Implementing Public Private Partnerships During Challenging Economic Times Case Study Of The 495 Express Lanes On The Virginia Portion Of The Washington Capital Beltway Project (USA)

1. Implementing public private partnerships during challenging economic times:
Case study of the 495 Express Lanes on the Virginia portion of the
Washington Capital Beltway Project (USA)
Nobuhiko Daito 1
, Zhenhua Chen 2
, Jonathan L. Gifford 3
, Tameka Porter 4
, John E. Gudgel *
George Mason University, 3351 Fairfax Dr. Arlington, VA 22201, United States
1. Introduction
How has the 2008 Economic Crisis impacted the design,
financing, and construction of highway public–private partner-
ship (PPP or P3) projects in the United States? In December 2007,
on the eve of the economic crisis, the Virginia legislature approved
a P3 to construct a 14-mile (22.5 km) high occupancy toll (HOT)
road (the 495 Express Lanes) to alleviate heavy traffic on the
Capital Beltway around Washington, DC. This case study looks at
the impact the 2008 Economic Crisis and associated economic
challenges between 2008 and 2012 had on this project and
considers what governments and other stakeholders should be
aware of when implementing P3s during adverse economic times.
The hypotheses of the analysis are that, despite the economic
downturn, the employment of a P3 procurement approach on the
495 Express Lanes project made it possible to: (1) secure
infrastructure investment, which would have been very difficult
without the partnership with the private sector; (2) implement a
project that was otherwise unfunded within the constrained
regional and state long-range transportation plans; (3) deliver the
project on-time and on-budget; and (4) achieve higher service
quality and potentially life-time operational cost savings (Valila
and Timo, 2005).
While some states and municipalities have been pondering
public–private partnerships in order to fund the operations and
maintenance of increasingly deteriorated roads, others are
considering aligning with private companies so that they may
finance, develop, design, and build roads in addition to performing
operations and maintenance functions. These state and local
governments are turning to P3 innovations because they believe
that these entities can improve capital investments and transpor-
tation capacity while upholding existing roadway standards (US
Department of Transportation Federal Highway Administration,
2011). With existing P3 legislation, a P3-focused transportation
office in place and many years of P3 experience, Virginia is poised
to be at the forefront of the P3 project delivery initiative in the
coming years.
One of Virginia’s most recent P3 projects has been the design
and construction of the 495 Express Lanes (Fig. 1), which began
operation on November 17, 2012. The Capital Beltway (Fig. 2) is a
64-mile (103 km) circumferential interstate highway that sur-
rounds the District of Columbia and the nearby Maryland and
Virginia suburbs. The original concept of the Beltway dates back to
the 1940s when Fred W. Tummler, former director of the National
Capital Park and Planning Commission, suggested a freeway that
surrounded the Washington suburbs (McDevitt and Betty, 1944).
The road was originally envisioned as a bypass thoroughfare for
Case Studies on Transport Policy 1 (2013) 35–45
A R T I C L E I N F O
Article history:
Received 21 March 2013
Received in revised form 28 June 2013
Accepted 11 July 2013
Available online 8 August 2013
Keywords:
495 Express Lanes
Virginia
Washington Capital Beltway
Public–private partnerships (P3s)
Transportation financing
A B S T R A C T
This case study examines the implementation of the 495 Express Lanes – a major public–private
partnership (P3) project in the Commonwealth of Virginia outside of Washington, DC. The project was
approved by the Virginia legislature in December 2007 and construction was begun in the shadow of the
2008 Economic Crisis. This paper examines the enactment of P3 legislation in Virginia; the role that it
played in the design, financing, and construction of this highway project under harsh economic
conditions; and its impact on the evolution of P3 policy in the United States.
ß 2013 World Conference on Transport Research Society. Published by Elsevier Ltd. All rights reserved.
* Corresponding author. Tel.: +1 703 362 2684.
E-mail addresses: ndaito@gmu.edu (N. Daito), zchen7@gmu.edu (Z. Chen),
jgifford@gmu.edu (J.L. Gifford), tporter4@gmu.edu (T. Porter),
jgudgel@gmu.edu (J.E. Gudgel).
