PUBLIC-PRIVATE PARTNERSHIPS:

INNOVATIVE CONTRACTING

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HIGHWAYS AND TRANSIT

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TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 17, 2007

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PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING

PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING

PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING

PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING

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PUBLIC-PRIVATE PARTNERSHIPS: INNOVATIVE CONTRACTING

CONTRACTING

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34–795 PDF 2007

PUBLIC-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

(

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

JUANITA MILLENDER-McDONALD, 

California 

ELIJAH E. CUMMINGS, Maryland 

ELLEN O. TAUSCHER, California 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

JULIA CARSON, Indiana 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

BRIAN HIGGINS, New York 

RUSS CARNAHAN, Missouri 

JOHN T. SALAZAR, Colorado 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

DORIS O. MATSUI, California 

NICK LAMPSON, Texas 

ZACHARY T. SPACE, Ohio 

MAZIE K. HIRONO, Hawaii 

BRUCE L. BRALEY, Iowa 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ACURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

JERRY MCNERNEY, California 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

WAYNE T. GILCHREST, Maryland 

VERNON J. EHLERS, Michigan 

STEVEN C. LATOURETTE, Ohio 

RICHARD H. BAKER, Louisiana 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

ROBIN HAYES, North Carolina 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

TED POE, Texas 

DAVID G. REICHERT, Washington 

CONNIE MACK, Florida 

JOHN R. ‘RANDY’ KUHL, JR., New York 

LYNN A WESTMORELAND, Georgia 

CHARLES W. BOUSTANY, JR., Louisiana 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

THELMA D. DRAKE, Virginia 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

(II)

SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES 

PETER A. DEFAZIO, Oregon 

NICK J. RAHALL II, West Virginia 

JERROLD NADLER, New York 

JUANITA MILLENDER-McDONALD, 

California 

ELLEN O. TAUSCHER, California 

TIM HOLDEN, Pennsylvania 

MICHAEL E. CAPUANO, Massachusetts 

JULIA CARSON, Indiana 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

BRIAN HIGGINS, New York 

GRACE F. NAPOLITANO, California 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A ARCURI, New York 

CHRISTOPHER P. CARNEY, Pennsylvania 

JERRY MCNERNEY, California 

BOB FILNER, California 

ELIJAH E. CUMMINGS, Maryland 

BRIAN BAIRD, Washington 

DANIEL LIPINSKI, Illinois 

DORIS O. MATSUI, California 

STEVE COHEN, Tennessee 

ZACHARY T. SPACE, Ohio 

BRUCE L. BRALEY, Iowa 

HARRY E. MITCHELL, Arizona 

JAMES L. OBERSTAR, Minnesota 

(Ex Officio) 

JOHN J. DUNCAN, JR., Tennessee 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

RICHARD H. BAKER, Louisiana 

GARY G. MILLER, California 

ROBIN HAYES, North Carolina 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

TED POE, Texas 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

THELMA D. DRAKE, Virginia 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JOHN L. MICA, Florida 

(Ex Officio) 

(III)

(V)

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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(1)

PUBLIC-PRIVATE PARTNERSHIPS: 

INNOVATIVE CONTRACTING 

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 

2

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 

3

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, SEP15 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. 

4

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. 

5

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 

6

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 designbid-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. 

7

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 faVerDate 0ct 09 2002 14:29 Oct 03, 2007 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 P:\DOCS\34795 HTRANS1 PsN: JASON
8

miliar 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. 

[Information follows:]

9


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10

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 designbuild, 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 

11

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. 

12

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. 

13

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. 

[Information follows:]

14


34795.010
15

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 

16

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. 

17

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 DavisBacon, 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. 

18

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 

19

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 designbid-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 designbuild, 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. 

20

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 

21

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. 

22

[Information follows:]

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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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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 someVerDate 0ct 09 2002 14:29 Oct 03, 2007 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 P:\DOCS\34795 HTRANS1 PsN: JASON
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thing 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 noncompete 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. 

29

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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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 

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fused 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 buildup 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 

33

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. 

34

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 designbuild, 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? 

35

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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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 

38

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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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? 

41

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 SAFETEALU. 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 

42

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 designbuild 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. 

43

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 

44

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. 

45

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. 

46

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 substandard 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 designVerDate 0ct 09 2002 14:29 Oct 03, 2007 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 P:\DOCS\34795 HTRANS1 PsN: JASON
47

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. 

48

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. 

49

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-inVerDate 0ct 09 2002 14:29 Oct 03, 2007 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 P:\DOCS\34795 HTRANS1 PsN: JASON
50

formed 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 designbuild 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 

51

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 

52

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. 

53

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 tryVerDate 0ct 09 2002 14:29 Oct 03, 2007 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 P:\DOCS\34795 HTRANS1 PsN: JASON
54

ing 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 

55

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. 

56

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 cirVerDate 0ct 09 2002 14:29 Oct 03, 2007 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 P:\DOCS\34795 HTRANS1 PsN: JASON
57

cumstance 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 

58

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. Designbuild 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 

59

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 conVerDate 0ct 09 2002 14:29 Oct 03, 2007 Jkt 000000 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 P:\DOCS\34795 HTRANS1 PsN: JASON
60

tract 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. 

61

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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Æ