The Texas Department of Transportation’s (TxDOT) revised RFQ for the US$834 million SH 183/SH 121 P3, issued at the beginning of May, is reportedly attracting several bidders, and could change the very nature of toll road P3s in the US in terms of how risk is shared.

Firms that are said to be planning to respond to the new RFQ include Macquarie, Aecom, Parsons Brinckerhoff and its parent, Balfour Beatty, Odebrecht and Walsh Construction. Officials at those firms either declined to comment or did not return calls.

The project itself is similar to most greenfield transportation P3s, as it involves the construction and operation of a pair of two-way managed lanes that will run alongside nearly 10 miles of SH 183/SH 121, as well as widening the existing SH 183.

Originally, TxDOT issued an RFQ in August that called for a traditional P3 procurement, in which the winning bidder would take on a significant amount of toll risk in exchange for constructing and operating the road. Only one company, however –Cintra – responded to it.

TxDOT, however, knew it faced a problem with Cintra’s lone response: the Spain-based road concession firm is also leading NTE Mobility Partners, the winning concessionaire for the US$2.02 billion North Tarrant Expressway P3 [Projects Database]. By only considering Cintra for the project, TxDOT would give the appearance of favoritism to one firm.

Additionally, potential bidders said in November that they did not want to take on a significant amount of traffic risk on SH 183/SH 121, primarily because the road extends 10 miles from the North Tarrant Expressway. Bidders believed that by taking on the SH 183/SH 121 project, they would be forced to compete with Cintra for toll revenue.

“No one thought they could beat Cintra on a toll risk project so close to Cintra's other P3 (NTE),” said one P3 executive in November.

Pass-through payments

At the beginning of May, however, TxDOT revised the SH 183 RFQ by offering a pass-through toll availability payment structure. The structure, which is extremely rare in the traditional US P3 market, offers to shoulder the bulk of the toll risk on SH 183 by guaranteeing a minimum availability payment to cover the annual cost of capital for the project, and increase the payment based on the number of vehicles/vehicle miles that will travel on SH 183.

Other features of the revised deal include a revenue sharing arrangement between TxDOT and the winning bidder should the amount of toll revenue exceed the availability payment in a given time period. TxDOT would also operate and collect the tolls on the road and pay the winning bidder construction milestone payments that are estimated to be approximately US$300 million. It will also pay right-of-way charges associated with the project.

The new RFQ is due 2 August and can be found here.

“We got valuable feedback from the industry regarding the original RFQ for SH 183,” said a TxDOT spokesperson. “Our goal in revising it was simply to make the SH 183 project more palatable to more bidders.”

P3 executives are, for the most part, happy with the new payment structure.

One US P3 executive told IJ News that, “I believe that the payment scenario will interest our team because it appears to provide a backstop to the toll risk. I believe we will most likely submit a qualification package. TxDOT appears to have leveled the playing field with Cintra.”

New wave of P3s

A US P3 attorney, whose client plans to respond to the May RFQ, told IJ News SH 183’s new availability payment structure represents a new wave of P3 concessions in the US. “Beyond mitigating the competition with Cintra, this is a deal that takes most of the toll risk burden off the concessionaire,” the attorney said.

“It really shows how the US market has now evolved beyond deals like the Indiana Toll Road (ITR) [Projects Database] and the South Bay Expressway [Projects Database], where advisors underestimated traffic risk and concessionaires took on almost 100 per cent of the toll and construction risk. We now know that deals like that generally won’t work in the US.”

In 2010, Macquarie-led SPV California Transportation Ventures, the winning bidder for the US$635 million SR 125 P3 in California, emerged from Chapter 11 Bankruptcy Court, and ended up selling SR 125 back to California. Additionally, in 2006 a consortium led by Cintra and Macquarie signed a 75-year lease of the ITR worth nearly US$4 billion. Every year since then however, the road has not generated enough toll revenue to cover the cost of the capital raised for the deal.

“I believe we’re going to see more deals like SH 183 in the near future,” said Rick Norment, executive director the US National Council for P3s (NCPPP). “We’re already seeing several deals in which public agencies are willing to share the risk. We’re also just getting to the point that we have a much better understanding of traffic risk in US transportation deals versus deals in Europe and around the world.”

Robert Hinkle, NTE Mobility Partner’s director of corporate affairs, told IJ News that the consortium is not threatened at all by the newly structured SH 183 deal. He also declined to say whether Cintra or NTE Mobility’s other partners will respond to the new RFQ.

“First of all, we don’t see SH 183 as competition, we see in more as an extension of the North Tarrant Expressway,” Hinkle said. “We would, however, welcome the competition. We think competition will improve what we will offer to drivers for the North Tarrant Express.”

All-in-all, the new SH 183 deal could, by necessity, level the playing field with Cintra when it comes to financing. In the broader sense, only time will tell if the new SH 183 deal indeed helps usher in a new era in the US P3 market when it comes to sharing traffic risk between the public sponsor and the chosen concessionaire.