1
Tel: +1 703 993 3359.
2
Tel: +1 703 993 3564.
3
Tel: +1 703 993 2275.
4
Tel: +1 615 400 4338.
Contents lists available at ScienceDirect
Case Studies on Transport Policy
journal homepage: www.elsevier.com/locate/cstp
2213-624X/$ – see front matter ß 2013 World Conference on Transport Research Society. Published by Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.cstp.2013.07.001

2. long-distance east coast drivers wishing to avoid traveling directly
through Washington. As businesses and industry grew in the
Washington suburbs, the Beltway became a popular, heavily
traveled highway. Though the road has seen many revitalization
projects, excessive traffic is a persistent problem.
2. Analytical framework
The framework of the case study will follow Yin, who
recommends that researchers base their case studies on the
theories and previous studies on the subject (Yin, 2009). In terms of
the structure of the analysis, this study will follow Levy, who
authored several P3 case studies (Levy, 2011). The following
elements of a P3 project will be discussed: historical context of P3
legislation both nationally as well as in the Commonwealth of
Virginia; the Virginia and metropolitan Washington, DC planning
process; a project description including the initial proposal, scope,
and key milestones; project demand; characteristics of the
Fig. 1. 495 Express (HOT) Lanes.
Lynch, J. ‘‘Virginia Megaprojects.’’ Presentation (Lynch, 2010).
Fig. 2. The Capital Beltway.
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45
36

3. concession agreement (e.g., partners, project specifications and
partners’ obligations); and an analysis of risk allocation. This case
study will utilize both primary and secondary data and informa-
tion from public sources including state legislative bills; Virginia
Department of Transportation (VDOT) and National Capital Region
Transportation Planning Board (TPB) highway strategic plans;
Capital Beltway traffic and environmental studies; the U.S. Federal
Highway Administration’s (FHWA’s) Record of Decision (ROD); the
concession and construction agreements; and data from key
participant websites and presentations to look at how a P3 model
has been implemented in Virginia on a toll highway project and
what political, financial, and risk factors have impacted decision-
making and project success.
3. U.S. and Virginia transportation P3s in historical context
The United States faces a significant challenge in paying for its
transportation infrastructure: while the demand for renewal and
capacity expansion of existing systems continues to grow, the
purchasing power of traditional revenue sources continues to
erode and tax increases are generally politically untenable. Federal
agencies, as well as state and local governments are examining
alternative policy instruments to meet their needs. P3s have gained
recognition in recent years and have received increasing attention
in scholarly and policy discussions.
The National Council of Public–Private Partnerships (NCPPP), a
non-profit organization that is active in research and public
education about P3s, defines a P3 as ‘‘a contractual agreement
between a public agency (federal, state or local) and a private
sector entity. Through this agreement, the skills and assets of each
sector (public and private) are shared in delivering a service or
facility for the use of the general public. In addition to the sharing
of resources, each party shares in the risks and reward potential in
the delivery of the service and/or facility’’ (National Council for
Public–Private Partnerships, 2003). Common types of P3s include:
operation and maintenance (O&M); design-build (DB); design,
build and maintain (DBM); design, build and operate (DBO);
design, build, operate and maintain (DBOM); design, build, finance,
operate, and maintain (DBFOM); design, build, finance, operate,
maintain and transfer (DBOMT); build, operate and transfer (BOT);
and build, own and operate (BOO) (U.S. Government Accountabili-
ty Office, 1999).
3.1. National transportation P3 initiatives
P3 financing mechanisms have been used on transportation
infrastructure projects in the United States since at least the 19th
century. For example, the first transcontinental railroad, which
was completed in 1869, employed a P3 mechanism between the
federal government and two private railroad companies, Union
Pacific and Southern Pacific (Loulakis, 2003). The government
granted these firms land and advanced money as incentives for
accelerating railway construction.
Modern application of P3 arrangements is broad and extensive.
The publication Public Works Financing catalogs P3 capital projects
in various sectors at many stages of development, extending from
1985 until today. Its dataset contains records for a total of 678 non-
military P3 infrastructure projects between 1986 and 2011: as of
June 2012, 464 non-military projects have been completed/under
construction, and 214 projects have been proposed but have not
reached financial closure (Public Works Financing, 2013).
