[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
BLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
=======================================================================
(110-24)
HEARING
BEFORE THE
SUBCOMMITTEE ON
HIGHWAYS AND TRANSIT
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
----------
APRIL 17, 2007
----------
Printed for the use of the
Committee on Transportation and Infrastructure
PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
U.S. GOVERNMENT PRINTING OFFICE
34-795 PDF WASHINGTON DC: 2007
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia JOHN L. MICA, Florida
PETER A. DeFAZIO, Oregon DON YOUNG, Alaska
JERRY F. COSTELLO, Illinois THOMAS E. PETRI, Wisconsin
ELEANOR HOLMES NORTON, District of HOWARD COBLE, North Carolina
Columbia JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York WAYNE T. GILCHREST, Maryland
CORRINE BROWN, Florida VERNON J. EHLERS, Michigan
BOB FILNER, California STEVEN C. LaTOURETTE, Ohio
EDDIE BERNICE JOHNSON, Texas RICHARD H. BAKER, Louisiana
GENE TAYLOR, Mississippi FRANK A. LoBIONDO, New Jersey
JUANITA MILLENDER-McDONALD, JERRY MORAN, Kansas
California GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California HENRY E. BROWN, Jr., South
LEONARD L. BOSWELL, Iowa Carolina
TIM HOLDEN, Pennsylvania TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts BILL SHUSTER, Pennsylvania
JULIA CARSON, Indiana JOHN BOOZMAN, Arkansas
TIMOTHY H. BISHOP, New York SHELLEY MOORE CAPITO, West
MICHAEL H. MICHAUD, Maine Virginia
BRIAN HIGGINS, New York JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri MARIO DIAZ-BALART, Florida
JOHN T. SALAZAR, Colorado CHARLES W. DENT, Pennsylvania
GRACE F. NAPOLITANO, California TED POE, Texas
DANIEL LIPINSKI, Illinois DAVID G. REICHERT, Washington
DORIS O. MATSUI, California CONNIE MACK, Florida
NICK LAMPSON, Texas JOHN R. `RANDY' KUHL, Jr., New
ZACHARY T. SPACE, Ohio York
MAZIE K. HIRONO, Hawaii LYNN A WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa CHARLES W. BOUSTANY, Jr.,
JASON ALTMIRE, Pennsylvania Louisiana
TIMOTHY J. WALZ, Minnesota JEAN SCHMIDT, Ohio
HEATH SHULER, North Carolina CANDICE S. MILLER, Michigan
MICHAEL A. ACURI, New York THELMA D. DRAKE, Virginia
HARRY E. MITCHELL, Arizona MARY FALLIN, Oklahoma
CHRISTOPHER P. CARNEY, Pennsylvania VERN BUCHANAN, Florida
JOHN J. HALL, New York
STEVE KAGEN, Wisconsin
STEVE COHEN, Tennessee
JERRY McNERNEY, California
(ii)
SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES
PETER A. DeFAZIO, Oregon
NICK J. RAHALL II, West Virginia JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York DON YOUNG, Alaska
JUANITA MILLENDER-McDONALD, THOMAS E. PETRI, Wisconsin
California HOWARD COBLE, North Carolina
ELLEN O. TAUSCHER, California RICHARD H. BAKER, Louisiana
TIM HOLDEN, Pennsylvania GARY G. MILLER, California
MICHAEL E. CAPUANO, Massachusetts ROBIN HAYES, North Carolina
JULIA CARSON, Indiana HENRY E. BROWN, Jr., South
TIMOTHY H. BISHOP, New York Carolina
MICHAEL H. MICHAUD, Maine TIMOTHY V. JOHNSON, Illinois
BRIAN HIGGINS, New York TODD RUSSELL PLATTS, Pennsylvania
GRACE F. NAPOLITANO, California JOHN BOOZMAN, Arkansas
MAZIE K. HIRONO, Hawaii SHELLEY MOORE CAPITO, West
JASON ALTMIRE, Pennsylvania Virginia
TIMOTHY J. WALZ, Minnesota JIM GERLACH, Pennsylvania
HEATH SHULER, North Carolina MARIO DIAZ-BALART, Florida
MICHAEL A ARCURI, New York CHARLES W. DENT, Pennsylvania
CHRISTOPHER P. CARNEY, Pennsylvania TED POE, Texas
JERRY MCNERNEY, California DAVID G. REICHERT, Washington
BOB FILNER, California CHARLES W. BOUSTANY, Jr.,
ELIJAH E. CUMMINGS, Maryland Louisiana
BRIAN BAIRD, Washington JEAN SCHMIDT, Ohio
DANIEL LIPINSKI, Illinois CANDICE S. MILLER, Michigan
DORIS O. MATSUI, California THELMA D. DRAKE, Virginia
STEVE COHEN, Tennessee MARY FALLIN, Oklahoma
ZACHARY T. SPACE, Ohio VERN BUCHANAN, Florida
BRUCE L. BRALEY, Iowa JOHN L. MICA, Florida
HARRY E. MITCHELL, Arizona (Ex Officio)
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Hansen, Fred, General Manager, Trimet, Portland, Oregon.......... 2
Horner, David B., Chief Counsel, Federal Transit Administration.. 2
Houlihan, Dennis, Labor Economist, American Federation of State,
County and Municipal Employees................................. 47
Lehman, Maria, P.E., F.Asce, Chief Operating Officer, Chazen
Companies...................................................... 47
Njord, Hon. John R., P.E., Director, Utah Department of
Transportation................................................. 2
Ray, James D., Chief Counsel and Acting Deputy Administrator,
Federal Highway Administration................................. 2
Thomas, Richard, Director of Government Affairs, Ames
Construction, Inc.............................................. 47
Yarossi, Paul, P.E., Office of the Chairman, Executive Vice
President and President, Hntb Holdings, Ltd.................... 47
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Altmire, Hon. Jason, of Pennsylvania............................. 62
Mica, Hon. John L., of Florida................................... 63
Mitchell, Hon. Harry E., of Arizona.............................. 67
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Hansen, Fred..................................................... 71
Horner, David B.................................................. 79
Lehman, Maria.................................................... 87
Njord, John R.................................................... 110
Ray, James D..................................................... 115
Thomas, Richard.................................................. 124
Yarossi, Paul.................................................... 127
SUBMISSIONS FOR THE RECORD
Hansen, Fred, General Manager, Trimet, Portland, Oregon, visual
supplements.................................................... 74
Horner, David B., Chief Counsel, Federal Transit Administration,
response to question from Rep. DeFazio......................... 14
Houlihan, Dennis, Labor Economist, American Federation of State,
County and Municipal Employees:
Testimony from Bruce J. Blanning, P.E.......................... 98
Letter to National Surface Transportation Policy and Revenue
Study Commission from Josh Golka, representing the
Professional Engineers in California Government.............. 101
Ray, James D., Chief Counsel and Acting Deputy Administrator,
Federal Highway Administration:
Response to question from Rep. DeFazio......................... 9
Response to question from Rep. Duncan.......................... 23
Response to question from Rep. Duncan.......................... 26
Response to question from Rep. DeFazio......................... 30
Response to question from Rep. DeFazio......................... 36
Response to question from Rep. Oberstar........................ 39
Design-Build Effectiveness Study: Final Report................. 133
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PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING
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Tuesday, April 17, 2007
House of Representatives,
Committee on Transportation and Infrastructure,
Subcommittee on Highways and Transit
Washington, DC.
The subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2167, Rayburn House Office Building, the Honorable Peter
A. DeFazio [chairman of the subcommittee] presiding.
Mr. DeFazio. I would like to call the Highways and Transit
Subcommittee to order.
Today we are going to do another in our ongoing series of
hearings about private-public partnerships. The attempt of the
Committee is to better understand the breadth, the depth, the
potential and the pitfalls of private-public partnerships.
Clearly, not all private-public partnerships are alike. We want
to understand better how they can be used by jurisdictions
around the Country.
We particularly want to look at the Federal Highway
Administration's new special experimental project called SEP-
15, and also review some of the previous project, SEP-14, and
what at least one witness will say is a very mixed outcome from
that, although others would say that conventionally, it's an
unqualified success.
So with that, I would turn to the Ranking Member for any
opening comments he might have.
Mr. Duncan. Well, thank you, Mr. Chairman. I'm pleased that
we're holding this hearing today on innovative contracting
techniques.
For over 20 years, State departments of transportation and
local public transit authorities have been using innovative
contracting techniques to help complete highway and transit
projects in the most efficient way possible. By involving the
private sector at various stages of the project delivery
process, Government agencies are able to take advantage of
private sector management skills, and in some cases, private
sector capital, to complete projects on time and on budget. The
goal of these innovative contracting techniques is to allocate
responsibilities in the design, development, construction and
management of a project to the different private and public
partners in a way that will produce the best results.
One of the key advantages to these types of contracts is
that the private sector shoulders more of the risks associated
with a project than in the traditional contracting process.
Design-build contracting is an innovative contracting method
that has become very common in highway and transit projects in
recent years. Under this method, the transportation agency
specifies the design criteria for a project and contractors
that bid for the project then develop design proposals that
optimize their individual construction capabilities.
The design-build, operate and maintain contracting method
is a technique that is getting a lot of attention now in the
transit world. In a project executed under this method, the
private sector is involved not only in designing and building
the project, but also in operating and maintaining the project
for several years after the project is put in service.
These innovative methods are not without their critics. We
need to make sure that smaller contractors and design firms are
not adversely affected by these types of contracts. And we need
to ensure that the public transportation agencies that are
administering these projects are able to provide the proper
level of oversight on each project.
Also, I personally hope that some of this design work and
other types of work, are not given out to companies from other
countries, but are given to American companies and American
workers.
Thank you, Mr. Chairman, for holding this hearing, and I
yield back the balance of my time.
Mr. DeFazio. I thank the gentleman.
If there are no other opening statements, we will go right
to the witnesses. First will be Mr. James Ray, Acting Deputy
Administrator, Federal Highways Administration. Mr. Ray.
TESTIMONY OF JAMES D. RAY, CHIEF COUNSEL AND ACTING DEPUTY
ADMINISTRATOR, FEDERAL HIGHWAY ADMINISTRATION; DAVID B. HORNER,
CHIEF COUNSEL, FEDERAL TRANSIT ADMINISTRATION; THE HONORABLE
JOHN R. NJORD, P.E., DIRECTOR, UTAH DEPARTMENT OF
TRANSPORTATION; FRED HANSEN, GENERAL MANAGER, TRIMET, PORTLAND,
OREGON
Mr. Ray. Chairman DeFazio, Ranking Member Duncan and
members of the Subcommittee, thank you for the opportunity to
testify today on the topic of innovative contracting and
public-private partnerships. I ask that my full statement be
made part of the record for this hearing.
Secretary Mary Peters has said, ``Congestion is endangering
our freedom, our economy and our independence.'' With this
alarming fact in mind, the Department of Transportation
initiated its national strategy to reduce congestion to address
this threat to our national well-being. We must find better,
faster and more innovative ways to contract for needed
transportation improvements. We must remove barriers to private
sector participation in the construction and operation of
transportation infrastructure.
More flexible contracting is necessary to make this happen.
That is why innovative contracting mechanisms pursued by FHWA
are so critical.
In traditional Federal aid highway construction
contracting, cost is generally the one criterion that
determines the winning bid. In recent years, State highway
agencies have struggled to meet customer needs. Factors other
than cost have emerged as important considerations in awarding
highway construction contracts. States now take into account
quality, delivery time, safety, road user impacts, life cycle
costs and better use of improved technologies.
Unfortunately, traditional procurement approaches will not
be sufficient to address our current transportation needs or
reverse the alarming trends developing across our system.
Innovative contracting techniques provide States the
flexibility to address these issues and encourage contractors
to be more creative in addressing States' needs.
More flexible procurement arrangements are often a key part
of public-private partnerships. While discussion of P3s is
focused on private financing thus far, public-private
partnerships can be defined more broadly and include
alternative contracting methods that increase private sector
involvement. By employing innovative contracting techniques,
the private sector can optimize its use of design, construction
and materials and thereby increase the quality and timeliness
of the final product.
FHWA has made it possible for both States and the private
sector to explore the use of innovative contracting techniques.
FHWA developed SEP-14 to provide States with a vehicle to
explore new concepts in construction contracting. Under SEP-14,
States are allowed to test innovative contracting techniques
within FHWA oversight. Techniques evaluated under SEP-14
include design-build, cost plus time bidding, lane rental and
warranty clauses, all of which have become accepted practice.
These contracting methods not only result in time and cost
efficiencies for traditional highway projects, but also
facilitate greater private sector involvement in project
delivery.
Design-build contracting is one of the most significant
innovations resulting from SEP-14. For the State, the use of
design-build can result in cost savings, price certainty and
time savings. From the private sector's perspective, design-
build gives the contractor greater flexibility to meet the
project's purpose by utilizing a variety of methods and
materials.
Building on the success of SEP-14, FHWA established SEP-15
to increase project management flexibility, encourage
innovation and improve timely delivery of project construction.
Like SEP-14, SEP-15 allows States to apply for conditional
approval to test innovative approaches to the project delivery
process.
FHWA has long encouraged increased private sector
participation in Federal aid projects, and SEP-15 allows FHWA
to actively explore changes in the way we approach the delivery
of highway projects. Our Nation faces challenges at the
Federal, State and local levels in addressing our mobility
needs. Innovative contracting is one method by which
transportation agencies can address these needs in a cost-
efficient and timely way.
The State, the private sector and road users can all
benefit from the increased use of innovative techniques.
Mr. Chairman, members, thank you for the opportunity to
testify today, and I would be pleased to answer any questions
you might have.
Mr. DeFazio. Thank you, Mr. Ray.
Mr. Horner, Chief Counsel, Federal Transit Administration.
Mr. Horner. Chairman DeFazio, Ranking Member Duncan and
members of the Subcommittee, thank you for the opportunity to
testify about innovative contracting and public transportation.
How we build and operate our transit infrastructure is a
matter of increasing importance to the Nation's transportation
system. Whether transit projects are built on time, on budget
and realize the benefits expected from them affects the public
support for new projects and more broadly, its view of the
Federal transit program. Innovative contracting practices can
harness incentives and penalties that are lacking in
traditional procurement to assure that taxpayer-funded projects
meet public expectations.
Commonly referred to as public-private partnerships,
innovative contracts are relatively recent in the world of
public transportation investments. But there is little doubt
that their ruse will grow over time as public agencies and
elected officials seek to reduce large operating deficits and
achieve better rates of on-time project delivery.
In January of this year, pursuant to directives in SAFETEA-
LU, FTA established its public-private partnership pilot
program. Through the pilot program, FTA has invited project
sponsors to experiment with alternative system procurement in
order to identify more effective ways of building new transit
capacity for the American public. I am pleased to report that
FTA recently received four applications to the program. Those
applications are for major projects sponsored by the San
Francisco Bay Area Rapid Transit District, or BART, Houston
Metro, Denver RTD, and the Georgia Regional Transportation
Authority.
The questions are often asked, where is the opportunity in
P3s for public transportation and how do transit P3s work when
transit facilities realize significant operating deficits.
Because substantially all transit infrastructure is currently
operated on a cash flow negative basis, the financial
opportunity for transit is not the proverbial cash on the
barrelhead, but instead the avoidance of costs and opportunity
known as subsidy minimization.
To explain the concept of subsidy minimization, we can
think of it this way. In the case of a transaction for an
existing highway, a cash flow positive asset, the public agency
asked the private sector, how large a concession payment will
you pay me? In the case of a transaction for new transit
capacity, a cash flow negative asset, the public agency asks
the private sector a different question: how small a subsidy
will I pay you?
