As the California Dept. of Transportation gears up for the next 10 years with almost $20 billion in bond measure money, its director vows that the agency will pursue more design-build projects and public-private partnerships.

CA MTC
Kempton: accentuate the positve.

In a press briefing on January 10, Caltrans Director Will Kempton said two initiatives to help get major transportation projects underway will be presented to the California legislature as part of the governor’s new budget proposal. “The first is design-build legislation that [was not enacted last year], which we will continue to pursue so we can obtain that authority,” Kempton said. He pointed to the “positive experience” the Orange County Transportation Authority had with the design-build Garden Grove Freeway (SR-22). The 800-day project finished in December 2006 – three years earlier than the original Caltrans estimate, which was based on the traditional design-bid-build method.

“The second initiative is for public-private partnerships,” Kempton added. “We want to build on the authority the legislature gave us last year through AB 1467.” Assembly Bill 1467, which became effective on Jan. 1, 2007, authorizes Caltrans and regional transportation agencies “to enter into comprehensive development lease agreements with public and private entities, or consortia of those entities for certain types of transportation projects” to help accelerate goods movement and improve air quality in the state. According to the 2007-2008 budget summary, current PPP legislation limits use of the system to only a few projects that require individual approval by the state legislature.

“AB 1467 allowed us to do some prescreening, and work with our regional partners to identify corridors and projects eligible for potential private investment,” said Kempton. “By going through the process, and holding public hearings, we hope the legislature will agree to give us broader authority…something on the order of [an additional] $17 billion, which over the next 10 years will help us round out the needs for financing the transportation component of the governor’s Strategic Growth Plan.” The new state budget summary calls for “flexibility” with PPP legislation, and emphasizes that administering agencies must be allowed “to negotiate the best possible deals for the state.”

California Gov. Arnold Schwarzenegger (R) also unveiled his proposed 2007-2008 state budget earlier this month, which slates $16.8 billion for transportation, including road and highway improvement projects. If approved, this will be an increase of $845 million from the 2006 transportation budget. The proposed boost reflects the governor’s desire to make significant headway with his “Strategic Growth Plan” for California, which was introduced in January 2006 and calls for $222 billion in infrastructure investments to be made in the state during the next 10 years.

In his budget summary, Schwarzenegger also warns that construction related to “long-overdue” improvements designed to “help overcome decades of chronic underinvestment” in the state’s transportation system “will be delayed and $1 billion more costly if the design-build authority requested by Caltrans to streamline design and permitting for transportation projects is not authorized.” The budget summary advises that “the Administration will be re-introducing legislation seeking design-build authority in conjunction with appropriation of Proposition 1B funding.”

Meanwhile, California is ready to start tapping into the nearly $20 billion from transportation bond measure Proposition 1B, which was approved by voters last fall. “We will immediately start to roll out some of the…Proposition 1B funds,” said Barry Sedlik, acting agency secretary for the Business, Transportation and Housing Agency, during the Caltrans briefing. “We’re going to see over $500 million for the remainder of this fiscal year, and in the 2007-2008 budget almost $2.8 billion. Those construction dollars are going to enable substantial expansion of statewide construction.” Programs authorized by 1B include $125 million in local bridge seismic projects and $1 billion in improvements for the 400-mile SR-99, which runs through the heart of California’s Central Valley.

If Schwarzenegger gets his wish, and design-build legislation is approved in California, large engineering and design firms likely will benefit most, according to David Levy, vice president and national director of design-build for DMJM+Harris, Los Angeles. “The way the design-build marketplace is structured right now, it favors large, national contractors and design firms. I think those firms that want to go after the very large design-build jobs, like bridge projects, are going to want to team – especially contractors –so the risk can be shared.”

Tom Holsman, chief executive officer of the Associated General Contractors of California, says that while the design-build system does “work well for larger, complex projects with on a tight timeframe for delivery” there “is some concern that this method may become too broadly used.” He adds, “As is the case with all design-build projects, the devil is in the details. The projects have to make sense. But when they are done right, it helps to take all the bureaucracy down to a minimum, which expedites the process – and when you can do that, you reduce costs.”

Ray Flatland, managing director of real estate services firm Jones Lang LaSalle, San Francisco, agrees that design-build and PPP systems can help California achieve infrastructure development objectives more quickly by streamlining the construction process in terms of cost and time. “Work can begin on the early stages of a project even while the design is still being finalized,” he says. “Plus, [these types of relationships] reduce the likelihood that the design won’t match the budget because it’s all been defined up-front. In addition, with a large contractor acting as the principal, you are creating a single point of accountability on the project, which helps to reduce exposure to claims.”