The U.S. federal government has enacted key legislation to
promote innovative financing of transportation infrastructure. One
leading example is the Transportation Infrastructure Finance and
Innovation Act (TIFIA), initially passed in 1998, which established a
federal credit assistance program for transportation projects under
the U.S. Department of Transportation. Between 1999 and 2012,
the program has provided US$7.9 billion in federal support in the
form of secured loans, loan guarantees and standby lines of credit
for 22 projects nationwide, which has leveraged US$21.5 billion in
matching funds for transportation infrastructure investment (U.S.
Department of Transportation, 2010). A key feature of the program
is that TIFIA is subordinated to other project debt, which has the
potential to provide credit support for a project that would not
otherwise be financially viable. TIFIA has expanded the private
sector’s ability to be involved in transportation project financing.
With continued federal financial support, the P3 mechanism is
likely to have more opportunities for transportation projects.
The 2012 national surface transportation legislation, Moving
Ahead for Progress in the 21st Century Act (MAP-21), promotes P3s
for transportation projects in several ways. The Act requires ‘‘the
Secretary to develop policies and procedures to (1) promote public
understanding of the role of private investment in public
transportation projects and (2) better coordinate the public and
private sectors with respect to public transportation service’’
(Kessler and Mari, 2012).
Second, MAP-21significantly expands the TIFIA program, from
its previous level of US$175 million per year to US$750 million in
fiscal year 2013 and US$1 billion in fiscal year 2014. Furthermore,
the program’s selection criteria have been clarified. Previously,
executive branch priorities, such as a project’s ability to enhance
‘‘livability,’’ had sometimes been used as a selection criterion
(Poole, 2012).
Third, the MAP-21 provides increased opportunities for tolling
of P3-procured highway projects. The new legislation revises the
statutory provisions governing tolling on highways constructed
with federal assistance to allow tolling on Interstate capacity
expansion projects. It also requires that ‘‘all Federal-aid highway
toll facilities implement technologies or business practices that
provide for the interoperability of electronic toll collection by
October 1, 2016’’ (U.S. Federal Highway Administration, 2012).
These tolling changes had the overall effect of generating new P3
opportunities across the United States. A restriction on adding tolls
to existing highway lanes remains in place for all interstate
highways except for a small number of demonstration projects.
3.2. Virginia transportation P3 initiatives
The Virginia Department of Transportation (VDOT) is the state
agency responsible for strategic planning, construction, opera-
tions, and maintenance of highways in the Commonwealth of
Virginia. On March 25, 1995, then Governor George Allen, a
Republican, signed into law the Public–Private Transportation Act of
1995 (PPTA), a law aimed at addressing local, regional, and state
transportation needs through ‘‘improving safety, increasing
capacity, enhancing economic efficiency, and reducing congestion
while preserving the public’s desire to have timely transportation
development’’ (Virginia General Assembly Legislative Information
System, 1995). In passing the bill the Virginia legislature
recognized that public monies might not be enough to properly
develop, finance, and/or operate transportation facilities, and
allowed private companies to acquire, improve, construct,
maintain, and/or operate either one or multiple transportation
structures when doing so could improve public welfare by
delivering transportation projects in a timely and/or less costly
manner (Virginia General Assembly Legislative Information
System, 1995).
On July 1, 1995, the date the bill took effect, VDOT issued
Implementation Guidelines. Furthermore the PPTA authorized the
selection of both solicited and unsolicited proposals; and the
consideration of Alternative Technical Concepts (ATCs) when
reviewing bids. Ultimately both the ability to accept unsolicited
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45 37

4. bids and to consider ATCs played a major role in the development
of the 495 Express Lanes project. On April 6, 2002, then Governor
Mark Warner, a Democrat, signed into legislation an amendment
to the PPTA to allow tolling on existing interstate systems to
increase highway capacity.
The development of transportation P3s in Virginia has enjoyed
broad bipartisan support. Both Democratic and Republican
legislatures and governors have approved the creation of P3s for
transportation projects in the Commonwealth.