Private operators then compete for the opportunity to
provide service, not by bidding up the concession payment, but
by bidding down the subsidy. The financial return to the
private entity is the difference between its costs to deliver
and operate the system, on the one hand, and the system's total
revenues, including public subsidy, on the other. The public
agency then pays the subsidy to the private operator in the
form of availability payments over a term of years, so long as
the system is built and operated according to performance
requirements approved by the public agency.
This model has been used widely in the United Kingdom with
great success since 1992, when that country responded to the
challenges of project procurement that we in the United States
are struggling with today. Under a program instituted by the
Labor government called the Private Finance Initiative, or PFI,
the U.K. treasury requires and has required for the past 15
years that public agencies evaluate using P3s to procure social
infrastructure before relying on conventional government
contracting.
In total, PFI has accounted for 10 to 14 percent of all
investment in public services in the U.K. and has delivered at
least 451 projects. The results of PFI have been impressive,
whereas only 30 percent of conventional non-PFI projects have
been delivered on time and only 27 percent delivered within
budget. Over 88 percent of the PFI projects have been delivered
on time. To the extent the same PFI projects have incurred cost
overruns, none has been borne by the public sector.
It is perhaps no surprise, therefore, that Standard and
Poors recently found in a survey of public officials and
private procurement officials that 91 percent of respondents
agreed P3s have a better track record of project delivery than
conventional public sector procurements. As we approach
reauthorization, we should study the results of the PPP model
in the U.K. to understand why innovative contracting has
achieved such improvements over conventional improvements.
Thanks to the SAFETEA-LU pilot program, we may expect to
have data from the U.S. for U.S. projects to inform our
thinking as well.
Thank you again for the opportunity to speak with you this
morning. I'd be happy to answer any questions you may have.
Mr. DeFazio. Thank you, Mr. Horner.
Now we will got to the Honorable John Njord, Utah
Department of Transportation.
Mr. Njord. Thank you, Chairman DeFazio, members of the
Committee. It's a pleasure for me to be here today and to talk
about some innovative contracting methods that we've been using
in the State of Utah and how it has influenced our ability to
deliver projects.
Ten years ago, the Utah Department of Transportation
launched into the first design-build transportation mega-
project in this Country's history. That has been 10 years ago,
and since that time we have seen design-build spread across
this entire Country. The project that I am referring to that
began all this was the I-15 reconstruction in Salt Lake County,
a $1.59 billion reconstruction project.
Now, some of you that may have never been to my great State
of Utah may have never seen this facility. But if you will
think of the Springfield interchange, which is not too far by
this building here, multiply that by three, add eight urban
interchanges, seventeen miles of freeway, that is the I-15
reconstruction project, a very large, complex project that
began in 1997. This facility was on the most congested portion
of our interstate in the State of Utah. It was in the most
difficult location to build. Clearly, it was a location where
the scrutiny was very high upon this project. I don't think a
higher profile location in the intermountain west could have
been selected to experiment under SEP-14 in the design-build
world.
The results of the project, there were many naysayers about
this project as it began. There were those that said the budget
would be busted, as many other mega-projects had been busted
around the Country. There were those that said the schedule
could not be kept, that we couldn't deliver this project in the
time frame that we talked about. There were those that said
that if you managed to build this project on time and within
budget that the quality won't be there.
Well, we are now six years after the completion of this
project, and all the naysayers have gone away, because the
project was completed ahead of schedule, four and a half years,
where traditional design-bid-build methodologies would have
taken at least ten years to complete. The project was completed
in four and a half years and it was completed $32 million under
budget, and the quality speaks for itself. Six years later, we
have had no issues with quality on this project.
So with this glowing review of design-build, one might ask,
why don't you build all of your facilities under this
technology, this design-build technology. And the answer is,
the tried and true design-bid-build is still tried and true. It
still works for many, many projects. We do hundreds of projects
in the State of Utah every year. And of those hundreds of
projects, the vast majority of them are still design-bid-build.
However, those complex projects that have risk associated
with them are projects that we look at design-build or other
project delivery methods, such as CMGC, to deliver those
projects in a timely fashion.
Now, clearly, on I-15, the reason that we chose design-
build was schedule. Ten years was too long for the local
economy, it was too long for our customers, it was too long for
businesses, it was too long for the State of Utah. Accelerating
that project to four and a half years completion was something
that was good for us, not to mention one little thing that was
going to happen in 2002: we were going to host the Olympic
Games. We couldn't have this project under construction during
the Olympic Games. We are very fortunate, we completed the
project prior to that.
Now, some of the other technologies that we are
experimenting with under SEP-15 are CMGC, construction
management general contractor. This also enables the private
sector to unleash their creativity as they come to the table
during the design phase of the project and help us find the
best way to cost-effectively complete the project. We have
completed a number of CMGC Projects and will continue to use
that technology and other new technologies to deliver our
projects.
I would encourage Congress to continue to allow the States
the flexibility to use these tools on Federal projects and
other projects within our system, so that we're able to serve
our customers in the very best method possible.
It has been a pleasure to be here with you today. Thank
you.
Mr. DeFazio. Thank you.
And now I am pleased to welcome Fred Hansen, the Honorable
Fred Hansen, the General Manager of TriMet, a wonderful entity
in my home State of Oregon, although alas, I do not represent
Portland and do not get to ride it to the airport like some of
my colleagues. I still enjoy it when I'm in town.
Mr. Hansen.
Mr. Hansen. Thank you, Mr. Chairman. And I am pleased that
you do ride it when you are in town.
For the record, I am Fred Hansen, General Manager of
TriMet. I have left in front of each of you an article from the
New York Times, yesterday, on their 36 hours in Portland. In
it, they referenced that Portland does have an excellent public
transportation system. I am very pleased they recognized that.
I am here to speak to you about that, in fact, that very
airport line that the Chairman referenced. Let me be clear on
hat the arrangement was and the building of that line was.
First, it was a line that had been on our master planning for
the region for a number of years. In fact, we would not have
expected to be able to get to it probably for somewhere in the
15 to 20 year range. It had, however, had some of its right-of-
way set aside when an interstate freeway was constructed, I-
205.
Second, it was on property or through property, this
alignment for the airport light rail, that was under-utilized,
Portland Airport property. Now, it was public property. The
project began by receiving an unsolicited proposal from Bechtel
Enterprises of San Francisco. In it they proposed not only
building the alignment, that is, through a design-build
contract, but also to be able to develop additional land for
private development.
At the time, the airport was considering major new
construction for parking, very expensive parking. We were
looking for ways to be able to minimize the amount of parking
that would be needed, and concluded that the concept of being
able to utilize light rail to the airport was very important.
The actual agreement represented a 99 year lease on 120
acres of under-utilized public property owned by the airport.
In fact, so under-utilized that at the time of the lease there
were still cows grazing on it. Bechtel, for the overall
construction cost of the project, $125 million, contributed
$28.3 million of that for the actual construction. Let me
stress that during this whole process, all environmental
regulations were completely complied with, NEPA, in fact, an
environmental assessment was completed on it.
Let me also stress that in this project, there is no public
asset that is not totally under the control of public entities,
in this case, TriMet, the transit agency, that is both the
light rail alignment and the operation of that light rail
alignment is by a public entity.
What was at issue was the private development rights on
that 120 acre leased area. A mixed-used proposal by Bechtel
brought that forward.
What about the benefits? The benefits are that we were able
to bring this light rail alignment from plans to actual reality
decades or years earlier, if not decades earlier than we would
have. Number two, it was streamlined. We ended up being able to
complete that construction from the time of the initial concept
to opening in four and a half years, probably about two years
shorter than it would have been had we gone through the full
funding grant agreement processes that would have been required
had we utilized Federal funds in this.
Then lastly, the benefit of a major mixed use development
was proposed for this site. But some of the lessons learned are
that we do need to be able to make sure that the project
manager, in this case, TriMet, was a sophisticated entity, that
is, one that was familiar with managing large construction
projects, which we have a long history of doing, both on time
and on budget.
Second, it required a sophisticated entity, in this case
Bechtel Enterprises, to be able to be partnering with us in a
design-build. The project itself opened for revenue service on
September 10th of 2001, an auspicious day. Obviously, the
recession that followed meant that this project did not
materialize in terms of the private development as quickly as
we would have hoped. And yet it is now being built out, and
there is a new IKEA anchor tenant that will be opening within
the next several months.
Conclusions are, we were able to achieve a project years
ahead of schedule that would have been impossible without that
involvement. Number two, that the development risk was in fact
shouldered by the private entity, and yet, the public asset was
fully within public control. This is a wonderful public-private
partnership with Bechtel. We would do it again in a second.
Thank you. We would be happy to answer any questions.
Mr. DeFazio. Thank you. I thank all the witnesses for
staying within their allotted time.
Mr. Ray, I am curious. First on SEP-14, what is the current
status of SEP-14 in terms of design-build and other allowances?
Do you still have to individually review and approve those
projects, or are they now routinely approved?
Mr. Ray. Congressman, thank you for the question. SEP-14 is
still active. But the original intent was to look at lane
rental, warranties, A plus B and design-build. Those have all
been mainstreamed, they're all accepted practice now. But
certainly, SEP-14 is still available to explore and experiment
within innovative contracting. But those four, the intent that
it was really created for and of course TRB suggested those
four as the ones that we focus on, those have been mainstreamed
and you do not need FHWA headquarters approval to move forward.
Mr. DeFazio. Not even the warranties? I thought the
warranties, there was some ongoing concern about warranties.
Mr. Ray. Well, there are certain types of warranties that
are acceptable and certain that are not. I mean, of course, the
Federal aid program isn't meant to maintain the highway over
long periods of time. But some warranties are acceptable, and I
believe we have spoken about that. I can get more direct
information on that for you for the record if you would like.
But there are certain types of warranties that are acceptable
now.
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[GRAPHIC] [TIFF OMITTED] 34795.009
Mr. DeFazio. Okay. So a warranty isn't implicit. I mean,
theoretically I guess we inspect a project as it goes along,
specifications have to be met, you inspect a project when it is
done. If specifications have been met, there is a sign-off.
Normally there would not be a warranty past that point.
Mr. Ray. Under the traditional design-bid-build mechanism,
am I understanding correctly?
Mr. DeFazio. Well, any. I am trying to get a grasp on what
the concern is about warranties. There seems to be a new
concern about the need for warranties. I am wondering why
warranties are becoming, I am wondering whether we have
inadequacy in the inspection process, therefore people are not
as confident that the specifications have been met and we want
to see some performance beyond that, or we have experimental
design, so we don't have confidence in them. I am trying to
understand the need for warranties beyond, we met the
standards, it was constructed, it is done.
Mr. Ray. Congressman, I think that specifically, the
specifications should be met. They would be inspected and to
the best of the inspector's ability, of course, they would
determine that those specifications had been met at the time of
acceptance.
However, there are certain things with regard to, let's
take pavement, for instance, rutting and that type of thing.
Under design-build, the contractor has more flexibility in how
to meet the project specifications set forth by the State DOT.
So they may determine the exact mix----
Mr. DeFazio. So they may be using, they may not be meeting
a certain temperature standard the State requires for mix, or
they may be applying it in different weather. Therefore, there
would be some sort of a warranty that would cover that, but
doesn't add to the cost of the project and doesn't get us into
maintenance issues.
Mr. Ray. If I am understanding what you are saying
correctly, I think that is right. I think basically where we
are going is the State DOT would set forth the specifications
on exactly how that road or how that asphalt or concrete should
wear.
Mr. DeFazio. Right. But you are saying you give them
latitude in how they apply it?
Mr. Ray. Absolutely.
Mr. DeFazio. Okay. I don't understand SEP-15. The staff and
I are struggling a bit with SEP-15. We are trying to
understand. Give us a specific that you are looking at in SEP-
15.
Mr. Ray. An example, well, SEP-15 is very broad in the
sense that it allows experimentation with all types of project
delivery mechanisms within Title 23. Just to be clear, we are
only offering up experimentation within Title 23.
Mr. DeFazio. Right. But if you have issues within Title 23,
Title 23 is referenced for say, a number of environmental
concerns, it is also referenced for some labor concerns. But
their statutory authority exists outside Title 23. So you
couldn't waive those environmental issues or those labor issues
within Title 23, is that correct?
Mr. Ray. Well, we believe that Section 502(b) of Title 23
gives the Secretary the ability to experiment within the
confines of Title 23. The goals of----
Mr. DeFazio. But you are not answering the question. If
something has basic statutory authority outside of Title 23,
let's use Davis-Bacon. Always a hot button issue around here.
Do you believe that you have some authority to somehow waive
Davis-Bacon because it is referenced in Title 23, since it has
statutory authority outside Title 23?
Mr. Ray. I am sorry, sir, sorry for the confusion. You are
absolutely right.
Mr. DeFazio. Right.
Mr. Ray. If it is referenced somewhere else, if it is not
squarely within the confines of Title 23, then, no, we do not
have the authority to experiment there. DBE is a perfect
example of that. It is outside of Title 23 and we are not
there. NEPA is clearly another. The Clean Water Act is another.
And I just want to mention, the goals of SEP-15, which I
think is kind of informative, if I may, are delivery
flexibility, encouraging innovation and improving the timely
project construction. Lastly, promoting P3s. We believe that it
is an area we should be looking at and promoting. We believe
there is value there.
But just to be clear, SEP-14 has tons of experiments under
it. Under SEP-15, we only have seven projects currently
underway and an eighth letter of interest that we are
considering. We are in a very youthful stage of SEP-15 in terms
of the data that we know, the information that we know and
where this is going.
Mr. DeFazio. The FHWA under SEP-15 says here, alternative
ways to accomplish NEPA and environmental compliance. What are
we thinking about there?
Mr. Ray. There are certain----
Mr. DeFazio. Because we proposed some very far-reaching
proposals to streamline environmental review of projects. We
have yet to see the guidance or administrative rules come out
to implement what Congress legislated a couple of years ago
now. Does this mean you are going to move ahead and meet some
of the, finally do some of the streamlining? That wouldn't need
to be SEP-15. We mandated it by law and it hasn't yet been
accomplished. A lot of States are not even aware we gave them
that authority. They keep complaining to us, but we have asked
the Bush Administration to, we put very significant
streamlining into the bill.
Mr. Ray. If I can address the second issue first and the
first issue second, with regard to environmental processes,
there are certain environmental processes that are dictated in
Title 23 that relate to NEPA and other environmental reviews.
Those, although I am not aware that we have experimented with
those with SEP-15, those certainly are available for a State to
apply to us. But clearly, going back to the original point that
I think we made a question or two ago, if it is referenced in
another area of the Code, then that is not within the purview
of SEP-15.
Mr. DeFazio. So when could we expect the rules to implement
the streamlining that Congress envisioned statutorily a couple
of years ago?
Mr. Ray. Congressman, I apologize. I wanted to be clear on
my facts.
The five-State pilot, if that is one of the ones that we
are talking about, is actually already out there. Some States
have chosen to take outvoting of that and some States, we
understand, will not. For instance, Ohio recently, I think
formally indicated that they would not be pursuing their status
as a member of that.
Mr. DeFazio. I just want to direct one other question, I am
using more than my allotted time, to the next witness, to Mr.
Horner. Thank you for those answers. We will get back to the
environmental issues either later or at a future date.
In your testimony where you talk about the pilot projects
and you list criteria, I am a bit puzzled about two things.
