USACE) was unable to grant a permit for the project due to the significant environmental impact it would have on Virginia’s wetlands. Under the terms of the contract, US 460 Mobility Partners was responsible for acquiring the permit but did not assume the risk if the permit was not granted.

The $149 million the McAuliffe administration was able to recoup still falls short of the approximately $250 million Virginia has paid to the contractor.

“I regret that that contract did not allow for greater steps to mitigate the impact of this failed project, but I am proud of the bipartisan reforms we worked with leaders like Delegate Chris Jones to make, to prevent disasters like this occurring in the future,” McAuliffe said.

While the project has cost Virginia millions, it has also served as a motivating factor for reform, part of which includes House Bill 1886 (HB 1886), a new piece of legislation McAuliffe signed into law while announcing the settlement.

House Bill 1886 provides for the creation of an independent steering committee with representatives from the General Assembly that will determine the best delivery method for transportation projects. When a P3 model is deemed most appropriate for a given project then the risk will have to be transferred to the private sector. Under the new law, the secretary of transportation is also held accountable by being required to sign off on the deal, confirming that the project qualifies as a P3 and that risk has been transferred.

“There will be no way to duck responsibility for transportation decisions,” Layne said. “It will protect taxpayers from undue risk, while using the P3 process in the intended way to deliver projects that move Virginia’s economy.”

While the P3 contract has been cancelled, the project has not been scrapped altogether. Virginia is considering an alternative option with a much smaller footprint and a price tag ranging from $375 million to $425 million. Instead of 55 miles of new road, the project would comprise a 17-mile segment – part of which would include a new road – while the other part would involve upgrading an existing portion of US 460.

The next step, according to the Virginia Department of Transportation (VDOT), is for the agency to conduct outreach on this alternative. Once the decision is made that the alternative route is permittable, the project will be scored, in accordance with House Bill 2 (HB2), another piece of legislation passed in April 2014, aimed at reforming the P3 process. If the scoring reveals that the project is a priority compared to other candidate schemes, then the Commonwealth Transportation Board (CTB) will decide whether it will be funded and how it will be procured.