However, despite the PPTA’s mission, very few highway
projects were completed during the first sixteen years of the
legislation’s existence. Since it was enacted in 1995, only four PPTA
projects have been completed: State Route 895 (the Pocahontas
Parkway), a 9-mile (14.5-km) toll road in Richmond, Virginia,
connecting Interstate 95 with Interstate 295, which opened in
2002; State Route 288, a 17.5-mile (28-km) stretch around
Richmond (2004); State Route 199 near Williamsburg (2005);
and State Route 58, a 36-mile (5-km) corridor from Hillsville to
Stuart in western Virginia (Phase 1 in 2006, Phase 2 in 2011).
Pocahontas Parkway has experienced financial problems, not
meeting traffic expectations and toll revenue, and was unable to
pay its P3 debt. Despite bringing on private concessionaire
Transurban in 2006 to operate and maintain the road, it has
continued to flounder and, subsequently, Transurban wrote down
the US$138 million debt for the project and registered a 50% fall in
profit in 2012 due to the highway’s failure (O’Sullivan, 2012).
Further, in June 2013 Transurban’s board decided to concede the
transfer of the underperforming road to its lenders (Glazier,
2013a). Nevertheless, throughout this process, Transurban still
continued its obligation to the 495 Express Lanes project, which it
signed in December 2007.
In June 2011, Virginia Governor Bob McDonnell, a Republican,
established the Office of Transportation Public–Private Partner-
ships (OTP3) for the purpose of developing and implementing a
statewide program for transportation project delivery via the PPTA.
Under this mission, OTP3 is sanctioned to work in conjunction with
the Secretary of Transportation, Virginia Department of Transpor-
tation, Virginia Department of Rail and Public Transportation,
Virginia Department of Aviation, Virginia Department of Motor
Vehicles, Virginia Commercial Space Flight Authority, and the
Virginia Port Authority on the development of public–private
projects across all modes of transportation (OTP3, 2013a).
The year following the creation of the OTP3 saw significant
increase in the amount of P3 activity in Virginia. In 2012, financial
close was reached on the US$1.4 billion U.S. 460 corridor,
groundbreaking occurred on the US$2.1 billion Midtown Tunnel
and US$935 million 95 Express Lane projects, and the 495 Express
Lanes were completed and opened for traffic. All told, the OTP3
estimates that nearly US$3 billion in greenfield transportation P3s
closed in 2012, placing Virginia second in the world behind the
United Kingdom in the value of projects closed by a government
jurisdiction in 2012 (Fig. 3). In addition, four PPTA projects are
under construction (Fig. 4), two are under procurement, and
another fourteen are under consideration (Fig. 5).
Fig. 3. Value of greenfield transportation P3s closed in 2012.
OTP3 Fact Sheet (OTP3, 2013b).
Fig. 4. Virginia PPTA projects completed and under construction.
OTP3 (OTP3, 2013a).
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45
38

5. The OTP3, Virginia’s Public–Private Transportation Act and the
public–private partnerships they have spawned are not without
controversy. Some opponents feel that the PPTA lacks adequate
safeguards to protect the public interest, that too little information
is being shared with the public, and that too much power has been
centralized within the OTP3 (Pollard, 2012). The ability of firms to
submit unsolicited bids has raised concerns about the competi-
tiveness of the P3 process. Some feel that the PPTA undermines
sound transportation planning by advancing projects that are not
high priorities for the public and consequently using state
revenues at the expense of other projects (VCN, 2013). Others
believe that users are being burdened with excessive tolls and that
concessionaires are reaping too much revenue at the public’s
expense. This issue was cited in a Virginia circuit court judge’s
ruling in May 2013 declaring that the tolling provisions established
under the Virginia Public–Private Transportation Act, violated the
state’s constitution (Glazier, 2013b). The decision is currently
being appealed. Finally there are concerns that highway projects
like the 495 Express Lanes, described further below, subsidize
sprawl and increase motor vehicle dependence, destroying open
space and increasing air and water pollution (VCN, 2013).
