Sealing a Deal for Arizona's Largest Highway Project

We successfully advised the Arizona Department of Transportation (ADOT) in development of a design-build-maintain (DBM) contract for the 22-mile South Mountain Freeway Project.  This groundbreaking deal represents the last major highway piece of the Phoenix metropolitan regional transportation plan. 

PROJECT DETAILS

The eight-lane freeway is designed to ease mobility through the busy Phoenix region.  The project will feature three general purpose lanes and an HOV lane in each direction, a major interchange with I-10, a river crossing, connections with 14 city arterial streets and aesthetics that reflect nearby communities.  Scheduled to open in late 2019, it will provide commuters a direct link between the East Valley and West Valley regions and a much-needed alternative to I-10 through downtown Phoenix.

To bring the project to life, we worked with ADOT to draft an innovative $916 million agreement with Connect 202 Partners, a Fluor-led consortium.  The contact covers 30 years of routine and capital maintenance at a fixed price of $132 million.

ADOT will pay the capital costs with a combination of federal-aid funds, state transportation funds and local sales tax revenues for transportation.  To accelerate project delivery, the transportation agency expects to issue a modest amount of short-term tax-exempt bonds against the local sales tax revenues.  Routine maintenance costs will be paid from typical annual state appropriations, with capital maintenance expected to be funded with federal-aid dollars.

The agency sought our guidance on the project in 2013, when it received an unsolicited proposal to develop the highway as a P3.  We helped ADOT evaluate the proposal and conduct a value-for-money analysis, leading to a decision to competitively procure the DBM contract.

After shortlisting three proposers in March 2015, a five-month proposal period and an extensive evaluation of proposals, ADOT chose Connect 202 Partners as the best value developer in December 2015.  The consortium proposed several innovations to shave time and money from the project, including design features to reduce the amount of right-of-way needed and to balance the earthwork throughout the project.  Thanks to the creative features of the agreement, ADOT will realize a capital cost savings of $122 million and a potential total savings of approximately $300 million.

ADOT’s innovative strategy to deliver the freeway is expected to spur more P3 projects to effectively address the state’s crucial infrastructure needs.

LITIGATION

We successfully defended the Project against NEPA, and Section 4(f) challenges in the matter Protecting Arizona’s Resources & Children v. FHWA, U.S. Dist. Ariz Case Nos. CV-15-00893; 012121 (D. Ariz. Aug. 19, 2016, Granting ADOT’s Motion for Summary Judgment).  On December 8, 2017, the Ninth Circuit Court of Appeals unanimously rejected two challenges to the 2016 decision, No.16-16586, No. 16-16605, --- Fed. Appx. ---, 2017 WL 6146939 (9th Cir. Dec. 8, 2017) (memorandum op’n). 

INNOVATION

• This is the first freeway construction under Arizona’s public-private partnership (P3) law.
• The project is ADOT’s largest freeway development ever undertaken.
• The South Mountain Freeway is the state’s first DBM project.
• The 30-year period represents the longest-term DBM agreement to-date in the U.S. transportation sector (as of 2015)