Roman numeral IV, whether the project is part of a congestion
mitigation plan that incorporates system-wide congestion
pricing. What does that mean? You might have noticed in the
newspapers locally where there was a little proposal here to
have some peak pricing increases, which got stomped on so bad
they were pulled back really quick. Are you saying we want
other cities to experience that same wonderful public backlash?
Because you are saying you want it mandated system-wide. Now
what are we talking about here?
Then the second part of the question is, over here, we are
trying to mitigate highway congestion. Got it? Over here, we
are trying to make people use transit. It is more efficient,
more fuel efficient. So over here, you are talking, gee, we
want to price people off the roads, and over here, gee, we want
to price people out of rush hour in mass transit. These seem to
be contradictory goals.
Then my third observation is, people don't choose when they
go to work. So it ultimately becomes punitive. You have to go
to work, we are going to price you off the highway, we are
going to price you off the mass transit. You had better live
downtown, oh, you can't afford that, because that is where all
the yuppies live. So I guess you had better get another job out
in the suburbs.
Could you address that, please?
Mr. Horner. Sure, I would be happy to. First, and thank you
for that question, Mr. Chairman, that three-part question.
First, with respect to how the particular criterion
operates in the context of the pilot program, that is a
consideration. It is not a requirement that any applicant
must----
Mr. DeFazio. But how is it weighed? It looks like here, do
we have a real formula, it is going to be 10 percent here, 20
percent here? You can't have really subjective criteria for
people. How much are you weighting that one?
Mr. Horner. Thank you for that question. We have not
assigned on the face of the document or internally particular
weightings to those several criteria that you are referring to.
Mr. DeFazio. Like the black box. You say to people, you
might or might meet that one and you might or might not get
authorized because you didn't meet that one, which doesn't have
a specific weighting.
Mr. Horner. That criterion is not dispositive. It is a
factor that we take into account.
You asked secondly whether it was a contradiction of policy
to endorse the use of transit on the one hand and encourage
congestion pricing of roadways on the other.
Mr. DeFazio. And then congestion pricing of transit. So we
have now driven you out of your car, you are on transit, that
is what we wanted to do, but now we are going to impose it on
you there. We are going to extort you one way or another here,
you have to get to work, right?
Mr. Horner. With respect to travel during to work, we have
found that approximately 50 percent of travelers during peak
periods are discretionary travelers, which implies that not
everyone using the roadway during peak times is----
Mr. DeFazio. It might depend on the definition of
discretionary, you have to take your kids to school, but you
are not going to work, that is discretionary?
Mr. Horner. I would be happy to tell you how we define----
Mr. DeFazio. Sure, I would love to hear that analysis, if
we could have the 50 percent.
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[GRAPHIC] [TIFF OMITTED] 34795.010
Mr. Horner. I would be pleased to provide that to you, and
the basis of that statistic, absolutely. But generally, we
don't think it a contradiction in policy to encourage
congestion pricing and transit in tandem as we contemplate in
the pilot program, for the reasons that we have found around
the world, that congestion pricing during peak periods results
in enormous benefits to transit. Let me say that there are at
least two. The first is dramatic increases in ridership for
transit. We needn't look further than London, actually, to see
how congestion charging and moreover, a rather crude form of
congestion charging has produced not only increases in
ridership but more frequency in service, better service,
improved reliability and the like.
So we think it provides ridership benefits. We also think
it provides localities an enormous financial benefit to support
transit, because congestion charging is based not on financial
need per se, but on the need to manage the flow of traffic and
achieve conditions of free flow on the facility. Congestion
charging may produce substantial surpluses that may be
dedicated by locality to public transportation. So we see,
depending on your point of view, we see a virtual circle
created by the effects of these two policies working in tandem,
rather than a vicious one, as it were.
Mr. DeFazio. All right, well, I don't exactly share that,
and I think the public here locally certainly didn't share that
view when they attempted to jack up the rates during congested
times. I think there was an article last weekend, I wasn't
here, but it has been referenced to me, where the experience
now with some of these hot lanes is that some people are paying
up to $40 one way. That sounds like sort of a Lexus lane or a
Hummer lane to me. It doesn't sound like something for average
people.
I think we have to keep in mind that most workers don't
have a tremendous amount of discretionary income. If you make
it $40 bucks to get to work in a timely in your car, then they
are going to go to transit. If they go to transit and we raise
the price there, it may create a surplus or it may have
unintended effects. So, it might create a surplus in the short
run while these people desperately try and find another job
that doesn't require them to go into the city.
Thank you for that. I have gone well over my time. Mr.
Duncan.
Mr. Duncan. I want to yield first to Dr. Boustany. Dr.
Boustany was here first.
Mr. Boustany. I thank the Ranking Member and Chairman.
Mr. Ray, the SEP-14 program has had demonstrable success.
It appears to me that SEP-15 is going to be a very
complementary program to SEP-14, creating additional
flexibility, and allow for some creativity among the States to
deal with their backlog of highway projects. My understanding
from our memo was that seven projects have been approved in
three States; four have gone on to the development agreements.
What seems to be the hurdle, since the program has been in
existence since 2004? Why haven't more States availed
themselves of this?
Mr. Ray. Congressman, thank you for the question. It is
actually a wonderful question. I have had the opportunity and
the pleasure to speak quite a bit around the Country. Almost a
standard issue line in all my speeches is, send us your
creative ideas. Make us sweat, really make us think about the
program and what would be acceptable, what would be appropriate
to experiment with and what wouldn't.
Unfortunately, we really, as you have cited, we haven't
gotten as many applications as we might like. So if you could
encourage your constituents to apply, we would welcome that
application.
Mr. Boustany. Sir, it is not a knowledge deficit about the
program. The State DOTs know about it. Do they find the task
daunting? In other words, the burden is on them to come up with
the creative approaches, looking at the existing law, trying to
recommend waivers. Is it a matter of expertise in the State
DOTs, do you think?
Mr. Ray. I think maybe less that than, it is interesting,
on one occasion, a gentleman from the State DOT came to me and
said, well, just tell us what you want to experiment with and
we will craft the application to look like that. And I told
him, there really is no hidden agenda here. We are opening
ourselves up to experimentation. We are opening ourselves up to
your ideas. What are obstacles in the current program that you
have, and let's look and see if this program may be available
to you.
So I think that is an issue that people really are
scratching their head, trying to figure out what exactly do we
want to experiment with. People complain about the processes
often, but they don't always know exactly what the tweak is
that they want to see to fix it.
In terms of expertise, I think it may be less that. But
certainly it requires a lot of thought before you walk down a
new road, especially when you are holding the trust of the
American people or given States' people and their money. So I
think that there certainly is a fair amount of thought, do we
have the expertise to carry out what we might be suggesting.
But I think it is a lesser component.
Mr. Boustany. Do you expect legal challenges down the line
as this program gets implemented more widely? In other words,
States come up with suggestions on waivers. After you study it,
if you agree, let's go forward, do you expect court action or
legal action?
Mr. Ray. Well, Congressman, I am an attorney, so I always
expect court action in some respect.
[Laughter.]
Mr. Ray. I can tell you we think very carefully about that
when we see an application, we try to look down the road to see
where that takes us. We are trying to be very responsible
stewards of the laws that you give us and make sure that we are
living within the spirit of those.
So I think there is always that possibility, as with
anything else in our culture today. But I would hope not.
Mr. Boustany. Okay. And one last question unrelated to
that, and my question is, why does it matter, can you elaborate
on why it matters for States to begin issuing RFPs, awarding
design-build contracts and issuing notices to proceed prior to
the conclusion of the NEPA process? Just elaborate on why that
is important, for the record.
Mr. Ray. Sure. I think there is a fair amount of time
savings involved there. When you can go forward with that,
after you may have done your preliminaries on, but not before
you have done your final design, there is a tremendous amount
of time savings that can be had. Of course, as with everything
else, time is money. So you are both reducing the impact on the
public at large, and the amount of time that it takes to
actually construct a project. You are also creating an
opportunity for greater flexibility and greater innovation
between the designer and the builder.
There is a lot of things that go into that. But I think at
the end of the day, and so as to not burn up a lot of your
time, I think at the end of the day, you are talking about time
efficiencies, and of course, time efficiencies equal cost
savings.
Mr. Boustany. Right. Thank you. My time is just about up.
Thank you, Mr. Chairman. I yield back.
Mr. DeFazio. I thank the gentleman.
We will take members on our side in the order in which they
came in and remained here. Mr. Walz will be first. No? Want to
pass? Then we would move to Mrs. Napolitano.
Mrs. Napolitano. Thank you, Mr. Chair. I am sorry I arrived
late, so I was not quite prepared for asking the question I
normally ask after hearing your testimony, but I will ask some
questions that I have inherently developed through the years of
working in transportation in California, both as an employee
and as a member of the State assembly.
And it goes to the issue of investments in public-private
partnerships, especially on Highway 91 in California, if you
are familiar with it, and the fact that the State had to buy it
back because of a non-compete clause that was included in that,
which then made the cost of that partnership almost triple in
cost. That is a big issue, and I am not quite sure how the
private sector is looking at the development of something that
is going to be more protective of the investment of the public
funding, the money that goes into some of these projects, as
well as the concern for the safety, which a non-compete clause
would then prevent for additional lanes to be able to allow
more flow of traffic instead of having it backed up and causing
accidents or having environmental pollution from cars lined up.
We call it the biggest parking lot in the U.S., the State of
California's Santa Anna freeway. But that is another story.
But I would like for you to comment on what the industries
or the agencies are thinking about being able to serve the
general good and still be able to have a profit. And that would
include, as the Chairman was alluding to, some of the
protection of Davis-Bacon, being able to ensure that those
other areas of concern are also included into that partnership.
Any one of you.
Mr. Ray. I will start first. Congresswoman, thank you very
much for the question. I think it is very important. I am
familiar with the project and as you noted, southern California
and certain aspects of it are known as the largest parking lot
in the world. The Secretary is incredibly aware of that, and
that is actually why one of the prongs of the congestion
initiative is focused just on southern California. Clearly it
has the worst congestion in America and we are very concerned
about that.
First off, I think that the State DOTs may be outsourcing
operations and maintenance of certain projects. But what they
are not outsourcing is safety and the public interest. I think
as we gain more experience in this, we will be more attuned,
we, and I am being inclusive of the FHWA and the State
governments, the State DOTs as the owners of the facilities,
will become more attuned and more adept at protecting those
public interests.
I say this quite often to State DOT officials when they
ask, the beauty of these P3 arrangements is that they start
off, the agreement starts off as a blank sheet of paper. As any
good commercial lawyer could tell you, if you present a risk,
if you present a problem, we can then draft a clause that
protects against it.
Now, what impact that has on the other side of the table is
a question. You may make the deal unattractive. But certainly
we can protect those risks. If we identify them, we can protect
them as lawyers.
I would say that right now, the States are becoming much
better at identifying those risks. I don't think anyone has
ever said that these P3s are without risks. They certainly have
them. But they also have tremendous benefits as well that can
be harnessed and realized for the public good.
As to what the private entities can do for the public good,
and in projecting the public interest there, I think there is a
tremendous amount that they can do. It is really just the
synergies that are created between market forces and what
people want on these types of facilities. They don't want to
sit in a parking lot. And pricing can actually generate the
capacity that is needed for free-flow conditions. It is not
just the pricing. It is also, for instance, we have recently
been made aware that Macquarie, on the Indiana toll road,
drives up and down the road with a car with a large magnet
underneath it to pick up shards of metal and nails, because
they don't want people to have flat tires.
Now, one might think that they don't want people to have
flat tires because it is a good customer service, and maybe
that is true. I would like to believe that. But in reality, I
think the answer may actually be that they don't want people to
have blow-outs that create accidents that create slowdowns.
Mrs. Napolitano. But that doesn't address the issue of the
public-private--actually, many of the issues that have arisen,
and I sat on California Transportation for six years, are
issues that are when we go out to bid, if they go out to bid,
and most times they do, the change order dramatically increased
the cost of the project. Right? And so somewhere along the
line, there is no protection for the taxpayer who is supposedly
putting it in the hands of the agency to go out and get the
best bid, not necessarily the lowest, that is going to deliver
a project that is going to stand for a long time, rather than
like in the 105, where there was a sinking and the State had to
come back in and do the repair.
And things that now bother me are outsourcing to foreign
entities and hiring people out of our United States to come in
and do the job. And who are we going to go back and try to get
a repair or refund or things that we normally would require of
our own agencies that work within the United States? So those
are issues that really, like you said, California now has this
transportation bond that is going to attract a lot of agencies
coming in from the outside, as well as from other States, to do
work in California for the repair or the increase, in like
Santa Anna, we are going to be expanding it. Yet how do we
protect the taxpayer and the safety of the taxpayer and do it
at a fair price, keeping in mind that this has to be done? But
we don't want to go 10 years down the road and have to do
repair at a cost that is exceedingly unwarranted.
Mr. Ray. If I may, Congresswoman, it is a wonderful
observation. I would mention that I think innovative
contracting is actually going to do a lot to help solve that.
Under the traditional design-bid-build mechanism, we are
required to take the lowest bid. There isn't really any
assessment of quality or reputation or anything, other than
just the lowest dollar bid.
With innovative contracting, we are allowed to take into
account a broader array of interests, and also there is the
opportunity as Chairman DeFazio and I discussed a moment ago
about warranties. You mentioned whether or not there would be
significant rutting or other things that may create problems
for the public down the road financially. Warranties can come
in as innovative contracting is utilized as well.
The last point that I would like to make is that I think
with regard to change orders, when you use design-build, it is
a much more difficult task for the State DOT up front, because
they have to clearly define exactly what they want at a very
early stage, where the traditional design-bid-build mechanism
allows them to flesh that out over a series of months. With
design-build, it is very important that they have a very clear
understanding of exactly what they want, because that is going
to define the performance specifications that they give to the
private entity, the contractor.
In terms of the actual change orders, once the contractor
and the designer has that clear set of specifications, it is
assured, because they are working in tandem, versus the
traditional method, where they are siloed apart. They are
working in tandem under design-build, and it reduces, the data
is very clear, it reduces the need for change orders, which of
course reduces additional expenses.
Mrs. Napolitano. The one question I would ask, and that is,
why not have a public inspector rather than a building agency
inspector actually check it out? That has been disastrous in
some of our areas in California.
Mr. Ray. One thing is very clear, Section 302 allows,
Congress has spoken, and it allows States to outsource certain
things as needed and as appropriate. But we do require that the
State DOT be the responsible entity in charge. That means they
need to be aware of the day to day operations, they need to be
the one doing the inspections. Of course, we would expect the
private entity to do their own inspections and make sure that
they follow up behind their subs and so forth and so on, and
make sure that they are doing that.
But the State DOTs are the responsible entity. They are
going to be the owner and they absolutely do need to be the
ones out there following up and making sure that the quality is
there.
Mr. DeFazio. We will do a second round.
Mrs. Napolitano. Thank you.
Mr. DeFazio. Mr. Duncan.
Mr. Duncan. Thank you, Mr. Chairman.
Mr. Horner, do you agree with Mr. Hansen's statement that
to comply with FTA rules and regulations would have added at
least two or more years onto that project in Portland? And if
you do agree with that, why is that? Is it not possible to
comply with some of these rules and regulations and go through
the process at the same time the States and cities are going
through those procedures?
Mr. Horner. Congressman Duncan, Ranking Member Duncan,
thank you very much for that question. Although I am not, I
don't know the specific about Mr. Hansen's project, I don't
disagree that it takes a long time, indeed quite a long time,
unfortunately, to approve some applications for full funding
grant agreements to support transit projects in the United
States through FTA.
