"TxDOT's goal is to allocate risks to the party best able to manage or mitigate the risks," explains Zapalac. "Finding that balance is the key."
A risk analysis is included as part of every design-build and P3 project. TxDOT typically publishes a project-specific P3 term sheet when it issues a request for qualifications for a project. That allows contractors to account for risk events and appropriately price and schedule project delivery, thereby reducing unexpected cost overruns and delays.
That approach extends through the construction process. TxDOT requires contractors to prepare a comprehensive project management plan, which the agency helps to finalize and implement. Once a contract is under way, TxDOT and/or an independent engineer hired jointly by TxDOT and the developer, will conduct oversight and audits relating to a developer's performance of contract requirements, including management and operations and maintenance work.
Applying Lessons Learned
But projects with alternative procurement methods are only part of the picture, since the majority of the agency's ongoing projects are still handled using traditional financing mechanisms such as pay as you go.
"Roughly, we let about $3 billion in projects every year using alternative funding methods, while traditional methods are about $5 billion," Zapalac says.
The success with major P3 projects has prompted TxDOT to transfer some of its effective approaches to other projects. Zapalac says the agency is developing a process for smaller design-build work, projects in the $50-million to $100-million range. For the last six months, it has been working jointly with the Associated General Contractors and other industry groups to streamline design-build contracts used on smaller projects.
Using a task-force approach that includes both industry and TxDOT representatives, agency managers are improving key elements such as contract terms, technical requirements, alternative technical concepts and safety measurement and reporting. In addition, the department has been working with AGC to develop design-build training for staff and contractors.
The agency is also looking at extending its P3-style contracts to meet maintenance and operational needs for the state's existing roads. Concession agreements with private companies transfer responsibility for ongoing tasks such as snow and ice removal as well as maintenance and major repairs. That allows TxDOT to take better advantage of life-cycle costs and asset-management practices.
The approach is also part of many existing P3 contracts. TxDOT and the State Highway 130 Concession Co. LLC opened an extension to SH 130 between Austin and San Antonio in October 2012. Under the contract, the SH 130 Concession Co. will operate and maintain the road for 50 years at no cost to the state.