Request for Qualifications released for Metro's first public-private partnership project

2013-05-31 Request for Qualifications (RFQ)

Metro’s highway program quietly reached a milestone on Friday when the agency officially posted online a solicitation to firms to be considered to both build and help finance a project that would add 13.5 miles of HOV/toll lanes to the 5 freeway between the 14 freeway and Parker Road.

I know. The release of “request for qualifications” is not the sort of thing that inspires a lot of jumping and down and such. Let me try to explain in plain English why this matters and what it means for the project. The RFQ is posted above not because I expect you to read all 100-plus pages but to show the considerable work that the agency must do to release these things and what’s involved for private firms who respond to them.
First, a brief look at the project (a lot more info here in an earlier post). It’s actually six different projects, the foremost being the construction of an HOV lane for 13.5 miles in each direction on the 5 freeway between the 14 freeway and Parker Road. A toll for vehicles with one or two occupants (at peak hours only for vehicles with two occupants) would be charged to use the lanes — with the tolls being used in part to finance the construction of the carpool lanes about 30 years earlier than planned in Metro’s long-range plan. Four general purpose free lanes would remain in each direction in this stretch of freeway; the idea is to add capacity to the freeway.

This is a significant break from the traditional way that transportation projects are funded and built. Most often, government agencies either save money to pay for big projects, or pay for them as money becomes available (pay as you go), or borrow money to pay for the upfront costs and then pay off those loans (usually in the form of bonds) over many years. Think of it like taking out a loan to re-do your kitchen. Except most transportation projects are like simultaneously re-doing a a few thousand kitchens.

In this case, the money to build the project will come from a private firm willing to pay the upfront cost in return for 35 years of revenues from the toll lanes and sales tax revenues that Metro had planned to use to build the project later. Such deals are designed to be a win-win for the public and private alike — the public gets funds to build something that otherwise would have to wait decades and the private, if things go as they should, gets its money back and then some in exchange for building the project.

As for this project, it’s being called ARTI — as in “Accelerated Regional Transportation Improvements.” Yes it’s a bit of a mouthful so just memorize the ARTI part. The project also includes reconstructing and/or repaving the 5 freeway between the 14 and Parker Road, adding one carpool lane in each direction on the 71 freeway between the 60 and 10 freeways in Pomona and building sound-wall segments along the 210 in Pasadena, the 210 in Arcadia and the 170 and the 405 in the city of Los Angeles.
Statements of Qualification are due on July 19. In the weeks that follow, Metro will evaluate the proposals and select the most qualified firms to be “shortlisted.”  These firms will then be later invited to submit bids to design, build, finance, construct and maintain the projects, and Metro will determine if the bids pencil out and are a good deal for taxpayers; the Board would approve the toll amounts.
The project is not being designed as a giveaway. A PPP would have to be approved by the California Transportation Commission and the Metro Board of Directors will still have to make some key decisions in order for the project to advance as a PPP. That said, the release of the RFQ is a critical first step to determine if a PPP will work for this project.

4 replies

  1. An idea that has been looming large for some time. Nice to witness one of the initial attempts to take PPP from theory to practice here in the U.S.

  2. I’m definitely a novice when it comes to this sort of thing, but it strikes me as a little odd that ARTI includes so many disparate projects, all of which would probably be constructed by Metro in a more traditional manner if the funding streams were flowing more readily. As it is, it sounds a bit like Metro is turning over to a private corporation the risk of issuing bonds for transportation projects, as well as the returns on those investments. For some reason this arrangement made more sense when I understood it as only involving HOT lanes on I-5, but when it involves repaving, other HOV lanes on other freeways and soundwall construction it seems like a greater shifting of responsibilities than is normal.

    I understand the benefits to Metro and L.A.’s transportation system. What is Metro giving up in an arrangement like this?

    • Hey Alex;

      The short answer to your question is it remains to be seen and depends on whether Metro can swing a PPP deal that works for everyone. What it really comes down to is how much the tolls cover the cost of repaying the private firm that builds the project.

      As for the different parts of the project, my understanding is they were pulled together both because they had all been environmentally cleared and that packaging them would likely attract more bidders (according to Metro). The other benefit is that it should allow the revenue generating part of the project to perhaps pay for the rest, which lacked the funds to be built this decade.

      Again, all this rests on whether Metro can make a business case that the PPP will work. While the RFQ is a good first step, there are others that must be taken before this becomes a PPP.

      Best,

      Steve Hymon
      Editor, The Source