We are endeavoring in multiple ways, however, to expedite
the process of review of applications in ways that preserve,
indeed enhance our stewardship of the Federal dollar without
compromising other considerations, including environmental
considerations. I could go on in detail about why this may be
so. But I agree with you that it takes long and FTA agrees also
that it does take a long time. By no means do we think it
should be longer or as long as it is now. Indeed, we think it
should be shorter, and we are working on finding ways to
shorten the process.
Mr. Duncan. Well, whenever we hear people talk about the
Chinese, for instance, who seem to be coming on like
gangbusters in every area, they seem to be able to approve
major, mega-projects in very short times. It seems to me that
we are going to be in trouble if we don't speed up some of
these things. You say you are endeavoring to speed up the
process. Has the process quickened in recent years? Is there
any progress in that area? For instance, 10 or 20 years ago,
did projects take much, much longer for approval and now we are
seeing some progress in that area?
Mr. Horner. Sir, I don't know the exact answer to that
question. I would be happy to provide the answer, a
statistically based answer to your question. But it is my
impression that we are doing better. It is also my impression
that perhaps in the early days of the program, it took much
less time than it does now. But sir, I will provide you an
answer to that question on the record.
Mr. Duncan. Director Njord, we will have a witness in the
second panel who apparently will testify that it is very, very
difficult for small businesses to participate in these so-
called mega-projects. There seem to be more and more mega-
projects around the Country. Did you take any steps to ensure
that small businesses were included in the process, or do you
think that that is just a false statement or incorrect
statement on the part of that witness?
Mr. Njord. Thank you for that question. I don't know what
the witness will say, but our experience in design-build and
innovative contracting has been that small contractors do have
an opportunity to participate, not as a prime, obviously. You
take a project that is over a billion dollars, you can't have a
small contractor that can only bond for a million dollars be
the prime contractor. However, they have participated.
There was a lot of concern in the State of Utah when we
launched this project that all the small contractors would be
shoved out, they would be pushed out, they wouldn't be able to
participate, they would be put out of business. None of that
took place. And in fact, many of those small contractors had a
small portion to play, a commensurate portion to play within
the larger project.
Now, these innovative contracts are not just for mega-
projects. You can do them on all sorts of projects. We have
used design-build on everything down to a traffic signal, which
is a quarter of a million dollar project, which any contractor
can do for us.
Mr. Duncan. Can you use both design-build and CMGC
innovative contracting methods together? Are they mutually
exclusive in some ways? What would be your thoughts on that?
Mr. Njord. The two methodologies are very different. The
approach for each one is very different. In a design-build
world, you hire a contractor who then hires a designer to work
with them to simultaneously design and construct the project.
In CMGC, you hire a contractor and you hire a designer and
then you marry those two. So they are very different.
Mr. Duncan. Mr. Hansen, when Bechtel approached you with
something that you were interested in, since it was
unsolicited, did you just think it was such a great idea and
since they were the, since it was more or less their idea, you
just decided, did you just decide to go with them, or did you
check with other companies to see if they might be interested
in doing the same type of deal?
Mr. Hansen. Thank you, Congressman Duncan. The issue for us
has always been on unsolicited proposals that we must have an
understanding of what else is in the marketplace that is
interested. This particular project was an unsolicited proposal
to our port of Portland, that is the airport owner. They do go
through a process of making sure that there were, if there were
other interested parties, to be able to bring forth. Our
specific policies at TriMet require us to be able to publish
any unsolicited proposals and give adequate time for any other
interested parties to come forward, express interest in the
same project before we may move forward. In this case, no other
entities were interested in moving forward and Bechtel was
chosen to be able to move forward.
I might also add that on design-build, this was a design-
build. But I think it is all too easy to kind of look for that
silver bullet, that is a particular contracting method. I like
to think of it more as silver buckshot, that is, there are
numerous different types of contracting methods. They must be
adapted to the specifics of the area that are, and the type of
contracting, the type of project that it is. Thank you.
Mr. Duncan. All right, thank you.
Mr. Ray, in your testimony you say that innovative
contracting can help reduce congestion. Do you have any
specific examples of where congestion has been alleviated and
to what extent by some of these innovative contracting methods?
Mr. Ray. Congressman, I appreciate the question.
Unfortunately, I don't have the exact data at my fingertips.
But I think from a generalization--I would be happy to get some
data to you, for the record. But I think as a generalization,
lane rental and A plus B, which requires the contractor to
value the time that he is using the facility, absolutely
lessens the impact that a given municipality or given State
would feel from a certain project.
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Mr. Ray. Lane rental, to be honest with you, can even go
down to the time of day. So if you wanted to make sure that the
facility was open and available for use during rush hour or
peak travel times, then you can get down to that level of
specificity and make sure that the impact is gone, or is
mitigated in such a way that the public feels the burden less
on a major construction project.
Mr. Duncan. How many places do you know of that are
actually using these lane rental procedures?
Mr. Ray. Again, Congressman, I apologize, I would have to
get that data for you. It has not received the type of
attention or the embrace that I think some of us might have
hoped. But it is being utilized, and I would be happy to get
that data for you as well.
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[GRAPHIC] [TIFF OMITTED] 34795.013
Mr. Duncan. All right, thank you very much. Thank you, Mr.
Chairman.
Mr. DeFazio. Thank you.
If there are no other first round questions--Ms. Fallin.
Ms. Fallin. Thank you, Mr. Chairman. Just a couple of quick
questions. In my home State in Oklahoma, it seems like it takes
forever to get something completed. So I was interested in
anything that we can do in Congress or if there is anything
that the Federal Highway can do to help various States complete
projects on time. Is there any type of rules, regulations or
things that really hamper private sector partnerships? I know
there are. But what can we do to help complete projects in a
more timely manner so it doesn't cost our State so much money
and we can ease up some of the congestion when the construction
is going on? Mr. Ray, maybe you could help me with that.
Mr. Ray. Absolutely. Thank you for the question,
Congresswoman. It is obviously a problem that we hear across
America, the timeliness with which projects are completed. It
is a significant problem. I think that the innovative
contracting mechanisms that we are talking about here today
will do a lot to help. Right now I believe a lot of State DOTs
are still beginning to just stick their toe in the water to see
what types of mechanisms they like, how they might like to
deploy those. It is going to take a little bit of time for the
State DOTs to become adept at these types of contracting
mechanisms, and where we will really start to see the
efficiencies, I think, is downstream.
With regard to both of our SEP programs, I would encourage
you to encourage your State DOT and your municipalities to
apply for those. Bring ideas to us. I think for us to be able
to bring ideas to you, of course, we can think critically about
our own program. But it is immensely more valuable for someone
who is actually implementing it and living with the issues day
in and day out, to bring those issues to us and say, we would
like to experiment with the following. And if we experiment
with it and it has benefit, then you are going to find us in
front of you making requests.
The last thing I would say is the Secretary does have the
authority to place projects on the executive order for
environmental streamlining. I want to be clear: that does not
cut any corners with regard to any of our environmental
requirements in statute or otherwise. But what it does is, as
so often is the case, disputes will arise, even inter-agency,
us and Fish and Wildlife or us and EPA. What the environmental
streamlining executive order does is it elevates those decision
points very quickly. It identifies a log jam and it elevates it
up the chain very quickly. I can tell you, Secretary Peters
cares very much about this program. She is willing to spend
time on it herself. I think you will see that that program
helps move projects along quite a bit as well.
Ms. Fallin. Mr. Chairman, I am glad to hear that you are
trying to get the agencies to work together, because it sure
can cause some delays when you are trying to sort through
several different projects.
Also, I have always thought that the States are good
laboratories for innovative ideas for partnerships. Do you have
any way of disseminating information to the various States,
when you find something that is successful? I know we have
heard some great examples here today. But is there any way to
get that information back to the individual States?
Mr. Ray. Absolutely. We actually publish reports fairly
regularly, and that of course goes out to the field. We also
share the information with various experiments with our
division administrators, which we have in every State. They
should be communicating those to the State DOTs.
Lastly, I think as a multitude of us go out and speak at
various conferences, we are constantly highlighting new ideas
and new concepts that are out there. It is not just in project
delivery, though. I should mention, I guess, nearly a year ago
when we had the ceiling collapse in the Central Artery Tunnel,
we immediately started looking at the epoxy bolts that were
holding that system up and immediately did a canvass of all the
State facilities to see who else might be utilizing this
technology and making sure that they did proper inspections,
just to make sure that we are protecting the public as best we
can.
Ms. Fallin. Okay, thank you. Mr. Chairman, I yield back my
time.
Mr. DeFazio. I thank the gentlewoman.
Mr. Ray, when we had your colleague, Mr. Duvall, in for a
hearing on the subject, and similar to what Mrs. Napolitano
raised, we found a number of problems with either gullibility
or States that were in a big hurry, like Indiana, in terms of
the agreements they entered into, and some jeopardy to the
public interest, or loss of revenue or other problems. As we
heard in the case of S.R. 91, basically, we ended up with
almost triple the cost because of a non-compete agreement which
became a safety issue with a conflict in interpretation of the
contract, and then the State had to buy out the project.
We raised a number of those issues from members on both
sides during that hearing, and Mr. Duvall said that DOT was
going to put up some guidance on sort of the common pitfalls
and problems. You just said, States are becoming much better at
detecting these problems beforehand. Well, I think guidance,
with the overview of the Federal Government, to the 50 State
and territory perspective would be really helpful. Staff tells
me on their most recent visit to the web site, where there is
still the paean to the wonders of public-private partnerships,
there is still no guidance or cautions. I would hope that is
going to be forthcoming soon.
Mr. Ray. Congressman, I appreciate your raising that point.
I thought that we might talk about it today. I assure you we
are working very diligently on that product. I think it is
reasonable to think that we will have that out, maybe even
within the month. I think certainly no longer than a month and
a half.
What you will see is a section by section analysis of the
model legislation that we produced. Embedded in that will be
commentary identifying various risks as we see them. Once that
product is out, I think we will see what the response is, and
begin looking at what other mechanisms we might be able to use
to both identify and educate people, interested parties on
those risks.
Mr. DeFazio. Excellent. We will look forward to that work
product.
Back to the NEPA question, I am still a little confused. We
did essentially modify, and this was particularly Chairman
Oberstar, then Ranking Member Oberstar, be put a tremendous
amount of time into negotiating that section of SAFETEA-LU, and
ultimately after initial extraordinary resistance from
environmental groups, brought them around and made some
modifications. We did give you the authority to promulgate new
rules to implement those provisions, which could streamline
NEPA and other associated environmental reviews.
I think I sort of asked this but perhaps not explicitly.
When can we expect the rulemaking, the legislation was passed
now, oh, August of 2005. So it is not quite two years.
Mr. Ray. Congressman, thank you. I didn't have this data in
front of me earlier, and I would be happy to actually leave
this sheet with you. It is actually a table with all the
activities mandated by SAFETEA-LU and what the status is.
Certainly I think there is quite a bit of guidance that is out
there. There is also the NPRM on the five-State pilot project,
which we discussed earlier. We are making progress, and we are
moving through the list that you gave us absolutely as quickly
as we possibly can.
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[GRAPHIC] [TIFF OMITTED] 34795.014
But there is a fair amount of guidance out there, and
certainly we are in the rulemaking process. Some of them are at
NPRM stage and we are looking at comments and some are at
various stages of the rulemaking process. But I assure you, we
appreciated the flexibility that you are affording the States,
and we are working diligently to implement that.
Mr. DeFazio. Okay. We will look forward to seeing that list
and helping you expedite the process.
Now, Mr. Horner, on our exchange about congestion pricing,
and you mentioned London, and I was a bit--I want to get some
clarification there. My understanding of the system in London
is in fact they do have very extraordinary, which would
probably not be tolerated here, pricing, as I believe they do
in the old parts of Rome, to basically prohibit or price out
passenger cars, except for the limos of the rich. They, as I
understand it, in London, apply much of the revenue gained
there, over to their transit system. And they don't charge a
congestion charge on their transit system. That is the point I
was trying to make, if you are going to price people off of the
public highways, which I don't agree with, but if we are going
to do that, then we would need to perhaps divert some of those
revenues, not have those revenues taken as profits by the
private sector as I understand will pretty much happen in
Virginia, although there is some little recapture there, but
have that money reinvested to facilitate the movement of people
who were driven off the highways. That's what London does. Do
you have a different understanding of what they are doing
there? Because you are talking about both congestion pricing in
transit and on roads. They have adopted it very strictly on
roads, and they are applying it to facilitate transit. You are
from the transit folks. You would hope they are going to
facilitate transit.
Mr. Horner. I am pausing to understand your question.
Mr. DeFazio. Well, the question is pretty simple. The point
is simple. I don't support congestion pricing on transit when
we are trying to have a societal goal of getting people off
roads. You have included it in your criteria here, and you are
implying that that is what is going on in London. Do you have a
different understanding of what is going on in London? They
have very high congestion pricing for autos. But they don't, to
the best of staff's knowledge or my knowledge, have any on
transit. You are proposing a new novel model where you would
have both. Are you aware of that, anybody who is doing both at
the same time?
Mr. Horner. Mr. Chairman, thank you for that question. If I
may rephrase, are you asking whether we endorse congestion
charging of transit vehicles that would travel in corridors----
Mr. DeFazio. Well, of passengers on transit, yes. That is
what your guidance here says, unless I misunderstand, whether
the project, and you are talking about transit, is part of a
congestion mitigation plan that incorporates system-wide
congestion pricing. Unless you are referring to other modes as
a system, I assume that system went to the transit mode.
Mr. Horner. By system, reference to system-wide is a
reference to a geographic area.
Mr. DeFazio. You ought to clarify that, so other people
won't get confused. I am a very simple guy, but other people
might get confused too. System to me, since we are talking
about transit, I think of transit systems. I don't think of
transportation system as everything inside the beltway in
Washington, D.C. for instance.
Okay, well, I am glad we got that clarified. That is good.
Here is another, I find sort of internal contradiction,
FHWA has said, and I want to know if FTA is in accordance with
this, that local governments and transit agencies have in part
used CMAQ funds for start-up operations. I mean, there is, we
are talking about risk with new transit operations. Obviously
there is a build-up phase.
But the FHWA has decided to eliminate that authority, and
some of the CMAQ funds are now going unspent. I am curious,
does the FTA support, again, since we are talking about these
congestion issues and trying to get people to use the modes
more efficiently, does the FTA support the prohibition on the
use of CMAQ funds for start-up on new transit projects, new
starts?
Mr. Horner. Mr. Chairman, thank you for that question. The
policy to which you are referring is a proposed policy,
published I think in the form of guidance by FHWA recently. The
public comment period on that guidance closed recently. FTA and
FHWA are digesting the comments from the public and determining
what final position to take on that question.
Mr. DeFazio. Well, are you in accord, is the FTA in accord
with FHWA here or are you having a little internal and quiet
conflict over this?
Mr. Horner. To my knowledge, there is no conflict
internally.
Mr. DeFazio. But you support this. The transit folks
support prohibiting the use of CMAQ funds for start-up of new
start transit projects. The transit people support what FHWA is
doing. So where are you going to get the money to help these
folks? Or is this an attempt to try and drive that privatized
investment in the hope that if we can't have public help, we
will get private help?
Mr. Horner. Thank you for that question, Mr. Chairman. As I
understand the guidance, it is a proposal and does not reflect
the definitive view of FHWA. In publishing any guidance for
public comment, we are obliged by law to take into account
comments that we receive.