3.3. Virginia and regional Washington metro transportation planning
process
In December 1991, the U.S. Congress enacted the Intermodal
Surface Transportation Efficiency Act (ISTEA), which included a
requirement for all U.S. states to implement a statewide
transportation planning process that considers all transportation
modes and connections between and within each state (Virginia
Statewide Intermodal Long-Range Transportation Policy
Plan, 1995). Current Virginia law directs the Commonwealth
Transportation Board (CTB) to develop the Virginia Statewide
Multimodal Transportation Plan (SMTP); and, within that plan,
VDOT has responsibility to develop the State Highway Plan SHP
(Virginia Department of Transportation, 2013). As of the
publication of the last SMTP in November 2010, VDOT was
maintaining 57,729 centerline miles (92,906 km) of roadway,
including 1119 miles (1801 km) of interstate highways, making
it the third largest system in the country behind North Carolina
and Texas (Virginia Surface Transportation Plan 2035, 2010).
Virginia’s State Highway Plan is reviewed and updated by VDOT
every four years and is not financially constrained and is thus
intended to provide an inventory of recommended improve-
ments needed to address capacity and other highway issues,
regardless of funding (Virginia Department of Transportation,
2013).
However, ISTEA also amended the Federal-Aid Highway Act of
1962 by requiring all Metropolitan Planning Organizations (MPOs)
to now develop financially constrained long-range transportation
plans. Unlike the VDOT SHP, the MPO plans are financially
constrained to include only projects that the region can afford to
build and operate during a minimum 20-year planning period.
Thus, under federal planning regulations, MPOs must be able to
implement the projects in what is known as the Constrained Long-
Range Plan (CLRP) within the time frame of the plan with revenues
that are ‘‘reasonably expected’’ to be available (Klancher, 2002).
The MPO for the Washington, DC, metropolitan region is the
National Capital Region Transportation Planning Board (TPB),
which is comprised of representatives of local governments, state
transportation agencies (including VDOT), the Maryland and
Virginia General Assemblies; and the Washington Metropolitan
Area Transit Authority (WMATA). The TPB produced the first CLRP
for the metropolitan Washington region in 1994, with subsequent
Fig. 5. Virginia OTP3 project pipeline through June 2012.
OTP3 (OTP3, 2013a).
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45 39

6. triennial updates in 1997 and every three years thereafter
(Klancher, 2002). Each of these CLRPs contained planned funding
for upgrade of the Capital Beltway in Virginia including the
addition of two High Occupancy Vehicle (HOV) lanes between I-
395 and the Dulles Toll Road – overlapping much of footprint of the
recently completed 495 Express Lanes project. Thus, through the
CLRPs, the plans had been put in place to potentially implement
updates to the Capital Beltway in Virginia over the period 2000–
2025 using ‘‘reasonably expected’’ funding.
4. 495 Express Lanes project description
The Capital Beltway serves as the essential nexus that
integrates major regional corridors while serving the day-to-day
traffic of the Washington, DC, metropolitan region. When it first
went into operation in 1964 it was designed to serve traffic
bypassing the District of Columbia; however since that time, it has
evolved into a road that is used primarily for travel to and from
destinations within the region, resulting in serious congestion and
making the region one of the worst congested in the nation
(Stantec/Volmer, 2007).
4.1. The Capital Beltway planning process
Formal planning for a ‘‘Washington Circumferential Highway,’’
later to be named the Capital Beltway, began in 1950 with actual
construction beginning in 1957 (Capital Beltway History, 2013).
Soon after the opening of the Beltway on August 17, 1964, the
National Capital Region Transportation Planning Board (TPB)
assumed responsibility for developing the long-range transpor-
tation plans for the Washington, DC, metro region. Such plans are
required for each metropolitan region receiving federal transpor-
tation funds (Klancher, 2002). To develop the plan, each local,
state, or regional agency with the authority to construct projects
or implement policies submitted to the TPB a set of proposed
capital improvements and an estimate of funds that would be
available for both new construction and operations of existing
facilities. TPB historically saw that its primary role was to foster
regional consensus on a set of projects developed by those state,
regional and local agencies that had access to the funding.