Mr. DeFazio. But it is not their opinion? They just sort of
put this proposal out there to prohibit the use of CMAQ funds
just for yucks to see what the public thinks? That is not the
policy of the Administration or the FHWA, to prohibit the use
of that? They aren't proposing that in the rule and therefore
asking for comment on their proposal to prohibit it? I mean,
you just said that it was just sort of out there.
Mr. Horner. Thank you, Mr. Chairman, for that question. It
is a proposal, but it is not definitive.
Mr. DeFazio. And you think, given your other concerns about
congestion, that this would be a good idea, this will be a step
forward for the United States, to say that you can't use CMAQ
funds to help in the first few years of operation of a new
transit project? That is going to help us get new investment,
new transit and mitigate congestion somehow? How is that going
to help?
Mr. Horner. This is the very debate that we expect to have
internally. You raise a very good policy question, Mr.
Chairman. It is a point that has been made on the docket, also.
We would take into account in a meaningful way points of the
sort that you are making now.
Mr. DeFazio. Okay. Well, Mr. Hansen, since you operate a
transit system, do you have any comment on that?
Mr. Hansen. We believe that the current procedures are
appropriate, that is, that the Federal Transit Administration
is the sole entity that ought to make the call on the proper
use of CMAQ funding. We clearly believe that CMAQ funding is
flexible funding to be able to assist in air quality
mitigation, its very name, and should be utilized to be able to
further transit, including start-up and planning for those
transit uses.
Mr. DeFazio. Have you commented?
Mr. Hansen. We as a region I believe did JPAC, our normal
JPAC process. I believe we did.
Mr. DeFazio. Then perhaps we will hear from the Chairman on
this, I believe the Committee would be, at least some of us on
the Committee would be very concerned if that proposal went any
further, other than a blue sky proposal out there. I don't
understand the objective on how these things are internally
consistent.
A couple more quick questions. And I think there is an
interesting point between Mr. Njord and Mr. Hansen. Mr. Hansen
talked about how you had a long-term plan and you received an
unsolicited proposal. But it fit in your plan.
Mr. Hansen. Yes.
Mr. DeFazio. All right. I think that is kind of key. Now,
Mr. Njord, as I understand the new Utah PPP legislation, you
will receive unsolicited proposals. This is one of the concerns
many transportation planners have, since, if people are looking
around to cherry pick something, they are not going to look for
something that necessarily meets the greatest public need, but
it perhaps is the most lucrative. How are you going to fit
these unsolicited proposals into your plan? Are they going to
trump the plan? In this case, we had an unsolicited proposal
that was consistent with the plan. What happens when you get
one that is not consistent with your plan?
Mr. Njord. Mr. Chairman, we are in the process of writing
the rules on how unsolicited proposals would be received in the
State of Utah. It is our anticipation that projects that are
outside of our long range plan would be considered, but they
would not be forwarded until a change in the long range plan
had occurred. So it doesn't trump.
Mr. DeFazio. Okay, that is good. I think some other States
are struggling with that issue.
I was puzzled by one thing, the CMGC. I don't understand
why that would require SEP exception, why having a CMGC would
require any sort of exception. It seems to me like it could be
something that would be done under existing law. Why do you
think you need an exception? Mr. Hansen seems to have a comment
on that, too.
Mr. Njord. I agree with you, Mr. Chairman. However, for us
to proceed, we do need to have that exception.
Mr. DeFazio. From the Feds or in the State?
Mr. Njord. From the Feds.
Mr. DeFazio. You do? Okay. I am puzzled. Mr. Hansen, did
you have a comment on that?
Mr. Hansen. I do, Mr. Chairman. Within Oregon, the public
contracting requirements are that, my board of directors and my
board president, George Passadore, is here today. They are in
fact authorized as a public contract review board to be able to
exempt certain contracts from the low bid requirements. They
must make findings that are subject to public hearing. It is a
very public and transparent process, whether that entity is
able to do it without additional requirements, to be able to
achieve that end.
Now, any Federal project under the FTA, obviously we must
fully comply with FTA requirements. We inform them of those
processes. But I am not aware of any specific exemption that is
required under what you were just referring to.
Mr. DeFazio. Mr. Ray, do you believe that you have to get
an exemption just to use the CMGC? I just don't understand what
in present law prohibits that.
Mr. Ray. Congressman, I believe the prohibition is actually
found in the way that the contract is actually awarded. The
method that you are talking about actually looks at best value
as the mechanism to select the winning bidder versus low bid.
And of course, outside of SEP-15, low bid is the traditional
mechanism, is the prevailing and mandatory way to select
contractors.
Mr. DeFazio. Okay, maybe I don't fully understand the CMGC
concept as presented by Mr. Njord. But my thinking was that
this was essentially someone who was at the front end of the
project and helps you deal with these issues as you enter into
it, as opposed to someone who is--yes, Mr. Njord?
Mr. Njord. Under CMGC, you hire a contractor, not knowing
what you are going to pay for the contract.
Mr. DeFazio. Right.
Mr. Njord. So he helps you, when you marry him with this
designer, you go through the design phase, he is providing
input into that design phase. Then at the end of the process,
you lock in a price.
Mr. DeFazio. Right.
Mr. Njord. And it is, when we----
Mr. DeFazio. But that is like having, you are essentially
hiring someone, you are going to do design-build, is that what
you are describing, but you are hiring someone else to sort of
oversee the development of the design-build?
Mr. Njord. That is correct. And you allow them to have
input early on in the process that will reduce cost.
Mr. DeFazio. Right. So that is why it seems to me this
would be protecting the public interest, if you are going to do
design-build, having the CMGC gives you some higher level of
assurance of the public interest and/or the value price that is
protected. I don't understand why if you are going to allow the
design-build routinely, which Mr. Ray says you do now, I mean,
you could just do a design-build, they don't even review it,
why would they have to review that you want to hire CMGC to
oversee the development of the design-build? Why would you do
that? If you are exempting design-builds, why not allow people
to have CMGCs to help them get a better value?
Mr. Ray. Congressman, I think the roots of it are found in
what Mr. Njord was actually referring to earlier in the way
that this contractor is brought in at a very early stage to
work on that. But what I would like to do, sir, just because I
have to admit, I am not terribly familiar with the
contracting----
Mr. DeFazio. Sure, that would be fine, get back to us.
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[GRAPHIC] [TIFF OMITTED] 34795.015
Mr. DeFazio. But I am just pointing out, you said earlier
that the design-build is now considered routine, doesn't
require individual review. But in order to get someone to sort
of protect you as you go into a design-build, which is what I
consider these positions as I understand them to be, you have
to get special permission. That seems odd. And I mean, if you
are going to allow the design-build routinely, they ought to be
able to do it with this sort of additional monitoring.
My time has expired. Mr. Duncan?
Mr. Duncan. Mr. Horner, just going back very briefly to
something, the FTA does not advocate congestion pricing for
transit services, does it?
Mr. Horner. No, sir.
Mr. Duncan. Thank you very much.
Mr. DeFazio. Yes, I think you need to, your little pilot
language there, you really need to tighten up that language,
because it sure appears that way.
Mr. Horner. Yes, sir, I shall.
Mr. DeFazio. So with that, I would see if the Chairman has
questions.
Mr. Oberstar. Thank you, Mr. Chairman.
I think you and Mr. Duncan have been doing a fine job, and
the other members of the Committee, asking very sharp, pointed
questions. We are getting good, informative answers.
Mr. Ray, I have a question, though, about the so-called
innovative contracting techniques that go back to ISTEA and the
autohrity that we created in ISTEA to develop innovative
technologies and approaches to delivering highway projects
faster. One of the issues that we have grappled with over many
years in this Committee is that of warranty. European highway
construction practice is to in effect say to the contractor, we
want a three layer chocolate cake, we want it delivered on such
and such date, you build it. We want it to last 75 years, and
this is what we are willing to pay for it.
So the contractor goes out and builds that project and then
has to bond and also get insurance in order to cover himself in
case his approach fails. It is a practice of shifting the
responsibility onto the contractor, not onto the State. Our
procedure is in securing that three-layer chocolate cake as to
specify exactly all the ingredients, the time it will take to
do it, the type of materials, ingredients to go into that cake
and then to supervise it every inch of the way.
What did you do, not you individually, Federal Highway
Administration approve in the warranty? It seems to be a much
more limited warranty in your final rule of 1996. And what do
you envision as a next or future step for warranty?
Mr. Ray. Congressman, I think that you actually articulated
very clearly, warranties are really meant for those things that
the contractor or the designer have flexibility in controlling.
If we specify the exact mix that may be there, then certainly
we or the State DOT should be responsible if that mix turns out
to not meet the life cycle that we would like for it to.
But certainly in circumstances where we are affording
greater flexibility to the contractor, and they are developing
the innovations or the methodology that they will use to
deliver the project according to our general specifications,
then we do think that some warranties are appropriate. Now, of
course, there is a general prohibition on Federal aid funds
being spent to maintain the facility. That is really the
friction or the tension between wanting to advance warranties
and of course, complying with the spirit of our program, where
we are not paying for maintenance in a long-term framework.
In terms of the next steps----
Mr. Oberstar. The part of my question that I wanted you to
answer is, warranty in the Federal Highway Administration
rulemaking, in operation today, is very limited. It is not, in
the European sense of, that they do in France, Belgium or
Germany or the Netherlands, of building the entire roadway, but
limited aspects thereof, is that correct?
Mr. Ray. Sir, you are absolutely right. The Europeans are
using a performance-based warranty mechanism. That is not where
we are.
Mr. Oberstar. Have you evaluated the European experience
against U.S. experience?
Mr. Ray. I know we have certainly looked at it. To what
extent, I would have to get back to you on the record whether
or not we have actually drafted a report or created any real
data.
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[GRAPHIC] [TIFF OMITTED] 34795.016
Mr. Ray. But I know certainly we have looked at what the
Europeans are doing in this respect, and of course, in a
variety of others. And you are absolutely right, that is not
where we are right now. But I think we do believe that
innovative contracting holds promise for expansion of warranty
in the future. And of course, as you mentioned, that is not
where our current rulemaking is. The limitations there, I
think, are really based on the tension or friction that I
mentioned earlier. Our desire to not pay for long-term
maintenance compared to the----
Mr. Oberstar. Yes, that is not my question, nor should we
get into long-term maintenance. But we do have an interstate
maintenance provision.
Mr. Secretary of Transportation Njord, what is your thought
about, do you see any advantage in the warranty approach over
our very prescriptive, long-term practice, prescriptive
approach to highway construction?
Mr. Njord. Chairman Oberstar, thank you for that question.
It is good to see you again.
This issue that you brought up is a very, very powerful
issue in the contracting world, warranties. We have talked
about this a little bit here today, but on a standard project,
a contractor warrants that project for a year, from the time it
is completed until a year after, he warrants his work.
Longer term warranties, as you have mentioned, are gaining
speed. We have experimented with them in my own State and I
know of other States that have also experimented with
warranties. On the project that I talked about earlier, the I-
15 project, we had a ten-year warranty clause within the
contract. And we had the option to exercise that clause of the
contract up to six months before the end of the project.
So in reality, this contractor built the project thinking
that we would exercise that option and he would have to
warranty that work for ten years. As it turns out, the project
was done with exceptional quality, and we determined that it
was unnecessary to exercise that warranty option. But by that
time, the job was done. All the work was done, the ingredients
to the cake were all in place, and they had been inspected. He
was thinking that he was going to have to warranty this thing
for a very long time.
So it is a very powerful idea and it is something that we
need to explore even further. Design-build, CMGC, both of these
contracting methodologies enable warranties to work. Because
under both of these types of project delivery methods, we do
not specify how to build the cake. We allow them to design
that.
Mr. Oberstar. Do you get a product earlier? Do you get it
with fewer delays? Do you still have to go through the
permitting, the contractor still has to go through the
permitting process and gain all the permits necessary to do the
building?
Mr. Njord. Of course. All the permitting has to take place
prior to the construction, regardless of how the project
delivery method occurs.
Mr. Oberstar. Mr. Hansen, in transit, is warranty an
applicable strategy?
Mr. Hansen. I wanted to spend time, Mr. Chairman Oberstar,
about that. As you know, in the Portland area, we have had
very, very good luck with our systems. We obviously require----
Mr. Oberstar. Not good luck. You guys have built a great
system out there. And when you do something well, it is not
luck. It is because it was done by design.
Mr. Hansen. We believe it was, and we continue to be able
to do that.
Our requirements are the normal requirements for any kind
of contracting, that before it is turned over to us, we have
our normal punch list, we go through all the quality issues.
Certainly if there is anything that is even after that turnover
in the project that was a failure on the part of the
contractor, it is something that we expect that contractor to
be a part of the solution when we go back on that issue.
But I do want to make clear that I think there are
differences between the design-build elements and some of the
other contracting methods that are very, very important. In
certain areas, the design-build works very well. When you do
have an area that isn't subject to many changes, because change
orders are the real price killer in design-build. In our most
recent project, I think you were out actually seeing it, our
yellow line, Interstate MAX line, two-thirds of it was going
through a neighborhood in the middle of a street. We knew that
CMGC-type contract was the type of method we should be
utilizing for that. Because the inevitability of change orders
and how to do an intersection and what about a business that
needed a special treatment was there.
The last third, however, was really over an industrial
area, much of it elevated structure. That was very appropriate
for design-build and we did it by design-build. Again, I think
the structure needs to be looking at the particular facility
that is there, what needs to be done to address the type of
contracting.
Mr. Oberstar. Thank you.
In all of this, moving to a warranty approach would be a
dramatic shift in the way we carry out the Federal-Aid Highway
program. It might in fact mean dissolution of the AASHTO
manual. It might result in different standards in each State.
It would be a great departure from the success we have had in
this Country. But also, we have to be open to ways in which we
can close the gap of time consumed in constructing projects.
One last question that is not related to the subject matter
at hand, Mr. Chairman, and that is, in SAFETEA, we included
streamlining language to speed up the processing of highway
construction projects, bridge projects and transit, that was
intended to compress the time but not circumvent any of the
existing laws. I wonder, Mr. Ray, if you have had any
experience with any of the States that have actually used, we
envisioned it would be used mainly for major projects. But of
course that applies to any construction project.
Mr. Ray. Mr. Chairman, thank you for the question.
Absolutely, you did provide us with a great deal of
flexibilities in SAFETEA-LU. We are excited about some of
those. Chairman DeFazio and I chatted about a few of those just
a little while ago and what the status was of some of those. We
are going to leave some documentation as to where we are.
As to specific examples of that, I am afraid I don't have
any data at my fingertips. But I would be happy to respond on
the record for you with some narratives on maybe some of the
best cases out there.
Mr. Oberstar. I would very much appreciate that, because
that was, I spent an awful lot of time on that myself with
Chairman Young and all the various players. I think we put
together a very good process for compressing the time frame,
still keeping all the voices intact and attending to all the
needs.
Thank you, Mr. Chairman.
Mr. DeFazio. We already gave the Chairman ample credit on
that issue earlier. I raised the question and we do look
forward to seeing your work implemented. I pointed out how it
was difficult in particular to bring the environmental groups
to the table on that issue, and you did yeoman's work.
Mr. Baird has not had a chance to ask questions, so I would
go to Mr. Baird.
Mr. Baird. I thank the Chairman.
I don't know if our witnesses have had a chance to look at
it, but a little bit later, in the second panel, we are going
to hear some rather interesting testimony from Bruce Blanning,
with the Professional Engineers in California. I guess he has a
surrogate speaking. But his quote is pretty interesting:
``Design-build and similar methods are procedures which
shouldn't work in theory and haven't worked in practice. Using
design-build under a public-private partnership only makes the
problem worse, because due to private funding and the
involvement by the public agency in the process is typically
even less.''
Any comments on that? We will hear from him directly, or at
least his surrogate and then others. Any comments from your own
experience?
Mr. Ray. I would like to comment on it briefly and I
imagine my fellow panelist Mr. Njord may have a few comments on
that as well. I think we at FHWA and we in the Department of
Transportation believe that design-build and other innovative
contracting mechanisms have a tremendous amount of opportunity.
One of the issues that may be preventing or hindering, rather,
some of the efficiencies gained is actually just experience
with the model.
I think that is both on the contracting side, the private
side, contractors being familiar with the bid process, what is
expected of them, the additional responsibilities that will be
layered on them going forward, and also with, on the State DOTs
and their being required to have a very clear understanding of
exactly what the project needs to look like, what their
performance specifications will be early in the process, rather
than kind of on an ongoing basis.
I think that Utah Department of Transportation is really
probably one of the best cases out there, as examples of how
design-build can work and what efficiencies it should deliver.
I would be happy to walk through those with you, but I think it
is actually more appropriate for Mr. Njord to walk through
those.
Mr. Baird. Let me follow up just briefly, though, with you,
Mr. Ray. I am a little circumspect because the Administration
believes that the solution to Medicare's woes was managed care.
Empirical data suggests that the managed care system has
dramatically increased costs and the Administration's proposal
to solve that is to increase funding for managed care to prove
that it works. I don't know if Mr. Blanning is correct, I don't
have the expertise.
But just to say we believe something, Mr. Blanning at least
seems to cite some evidence that there are cost overruns or
high bidding initially and that there are significant quality
problems inherent and just implicit in the structure of a
design-build model.
Mr. Ray. Well, again, I think on design-build, time will
tell. We will get a lot more data on this as we move forward in
the process. We submitted a report to Congress in 2006 with
findings that to be quite honest, were a bit mixed. I attribute
those largely to our inexperience in the marketplace here. I
think we will become more proficient over time.
But our report absolutely showed a time savings. It showed
that the quality was on par. The cost savings, our data was
mixed. I think there are numerous reports out there that show
that there are tremendous cost savings. One note on the report
to us, and I would be happy to get a copy up to you, the cost
savings there did not take into account the time savings. Of
course, in today's world, time is money. So we didn't attribute
an actual value to that. But it is kind of an interesting
narrative on the report generally.
Mr. Baird. Thank you.
Mr. Njord, as a graduate of the University of Utah,
welcome, and also to my good friend, Mr. Hansen. Thank you for
being here.
Mr. Njord, you have some experience with this.
Mr. Njord. I think that our real-life experience is
contradictory to what you have just read. We have had
tremendous success with design-build, accelerating the project
from ten years plus to four and a half years. Mr. Ray talked
about the cost savings to people. We had a study commissioned
by the University of Utah, actually----
Mr. Baird. Must be good, then.
Mr. Njord. Must be accurate. That study concluded that
there was $500 million saved by the traveling public just
because of the accelerated process of not having to deal with
that project for ten years. So I think, concerning quality, if
we had a quality problem on this very large design-build
project, it is six years old now. Don't you think we would have
found it by now?
There are no quality problems. This project is going to
last us for decades into the future.
Mr. Baird. Is that inherent in the nature of design-build,
or was it a consequence of the quality of the construction
companies involved and your agency's oversight? My experience
in life is it comes down to the people. Some systems allow more
flexibility and bad actors, I think it might be hard to suggest
the Big Dig and some other things have been exemplars of
effective models. Do you think it was more your agency's
oversight and quality contractors? Or was it some other entity
doing the work?
Mr. Njord. Obviously we had a very professional contractor
that did the work for us. If you, this is a misnomer that many
people have, that somehow you can inspect quality into a job.
It is impossible. If you don't have the person performing the
work in a quality fashion, it will not be quality work. You
cannot inspect quality into a project. It has to be done by the
workers.
Mr. Baird. Could you un-inspect a lack of quality into the
project? Meaning, could the lack of inspection contribute to a
poor quality?
Mr. Njord. What you have to do is transfer the risk. If you
want to inspect every nook and cranny of every project, you
will transfer the risk for that failure to yourself. If you
transfer the risk to the contractor, then it is his risk.
Mr. Baird. Through a warranty.
Mr. Njord. Through a warranty.
Mr. Baird. In other words, part of what we may be hitting
at here is that while you are referring to design-build, you
really mean design-build plus warranty contributed to the
outcome.
Mr. Njord. In other words, I don't necessarily know that
your example would say design-build per se sans inspections
works, but design-build plus warranty may be a greater key.
Mr. Hansen?
Mr. Hansen. Just a couple of quick comments, Mr. Chairman,
Congressman Baird.
As you know, the airport light rail, which is what I was
speaking to here, was a very successful design-build. But it
was successful for several reasons. One was, there was first a
real clarity as to exactly what was to be built, that the
opportunity for change order was very, very limited. The
ability to be able to have it determined up front was there.
Number two, the risk that was being assumed by Bechtel was
very clear as well. That risk was around the development at
Cascade Station, an area I know you are well aware of, with the
new IKEA store going in. That was a risk they assumed, not the
risk on the contribution to the building of the light rail or
ultimately its performance. That was the normal contracting
process under design-build.
Lastly, you do need to have both a sophisticated owner, in
this case TriMet, but also a contractor, which we clearly had
within Bechtel.
Mr. Baird. Thank you. Thank you, Mr. Chairman.
Mr. DeFazio. Thank you. Ms. Napolitano had another
question, did you not?
Mrs. Napolitano. Yes, thank you.
First of all, I just wanted to say to Mr. Ray that I was
very grateful to Secretary Peters, in her travel last month to
California to oversee the issue of transportation impact, the
congestion California highways have in southern California. She
is very well versed and understood all the issues, as she
already knew quite a few of them.
In that, we were talking, you were referring to the CMGC
and the issues there, about incentives. When 105 was built in
California, the incentives to that contractor were, build it on
time, you get a bonus. You build it ahead of time, you get an
additional bonus. Guess what? He built it ahead of time.
However, there was an issue with some area which apparently
began to sag and they had to go and do some repair work. So if
you do not have a warranty or if you have a warranty that is
limited, who then is responsible? Because these projects are
supposed to last, not just one, two, three decades, but
hopefully five, six decades or more.
Now, how long can some of this go into the warranty and the
protection if the company is no longer there to be able to take
care of that? Gentlemen?
Mr. Ray. I would like to take the first crack at that.
Congresswoman, I appreciate the question. I will definitely
mention your comments about the Secretary to her when I see her
next. I know she would appreciate that and cares very deeply
about California.
With regard to the warranties, I should have mentioned this
earlier, the design-build rule, which of course we are making
some changes, the NPRM is out. We have the comments, we have
looked at those, and we hope to have a final rule out this
summer. We will make some changes to warranties to allow
greater use of those through design-build contracts. And of
course, I have already expressed our general interest in
advancing warranties as a mechanism available to State DOTs.
I would also like to mention that with design-build and
also with P3s, and when I say P3s, what I am actually speaking
about here, because I think there is a broad array, a broad
definition of what P3s can encompass, but the concession deals
that we see, these long-term concession deals. This is a way of
shifting the risk, of maintaining the facility over long
periods of time to the private sector, where that burden
doesn't come back if there is a mistake in contracting. I am
not saying that that is not without its risk. It obviously has
other issues that have to be considered by State DOT and by the
public. But it is a benefit that should be understood.
Mrs. Napolitano. That doesn't answer my question, sir. I am
asking whose responsibility, who would come in then and do. Is
it back on the taxpayer?
Mr. Ray. Ma'am, absolutely. I think that once the warranty
has expired, the owner of the facility is responsible. If there
is no warranty, as is the case with a traditional design-bid-
build facility, then once you have accepted the product, once
you have accepted the facility, short of a proving of
negligence or fraud or some other malfeasance, then I think
absolutely the owner of the facility would be the responsible
entity.
Mrs. Napolitano. Secretary Peters also was with us in Long
Beach area, where one of the bridges, pieces of concrete are
falling off that bridge.
Mr. Ray. She mentioned this to us, absolutely.
Mrs. Napolitano. And?
Mr. Ray. As to who would be responsible for that, I am
afraid I don't know about the facility and I don't know how
that facility was built, how it is operated or managed. So I
would have to get back to you on the record as to the specifics
of that incident.
Mrs. Napolitano. I am not particularly interested in that,
but I am using that as an example of things that can happen
that then fall back on the owner or the taxpayer to put funding
to be able to rebuild or to repair.
Mr. Ray. Absolutely, I see your point. Actually, I believe
Mr. Horner would like to answer.
Mr. Horner. Very briefly, Congresswoman Napolitano. You
have raised an excellent question. It is an issue that
routinely arises in P3 transactions, namely, what happens when
the party giving the warranty goes away. Who then stands behind
the warranty?
There are two answers, typically. The first is a surety.
The contract requires the party giving the warranty to obtain a
bond to back up the warranty in the event of the insolvency of
the entity that is given the warranty. Sometimes a second
approach is used, in which the parent company of the private
entity separately guarantees the warranties given by the
private entity. Typically, those parent companies are
substantially better capitalized than the private entity with
which the public agency is dealing in respect of a specific
deal.
So you have raised an excellent issue. It is one that is
dealt with frequently in the structure of P3 contracts.
Mrs. Napolitano. And what would you suggest be an answer?
Mr. Njord?
Mr. DeFazio. And then we will have to move on to the next
panel. Go ahead, Mr. Njord.
Mr. Njord. I think you pointed out something that is very
important. Contractors respond to incentives and they find ways
to earn, maximize their incentive earning power. So in the
structuring of a contract, the best way to get schedule,
quality and budget to meet all in the center is to incentivize
those three things. What is most important to you, is it the
schedule of the project, is it the cost of the project, is it
the quality of the project? You have to provide incentives for
that contractor to give you what you want. If you provide the
right incentives at the right juncture, they will give you what
you are asking for.
And in a design-build world, we are not out there
inspecting everything. We are not inspecting every ingredient
that Chairman Oberstar talked about in that cake. However, if
you provide incentive for the contractor to self-inspect, he
will self-inspect.
Mrs. Napolitano. But what if that contractor may be using
sub-standard material?
Mr. Horner. Ma'am, another excellent question. As Mr. Njord
is suggesting, if the contractor used substandard material, it
would be liable financially and otherwise for the under-
performance of the facility. The prospect of significant
financial liability disciplines the behavior of the contractor
in ways that are really extraordinary and hard to create by
other means.
Mrs. Napolitano. That turns into litigation. Thank you, Mr.
Chair.
Mr. DeFazio. The lawyers will also profit.
[Laughter.]
Mr. DeFazio. I want to thank this panel. Thank you for your
generous grant of time. We have a few things to follow up on
and we will expect to hear about those. Thanks for coming
across the Country.
We will move on to the next panel now, panel two.
Mrs. Napolitano. Mr. Chair, while they are coming up, may I
request for the record that a copy of the 2006 findings, the
design-build, be submitted, unless you already have it? I have
already asked your counsel, so that we can see and maybe share
with some of our agencies whatever the findings have been?
Mr. Ray. Absolutely. The 2006 report on design-build will
be delivered to you. We will do that. As well as, if it is
okay, the summary document on our environmental, the SAFETEA-LU
environmental flexibilities. We will also have that delivered
to you.
Mr. DeFazio. The implementation scheduled, yes. Great.
Thank you.
Mr. Ray. Thank you.
Mr. DeFazio. We will begin, I want to thank the panel for
sitting through the first panel, which went on for quite some
time. Hopefully you found it of some interest. If you heard
anything during the first panel that you wish to respond to,
feel free to depart from your written testimony. I have already
read all the testimony; I expect other members have too.
Mr. Yarossi, if you would proceed.
TESTIMONY OF PAUL YAROSSI, P.E., OFFICE OF THE CHAIRMAN,
EXECUTIVE VICE PRESIDENT AND PRESIDENT, HNTB HOLDINGS, LTD.,
RICHARD THOMAS, DIRECTOR OF GOVERNMENT AFFAIRS, AMES
CONSTRUCTION, INC., MARIA LEHMAN, P.E., F.ASCE, CHIEF OPERATING
OFFICER, CHAZEN COMPANIES; DENNIS HOULIHAN, LABOR ECONOMIST,
AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES
Mr. Yarossi. Thank you, Mr. Chairman and Congressman
Boozman and Chairman Oberstar and Subcommittee members. Thank
you for the opportunity of providing testimony on how
innovative contracting methods such as design-build are
becoming increasingly important in maintaining and growing an
efficient transportation system, a transportation system that
is vital to the American quality of life and global economic
growth and competitiveness.
For the record, I am Paul Yarossi, President of HNTB
Holdings, one of the Nation's leading engineering and
architectural firms. I also serve as co-chair of ARTBA's
SAFETEA-LU reauthorization task force, which is developing the
association's vision for the next transportation bill.
HNTB's viewpoint comes from information from our 3,000
professionals in more than 60 offices. We are premier providers
of design services to your State and toll authorities. We are
helping our clients incorporate today's most innovative best
practices and contracting methods.
Our transportation system is stressed. Not since the
inception of the interstate system have we seen, at the pace we
see today, needs outweigh available funding. Essentially, given
the revenue and staff available, State DOTs and transportation
owners cannot afford to maintain their existing transportation
system within current funding levels, let alone build new
capacity. There is no silver bullet that will solve these
financial problems.
However, new and innovative ways to finance, design, build,
operate and maintain transportation facilities must be part of
the solution.
We are seeing a growing number of States adopt design-build
methods to build projects faster and often less expensively.
The key element of design-build is that one entity assumes
responsibility for the majority of the design and of all of the
construction. Advantages to design-build include a simplified
owner role which requires fewer owner resources; less cost
escalation as a result of fewer claims; time savings, since
design and construction are done concurrently; and increased
possibility of innovation.
As an example of design-build I was going to use the I-15
project, but you heard from Secretary Njord about that. It was
$32 million under budget and delivered significantly ahead of
time and is a great example of how design-build can work. In
St. Louis, Missouri, for a 12 mile reconstruction of I-64,
Missouri DOT used an innovative design-build approach that
essentially delivered what was estimated to be $600 million
worth of improvements for $420 million.
Many factors need to be considered when determining the
best procurement method for any given project, including the
project's goals, complexity, funding plan, design intent and
risk allocation. The more flexible owners are in their design-
build approach, the more innovative design-builders can be,
result in owner expectations being exceeded. However, design-
build is not a cookie cutter approach for all projects, and as
you heard in a lot of the testimony today, each project needs
to stand on its own merit as the correct way of contracting a
project.
Another trend in innovative contracting is public-private
partnerships, or P3s. Your Committee is well versed in P3s,
having held numerous hearings on the subject, and heard more
about them today. P3s, along with design-build, are pieces of a
solution of a much bigger and more complex transportation
problem. But as we turn to P3s and design-build, we need to
proceed in a very deliberate, systematic way with an overall
vision of the future of the transportation system. The focus of
P3s should be to further the overall enhancement of our
transportation system and not simply to be a mechanism of
balancing a budget.
Some P3 lessons that we have learned is, for existing
facilities, it is very important to understand the long-term
value of the asset at hand prior to the negotiations. The
overall vision of the entire transportation system is needed up
front. If existing facilities are tolled, the revenue must stay
in transportation. We should consider toll pricing based on
traffic demand and manage flow to get the most out of the
system. And you can consider mass transit, especially bus rapid
transit, in the free flow of a P3 lane.
I hope this gives you some insights into changes we are
seeing as we go through our business in delivering
transportation projects around the Country. Thank you for the
opportunity.
Mr. DeFazio. Thank you.
Mr. Thomas, the Chairman has many good things to say about
you, but he is going to withhold at the moment to hear from
you. Thank you for being here.
Mr. Thomas. Thank you, Mr. Chairman.
My name is Richard Thomas. For the last 16 years, I have
served as Director of Government Affairs at Ames Construction.
I have been involved in transportation policy at the local,
State and Federal levels.
I am currently President of the Minnesota Transportation
Alliance. I serve on the board of directors for Center for
Transportation Studies at the University of Minnesota. Ames
Construction is a heavy civil and transportation contractor
with annual volume typically between $500 million and $600
million. We have permanent offices in Burnsville, Minnesota,
Denver, Colorado, Salt Lake City, Utah, Phoenix, Arizona and
Carlin, Nevada. We build airports, roads, bridges, dams, rail
projects for public and private owners across the United
States.
My stepfather, Dick Ames, started the company in 1960, and
we are proud to say that we are still family-owned. Some of the
projects that we have worked on are Denver Airport, Route 52,
the Legacy Parkway and S.R. 189 in Utah.
This morning, I have been invited to share with the
Committee some of the challenges facing small and mid-size
firms when public transportation agencies use non-traditional
contracting practices. As you well know, our Nation's
infrastructure is aging rapidly. Most States have a difficult
time funding the backlog of transportation projects. This has
led to a whole host of ideas to fund and deliver our projects
in a timely fashion and add value to those projects.
Many of the new methods have great potential to strengthen
our transportation system. But they also bring with them new
challenges, particularly for small and mid-size construction
firms. One of the biggest trends in the transportation industry
over the last decade has been the move toward larger projects
with extended durations. These projects typically range from
$250 million to $1.5 billion. They tend to be primarily design-
build. Some of these are public-private partnerships, while
others are State or regional projects.
The biggest challenge facing small and mid-size contractors
is not performing the work on these projects; but rather,
getting the opportunity to work on these projects. Major
projects require contractors to get mega-bonds and few sureties
are willing to assume the risk exposure for these large
projects. In fact, any single surety is generally unwilling to
accept exposure greater than $250 million under any given bond.
But with co-surety and the right contractor team, large bonds
can be provided. This in effect limits the bidding on these
projects to only a few large firms.
This is further compounded by the trend toward shifting the
risk associated with project funding to the contractor.
Warranties are a good example of this. Many owners want
extended warranties on projects, anywhere from three to five
years, and as you have heard earlier, some even up to 10 years.
I understand that they want that security.
However, that security comes at a price. Warranties require
larger bonds, they drive up the cost of a project, and they
also serve as a barrier to small and mid-size contractors who
have less of an ability to secure these bonds.
Major projects and public-private partnerships typically
use the design-build method of construction. Design-build, as
you have heard, has many advantages. It is the fastest delivery
method; a firm cost of the project is established before
significant financial and time commitments are made; the owner
can make well-informed decisions regarding design, quality and
cost throughout the design process; there is a single source of
responsibility for the entire project; it encourages more
innovation; and it reduces the number of claims.
However, design-build has its limitations as well. The
first is subjectivity. Unlike design-bid-build, which takes the
lowest responsible bid, the design-build method will select the
design-builder whose proposal scores the highest on evaluation
criteria. Because the evaluation includes the human element, it
cannot be completely free of subjectivity.
The second design-build limitation would be the
qualification barriers that contractors must overcome to bid on
that project. In the States that we work in, most of our
competitors have a lot of road and rail building experience.
However, on most design-build projects, the only experience
that evaluators look at is on design-build projects. So it is
kind of a catch-22 for some contractors, because if you can't
get on a design-build project, it is kind of difficult to get
that experience required.
Local contractors are often denied the opportunity to
compete on transportation projects they would have been able to
bid if they were awarded under the traditional system of
design-bid-build. This is a problem even for larger firms with
design-build experience like ours. Despite the fact that we
have completed several large rail projects that were design-
bid-build, we have had situations where we failed to make the
short list on design-build rail projects that were even smaller
in scale than projects we have worked on.
Another major obstacle for contractors on design-build
contracts is financial net worth requirements. Those design-
build projects with net worth requirements disqualify most
contractors from competing, regardless of their ability to
deliver the project. I have seen cases where design-build
projects, where contractors were disqualified from being
selected on design-build projects due to net worth
requirements, despite the fact that they had successfully
completed projects that were larger in financial terms and also
that had greater risk. Financial net worth requirements should
not be required, provided the proposer can obtain 100 percent
payment and performance bond and have the ability to finance
the work.
My final point on design-build is the relationship between
price and projects, technical score. In Minnesota, when we
drafted the State's design-build law, we ensured that price
would be a major factor in awarding the project. When owners
put too much emphasis on non-construction elements of a
proposal, the result is a process that I would suggest is more
akin to a beauty contest. It all too often excludes good
proposals that would add to the cost of a project. To date,
every design-build project in Minnesota has been awarded not
only to the team that has had the highest technical score, but
it has also had the best price.
Mr. DeFazio. A good point to wrap up on, I think.
Mr. Thomas. The last thing I would say before closing is,
dealing with public-private partnerships, we strongly believe
there is a place for public-private partnerships. There are
always going to be places in the Country where they want to
speed up, expedite a project or there are other circumstances.
With that being said, I think we need to make it perfectly
clear that PPPs are no substitute for a comprehensive
transportation plan. Our fear is that we are going to become
too reliant on PPPs in the future without increasing our
traditional funding sources.
Thank you.
Mr. DeFazio. Thank you, Mr. Thomas.
Ms. Lehman.
Ms. Lehman. Mr. Chairman and members of the Subcommittee,
good afternoon. My name is Maria Lehman, I am the Chief
Operating Officer of the Chazen Companies. Chazen is a
privately owned consulting engineering firm with more than 180
employees in the Hudson Valley. Our principal offices are in
Poughkeepsie, Troy, Newburg and Glens Falls, New York.
I am pleased to appear before you today on behalf of the
American Society of Civil Engineers to present our views as the
Subcommittee examines new and existing methods to deliver
transportation projects. It is important to remember the
condition of the Nation's infrastructure when discussing the
best way to deliver infrastructure projects. In 2005, ASCE
released a report card for America's infrastructure, which gave
the Nation's infrastructure a grade of D based on 15
categories. Roads received a grade of D, bridges a C and
transit a D plus. With so much progress to be made, Federal,
State and local governments need all the tools available to
deliver quality infrastructure projects.
Public-private partnerships are contractual relationships
between public and private sectors in infrastructure
development. Innovation in public works contracting abounds. We
see it across the continuum, from the traditional design-bid-
build contract to the design-build contract to the build-
operate-transfer contracts, or P3s. No matter which contract
type is chosen, the selection of the right source, the
designer, the contractor, the designer-builder or the
concessionaire is the most critical element to the success of
the acquisition. Lowest price based source selection is common
in the public and private contracting arena. But this approach
may not necessarily provide the most economical end results or
desired best value.
Small businesses have not been very supportive of P3s, as
they feel that large engineering firms will muscle them out of
this important market. Federal regulation could remedy this by
set percentage of actual engineering to be done by small local
businesses that have local expertise, both in conditions and
regulatory expertise. For example, a candidate project in
upstate New York might be the Grand Island bridges. While a
major engineering firm certainly has the expertise in big
bridge design and some elements of maintenance, without local
expertise of geology, weather, snow and ice removal, long-term
maintenance costs will be incorrectly calculated. Local
expertise will tell you how to deal with removal of 7 feet of
snow in a 48 hour period, or understand the damage to a
structure based on heavy salt loads needed to keep the facility
operational in severe events.
Qualification based selection. The Federal Government has
been using innovative contracting methods for professional
design services since 1972, when QBS became the procurement
method for architectural and engineering work. ASCE believes
that the selection of professional engineers as prime
consultants and subcontractors should be based on the
qualifications of the engineering firm. Qualifications,
including training, experience, capabilities, personnel and
work loads, should be evaluated when selecting an engineering
firm.
Accordingly, ASCE supports QBS procedures, such as those
specified by the Brooks Architect-Engineers Act of 1972 and the
American Bar Association's Model Procurement Code for State and
Local Governments for the engagement of services. Design-build
project delivery, a client-driven innovation, initially was
seen as a fast track solution to traditional delays in the
construction of major public works projects. It is a delivery
system that has been successfully implemented on many private
sector projects and thus, many small firms are very familiar
with its implementation.
One note for small firms. Because of the high cost of
preparation for design-build proposals for complex projects, it
is imperative for a small business approach that the cost of
presentation is reimbursed by the owner. This payment not only
acknowledges a real value for the work performed but also gives
the owner the right to the intellectual property.
Use of life cycle cost analysis principles will raise the
awareness of clients of the total cost of projects and promote
quality engineering. Short-term design cost savings lead to
future higher costs. ASCE encourages the use of life cycle cost
analysis principles in the design process to evaluate the cost
of projects. The analysis should include the initial
construction, the operation, the maintenance, environmental,
safety and all other costs reasonably anticipated during the
life of the project, whether borne by the owner or otherwise
affected.
The lack of adequate infrastructure investment in the U.S.
has left with a vast backlog of deteriorated structures that no
longer meet our Nation's increasing demands. To remedy
America's current and looming problem, ASCE has estimated in
2005 a $1.6 trillion investment needed in all categories of
infrastructure over the next five years, and called upon a
renewed partnership among citizens, local, State and Federal
governments, and the private sector.
To accomplish the goal of rebuilding the Nation's critical
infrastructure, engineers, architects, contractors and
Government agencies need to expand the tools available to
deliver quality projects. ASCE appreciates the Committee's
willingness to address this important issue.
Thank you for the ability to present our testimony.
Mr. DeFazio. Thank you.
Mr. Houlihan.
Mr. Houlihan. Thank you, Mr. Chairman. I am Dennis
Houlihan, I am with the American Federation of State, County
and Municipal Employees.
As you know, I sit before you in a somewhat awkward
situation. Mr. Blanning tried to get here yesterday. He was
frankly my choice, I thought he would be an excellent witness.
He is a professional engineer. But nature intervened. We
thought it was better to get his testimony in the record. If
there are questions about it that I can't answer, we will
supply.
Mr. DeFazio. You could proceed. I have read the testimony,
I believe other members have. We will be happy to put it in the
record and then see how the questions go.
Mr. Houlihan. That would be fine.
May I add, as you asked, if there are other observations
which I feel a little more comfortable speaking about, and I
will be very brief.
Mr. Duncan, in the early moments today, mentioned about one
of the critical things we need to be considering about any kind
of contracting as oversight. As you have heard from us before,
we are very concerned about the staffing levels in State DOTs.
We are worried about the overall engineering shortage, no
matter what type of procurement system you go through.
I want to thank Mr. Oberstar, I understand there is
Government Accountability Office report now looking at this,
the GAO has contacted Mr. Blanning, and indeed, that has gone
beyond other unions. I wanted to just bring that issue up.
The other one is on the issue of public inspection. It is
related, it is in his testimony. I have heard it not only at
the engineering level, but through our Association of State
Highway and Transportation Unions, people who do everything
from concrete inspection, all levels of inspection, feel that
the levels of staffing in their agencies have declined.
I don't want to put all the blame here, in conclusion, on
the DOTs themselves. I understand some of this is a political
problem. I think it goes across both sides, both political
parties. When you talk to DOT directors, they say, we would
like to have greater staffing, but we have the problem of caps
on employment in the States, and we can't get the people, even
though the money might be there. I don't know, we have
discussed this before a bit and we are still thinking about
this, is this a Federal issue? Well, yes, in the sense that the
Federal Government has oversight, and the stewardship of the
funds.
But the program is operated at the local level, what is the
appropriate role for the Feds to tell the States what to do? It
is something we are going to have to address, but it is
something of concern and I hope perhaps as you go through the
oversight process we might have a chance to talk about this
again. I will conclude with that. Thank you very much.
Mr. DeFazio. Excellent. Thank you for summarizing. Thank
you for standing in. I know that is often a difficult thing to
do.
There are a couple of questions that occur to me. And
actually, to your last point there, Mr. Houlihan, I wondered as
I was reading the testimony about the warranties and whether we
are essentially, in some cases, substituting warranties for the
degree of public oversight that might be necessary to assure
quality control. I wonder what sorts of costs are associated
with those warranties and whether or not it might be less
expensive to actually hire staff to monitor the quality as we
go along, than to assume that the contractor is going to do it
because of the warranty requirements.
So Mr. Houlihan or Mr. Thomas, you referenced that, or
anybody who wants to address that issue.
Mr. Houlihan. Well, of course I think it is a very
interesting question. I don't have a direct answer to it, other
than this. In trying to get a comparison of what any
alternative to using in-house staff would be has been a
struggle in the States.
However, there have been some successes. I just offer one,
a simple one we are looking at. In Wisconsin now they are
doing, because there was a statute passed, they are doing at
least kind of an educational piece. The legislature has asked
the agency to compare the cost of using in-house staff versus
using a contract design staff. It is not binding on them, but
it does give information which over time might build a record.
I heard your comment on this earlier, caught my ear, of
course. I think that is something we might, if not at the
Federal level, we may want to advocate as these warranty ideas
come up at the State level. We are always trying to push, as
you know, for a rigorous analysis of the alternatives. Thank
you.
Mr. DeFazio. Knowing the cost benefit would be helpful. We
have been nationally, I know, contracting out at higher expense
in many, many areas. I don't know, although there was analysis,
I believe, in the testimony of the gentleman who you replaced,
about the cost in California. He made the same point that the
people that were being hired, contracted, were more expensive
that the State employees. I assume that included a calculation
of benefits.
Mr. Thomas, you raised the issue of warranties. Do you want
to address that?
Mr. Thomas. Mr. Chairman, I would say, like others in our
industry, we are not opposed to warranties. I think folks have
to come into this with their eyes wide open. There is a
warranty for a year, which is typical, that is acceptable, that
is not a problem for the industry. I think it is when you get
into the longer duration where you get into the problems.
Contractors have to pay higher bond costs for that. That is
going to be a cost that we are going to have to put into the
project, which is going to raise the cost of the project.
So I think that is something that DOTs have to look at, how
important is it to have that for that particular project, and
is that something that they are willing to pay for.
I do, however, think that the larger warranties, it does
have a bigger impact on your small and mid-size companies,
because of their ability to be able to get a bond for those
long-term projects. We have even seen them in Minnesota on
small projects as well, which I believe at the time was more,
the DOT was looking at it is as kind of a trial run. And they
have kind of backed off on that a little bit.
But I think it is more, you have to be aware that this is
going to add cost to the project. If that is something that a
DOT feels they are willing to take on, it is what it is.
Mr. DeFazio. Ms. Lehman?
Ms. Lehman. A couple of comments on that. First of all, I
agree that the overall shortage in engineering staff is an
issue around the Country, whether you are on the public side or
private side. I did serve as a commissioner of public works for
five years on the public side. So I understand it from both
sides.
But I think you are talking not just quantity, but also
quality. One of the concerns that I have is in State government
and in Federal Government, the credentialing is not as
important as it is in the private sector. The requirement of
having a P.E., the Office of Personnel Management on the
Federal side does not recognize getting a P.E. as an
appropriate event. It doesn't distinguish people working for
Federal Government whether they have the license or not.
My personal feeling as being someone who, on the public
side, had to have a P.E. in my position, when I am personally
liable for my decisions and it is my skin in the game, I was
much more balanced and public-minded in my decision process.
Because it is something that in the State of New York, if my
kids see something from my inheritance, they are going to be
liable, because there is no statute of repose in the State of
New York. So I take it very seriously.
As far as warranties relative to the engineering industry,
it is problematic. Because of the complication of design-build,
where you are part of that contracting team, and because of
joint and several liability, warranties are not something that
the insurance industry will allow us. It is an exclusion
specifically in engineering, in any of the insurance mechanisms
that are around in the United States. So it is problematic.
There is a lot that needs to be resolved to be able to get
there.
The other issue of warranties that is a little problematic
is that at some point, is it a function of bad design or bad
contracting, or is it a function of lack of maintenance, and
where is that continuum and where does lack of maintenance kick
in versus faulty product in the first place. So it is a matter
of trying to figure out and balance those two things.
Mr. DeFazio. Interesting observation.
Mr. Yarossi, on page 4 of your testimony was a point which
came up at the earlier panel, but it certainly deserves some
emphasis. You said as we turn toward P3s and design-build, we
need to proceed in a very deliberate, systematic way with an
overall vision of the future transportation system. And then
you go on from there.
How do you envision, in the States that are adopting 3P
laws that allow unsolicited bids, how do you see they are going
to incorporate or deal with that in their STIP, if it is
outside their STIP?
Mr. Yarossi. I do have a problem with that, Mr. Chairman. I
would reinforce what Secretary Njord said, that the way we are
going to get an efficient and a transportation system
nationally that is going to give us what we need, higher
quality of life, some resiliency to natural and man-made
disasters and global competitiveness, is to have that system
plan in place. And I am just personally, and my company is a
firm believer in that the plan comes first. I think all that we
have heard in all the testimony, all that you have read are all
part of the solution. Each project that builds into that plan
that makes the program that makes the system in my opinion
needs to be individually analyzed. There is probably a little
bit of right in everything we have heard. When we put all the
little bits of right together, we are going to find the right
way to both build and finance the system.
Mr. DeFazio. Okay, thank you.
With that, I would turn to Chairman Oberstar if he has some
questions.
Mr. Oberstar. Thank you, Mr. Chairman. I greatly appreciate
the contribution of the panel this morning, afternoon now, for
very thought-provoking commentary.
I think, Mr. Yarossi, you said it well, I wish I had
phrased it myself, that for the first time since the beginning
of the interstate system, we see needs outweighing available
funding. That is really what is happening. That is the dilemma.
What futurists usually do is way overstate, way over-predict
what is going to happen.
In the case of transportation, however, future projections
of needs have greatly fallen short of actual performance. In
the decade of the 1990s to 2000, population growth in America
was about 4 percent. But highway usage grew 19 percent.
Aviation grew about the same, 19 to 20 percent growth over that
period of time. Rail exploded and is continuing to grow. In
every mode of transportation, use has outperformed by factors
of four and five to one population growth.
Our funding has not kept pace. We knew that was the case
when the Commission reported to the Congress in 2003, which was
required in TEA-21 legislation, the Department of
Transportation established this commission, evaluate pavement
condition, bridge needs, safety requirements, congestion. And
recommend an investment level to the Congress for the next six
year program. They came back with a recommendation of $375
billion. Chairman Young at the time and I introduced that bill
in October of 2003 and asked for, at the same time appealed for
a 5 cent increase in the user fee.
Gas was $1.34 a gallon at the time. It went up over a
dollar in less than a year. It went up to over $3.20 during the
time we were considering the follow-on legislation that became
SAFETEA-LU. So on the one hand, yes, the needs are outweighing
funding. But it is the policy makers that are not keeping up
with the requirement to provide the funding. And the public is
willing to accept and invest. They don't understand much about
where the rest of their taxes go, but they do understand the
highway user fee. They do know if they pay, they buy the gas at
the pump, they are paying the fee and they drive away on better
roads and better bridges and safer.
So we are now forced because of these failures in the
Executive Branch to accept an increase in funding, we are faced
with alternative ways, imaginative ways of financing the
transportation needs of the Country. And Mr. Thomas has been,
Mr. Chairman, has been a leader in the State of Minnesota with
the Transportation Alliance, with the business community, with
the contractors, in advocating for an increased investment in
Minnesota's transportation system.
The legislature has responded, both house and senate
committees have passed, each in different ways, 10 cent
increase in the user fee. That along with other revenues that
were generated also from transportation needs will create a
billion, 200 million dollars in the State of Minnesota to match
the available Federal funds. And unfortunately, we have at the
State level a replica of the national level, a Governor who
can't figure out a way to do what he knows needs to be done,
and that is to make a greater investment.
So because of the failure and the inability of the State to
match available Federal construction dollars, we had an
extraordinary circumstance last summer. The State of Minnesota
Department of Transportation put up a $235 million contract to
rebuild I-35 across town in Minneapolis and no one bid on it.
Now, Mr. Thomas, Ames is not a small organization. Was this a
design-build, was this a standard project? Why did contractors
not bid on this project? I know part of the answer to that. But
you go ahead and say it for the record.
Mr. Thomas. Mr. Chair and Representative Oberstar, the
problem with the Crosstown, frankly, I think was a breakdown of
communication between and expectations between MinnDOT and the
contractor and financial community. There were two teams that
were prepared to bid on that project. To really simplify it,
the problem we have with the Crosstown project is, contractors
were willing to help finance the project. But there was no
guarantee at the end of the day that they would get paid. The
financing for the project was dependent upon future Federal
funding. As you well know from the last transportation bill,
sometimes that takes longer than what folks anticipate. And
there was none of the bonding companies that were willing to
finance that risk. The only precedent we had had previously in
Minnesota was, a situation like that, was the monorail at the
zoo, and the folks that invested the money never did get paid.
It wasn't, the issue wasn't so much the way of delivering
the project, but the financing, the construction community and
the finance community had met early on with MinnDOT and
expressed to them the issues that we had with the project. So
for the first time in history, we did, we had a project that
there were no bidders. Interestingly enough, the project was
bid a couple of weeks ago, and there were only two bidders on
that project as well. Typically, and I think that is kind of a
sad state of affairs, too, that we are losing some of our
competition. Because I think in that case, it was more because
of the size of the project.
Mr. Oberstar. Thank you for that explanation and discussion
of it. Yes, the State really expected contractors to finance
their own work.
Mr. Thomas. Right.
Mr. Oberstar. And that is just not acceptable.
How does that, though, differ from a design-build approach?
And you raised some very interesting questions, and I think
others did as well, that design build includes some hidden
costs. You have called the mega-bonds, that in the case of
design-build, you may be shifting the risk to the contractor as
well as the warranty approach. Warranties also, as I said, in
discussion with the previous panel, shift the risk to the
contractor. That will require more bonds and higher costs.
I hadn't really thought about that higher cost. I wonder if
other panelists have a comment on that observation, Mr. Thomas.
Mr. Thomas. Well, I think with design-build, Mr. Chairman,
that your costs are probably higher at the initial phase. But I
think you can offset that with getting the project done sooner.
Probably the example I would use would be the Lock 52 project
in Rochester, Minnesota, which you are familiar with. Under the
traditional method, design-bid-build, this would have been a 12
year project. We bid the project in four and completed it in
three. And to be quite honest with you, we got it done in three
because there were incentives. I think one of the earlier
speakers had spoken to that. That certainly I think is a good
tool to get projects done faster.
But I think there are ways, I think, that you can add cost
to design-build projects. I think if you are, obviously, if you
are requiring the contractors to do more things, to take on
more risks, there is going to be more cost associated with that
as well. There is just no getting around that.
I think when one is deciding whether to use design-build or
design-bid-build, I think there is a whole host of criteria
that DOTs ought to look at first. And I think for the most
part, at least the States we work in do a pretty good job of
determining which projects to use for design-build and which
projects not to use for design-build. Because there are pros
and cons for each method.
But yes, I think your biggest added costs are going to be
because you have to deal with the risk involved.
Mr. Oberstar. And there is the issue of oversight. Mr.
Yarossi, do you have comments?
Mr. Yarossi. Yes, I do. I think Mr. Thomas is exactly
right. Again, every project needs to stand on its own merit as
to what form of contracting is the right form of contracting to
use. And it goes even into on the ability of material supplies,
the local contracting community, what is the size of the local
contracting community, the resources that are available to the
local contracting community, as well as the time and cost
savings that can be involved.
So I would say that we hear a lot about design-build.
Design-build has worked very well in many cases. Design-bid-
build has worked very well in many cases, and they both have
problems in some cases. I think it is our responsibility as
infrastructure professionals and professionals in the industry
to advise our clients on what is the best way to use
contracting methods. And it is the DOT's responsibility to
determine which is the best way to put a project out.
Mr. Oberstar. Mr. Houlihan, I suspect that AFSCME has
concerns about oversight of such projects, public-private
partnerships and the design-build and other devices to speed up
the contracting and fill the gaps in financing. But eventually,
the State has responsibility in our system, unless we go to a
complete warranty approach to contracting, as we discussed with
the earlier panel.
But Ms. Lehman raised a question that I have heard great
concerns from groups around the Country, and that is a shortage
of engineers. Engineering schools aren't graduating enough
personnel. There are not enough available for the private
sector, enough for the public sector. Your organization
represents those who are quality control, they represent the
public interest in assuring that contracts are fully carried
out. Do you have a comment about that aspect?
Mr. Houlihan. One observation I have heard is that the
salaries in the public sector are really too low in engineering
to compete. You will hear this, I have heard this, obviously
our members often feel this way. But also, I have heard DOT
directors talk about their difficulties of recruiting. Or they
can recruit for a while, and then they run into retention
problems. They get people for a while but then they move on.
That is the essence of what I hear. There have been a
number of forums of which the civil engineers have been
involved in through the TRB. We have been involved to try and
figure out, how do you get people, what are the incentives to
move more into engineering. I don't feel like there has been a
particularly good solution offered there. I don't really have
an answer to it. We are sympathetic.
And the other area that we all observe, I think, probably
particularly in the public sector, is the aging. We are all
aging, obviously, but the boomer population moving through, and
let's say the public sector in some cases has been a model
employer, in the sense that we have had reasonable wages and
benefits, we have had good pension plans, like everyone should
have, every worker should have. Some of them are thinking,
well, maybe I can retire now, but there is still a lot of
useful time left on my skills. They may be leaving earlier than
we might like, but they are not leaving the work force, they
are leaving to move over into the private sector.
There is some concern, I think, within our members and the
unions more broadly than AFSCME about that revolving door a
little bit. That is, the people in the senior management in the
agencies feel sometimes they are moving from a senior
management position as time goes on into the private industry,
which of course is their right to do. But then they kind of, it
begins a kind of momentum about, let's move more work into the
private sector. That is maybe an unanticipated consequence, but
one that we are concerned about.
Mr. Oberstar. Ms. Lehman, you raised that issue. I would
just make a footnote that on Friday and Saturday I was meeting
with the Minnesota Veterans Hospital. They had the very same
problem of attracting and retaining cardiologists and other
specialties who in the private sector are making upwards of
$450,000 a year and the VA is paying the same ones $125,000 or
$135,000 a year. Can't attract them and when they do, they
can't retain them.
Ms. Lehman?
Ms. Lehman. Just one comment. Looking at the perspective as
the world is flat, India and China have more honors engineering
graduates than we have engineering graduates in the United
States. We put out 70,000 a year, and of that, a third are not
U.S. citizens. That is very concerning, and we are looking at
all kinds of different methodologies.
One of the things that I do in my non-day job is I am a
school board member on my local school board. Math and science
education is really what is holding people back in the
technologies. We have to solve it more upstream of the pipeline
than at the end. I think engineers have been looking at it at
the university level. The solution is probably in middle
school, and we have to take a harder look at that.
Mr. Oberstar. Thank you. One final observation, and I want
a reaction on this. The State of Missouri is experimenting with
a bridge reconstruction initiative in which the State DOT has
proposed to let a contract to a single firm for reconstruction
and rehabilitation of 700 bridges in the State. It will be a
multi-billion contract over a period of maybe 10 to 20 years.
They are still negotiating the final terms of it, in which the
contractor will take over the total program. They will do
rehabilitation, they will probably create a standard format for
each bridge to be done pretty much the same way, kind of, I
hate to use the term cookie cutter, because you are not really
cutting cookies here, these are big bridges. And will have the
responsibility for managing all the subcontractors. No one firm
can do 700 bridges.
But they are supposed to deliver those bridges within
roughly this 10-year period. The State will monitor and
evaluate, determine whether they are meeting the standards.
They won't get paid until the contract time expires and then
the State will start repaying them.
That is really innovative financing. I wonder what your
reaction might be.
Mr. Yarossi. We have looked at that extensively. Our
largest office is in Kansas City. We are trying to determine
how a consultant engineer participates in that type of a
program, which really is more along the lines of a developer
type of a situation than we have normally seen, I think even in
P3s.
I would have to say that from my standpoint, the jury is
out as to what I think of that. It really is revolutionary.
There is a significant period of time where there is no money
that flows either way except for out of the developer's pocket.
Mr. Oberstar. And the contractor has to go out in the
marketplace and find financial institutions willing to put up
the money and support them.
Mr. Yarossi. And Mr. Chairman, it appears that those
financial institutions are there, which gives us second thought
to take a look. Because they must see something involved in it.
It really is a unique situation that we are studying pretty
hard to see how we participate.
Mr. Oberstar. Apparently it will not involve tolling,
either, thank God.
Mr. Yarossi. No, and it is a long-term maintenance
contract, where you turn over the bridge in some condition.
Don't quote me on the years, but it is long-term. It is 35
years or 40 years contract.
Mr. Oberstar. That is right. Do others have a comment on
that?
Ms. Lehman. I think you are going to pay for the risk up
front. Someone is going to have to pay for that risk. And I
think the financial institutions.
I have experience in programmatics and doing a lot of small
things in a program management cookie cutter type experience.
There it makes a lot of sense, when you have a lot of smaller
facilities, there is a lot of local, as a lot of local
governments have, to be able to use that approach. But when you
start getting into the multi-billions, you are going to pay for
the risk. It is a matter of assessing the risk.
Mr. Oberstar. And that will reduce the available
competition to only a handful, two, three national firms with
mega-fundraising capability.
Ms. Lehman. Correct.
Mr. Oberstar. A very, very serious concern for us.
Mr. Chairman, this whole series of hearings on which you
have launched is vital for the future of transportation. We
have a huge challenge facing us in the reauthorization of
SAFETEA-LU and the future transportation program for the
Country. Raising the user fee is one part of it, central to it,
in my judgment.
But exploring other means of squeezing as much productivity
out of the surface transportation construction delivery is our
responsibility. We have to look at all of these options. The
deeper we look into each one of them, the more challenges and
the more problems and the more hidden difficulties appear.
Thank you for your constructive, thoughtful, persistent and
patient pursuit.
Mr. DeFazio. I thank the Chairman for his support in this
effort. It is going to be, as I have said previously, hopefully
a surface transportation and transit reauthorization for the
21st century, a major evolution from what we have done
historically. I look forward to partnering with them in that
effort as we go forward.
I want to thank the witnesses for their patience, for
contributing their expertise. With that, this hearing is
adjourned.
[Whereupon, at 12:53 p.m., the committee was adjourned.]
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