Included in all of TPB’s long-range transportation plans from its
inception was the need to improve travel conditions and reduce
congestion along the entire 64-mile (103-km) length of the
Beltway in both Maryland and Virginia.
The 14-mile (22.5-km) Virginia stretch of the Capital Beltway
between the I-95 interchange in Springfield and the current
interchange with the Dulles Access/Toll road as originally
constructed was four lanes wide (two lanes in each direction).
Between 1972 and 1992 through various construction projects
this entire stretch was widened to eight lines (four in each
direction) (Capital Beltway History, 2013). However despite these
efforts, congestion along this stretch continued to be a problem.
Between 1960 and the 2000, the population of the Washington
metro region more than doubled from 2.2 million, to 4.5 million
people (Klancher, 2002), and the daily volume of traffic along this
section was approaching 200,000 vehicles per day (Capital
Beltway History, 2013). The high traffic volumes led to reduced
travel speeds, long backups, and extended periods of congestion
(Daniel, 2003) often totaling 6 to 8 h per day (Ballantine, 2013).
Further, regional travel demand was expected to grow by 32%
between 2000 and 2025 (Levy, 2011).
Beginning in 1989, VDOT initiated the development of a series
of short-term and long-term recommendations for reducing
congestion on the Virginia portion of the Capital Beltway (I-495)
between the Springfield interchange with U.S. I-95 and the
American Legion Bridge crossing into Maryland (Federal Highway
Administration Virginia Division, 2006). As result of these studies,
a Major Investment Study (MIS) was subsequently conducted and
published in1997 that concluded that the current roadway and
interchanges could not safely and efficiently serve travel demand
(Reese, 2013) and recommending highway improvements pro-
moting the use of High Occupancy Vehicles (HOV) and commuter
bus transit services as the most efficient investment to serve
current and future demand (Federal Highway Administration
Virginia Division, 2006). VDOT followed with a preliminary
engineering study, indicating that a larger footprint with
considerably more environmental impact and project costs would
be necessary. In response, the FHWA initiated and ultimately
approved a draft Environmental Impact Statement (EIS) that
contained a series of HOV alternative proposals whose costs
ranged from US$2.68 to US$3.25 billion in 2002 dollars (Federal
Highway Administration Virginia Division, 2006). Subsequently
public hearings revealed predominantly negative response of the
public to the project concept (Levy, 2011). The costs and
environmental impacts were considered too high. In addition to
the lofty price tag, the project would have required the acquisition
of 170 acres of new right-of-way and displaced nearly 300
residences and 32 commercial properties (Ballantine, 2013).
It was during this same period that ISTEA began requiring
Metropolitan Planning Organizations (MPOs) to produce Con-
strained Long-Range Plans (CLRPs) based on ‘‘reasonably expected’’
funding. Based on the current and expected levels of federal
appropriations and allocations to the Commonwealth of Virginia it
was recognized that the improvements planned under the draft EIS
could not be achieved within a reasonable timeframe utilizing
traditional methods (Boothe, 2008). However, both TPB and FHWA
believed that other funding mechanisms, including public–private
partnerships, could be considered when determining the level of
reasonably expected funding for planning future MPO transporta-
tion projects (Northern Virginia Transportation Coordinating
Council, 1999).
4.2. Project proposal and negotiations
One of the characteristics of the P3-enabling legislation in
Virginia (Public–Private Transportation Act of 1995) is that it
permitted private sector entities to submit unsolicited project
proposals. Through the PPTA, Fluor Daniel, a US-based, Fortune 500
engineering firm, submitted an unsolicited proposal in 2002 to
VDOT to finance, design, build and operate the High Occupancy Toll
(HOT) ‘‘Express’’ Lanes along a 14-mile (22.5-km) stretch of the
Capital Beltway from the I-95 interchange in Springfield, VA to the
Dulles Airport Access and Toll Road interchange, two lanes in each
direction, with five access points. The Express Lanes would be open
to commuter bus services, high occupancy vehicles (HOV-3), and
other vehicles with electronic transponders.
In July 2003, Virginia’s Commonwealth Transportation Board
decided that the proposal was acceptable for further review.
Subsequently, in September 2003, Fluor Daniel filed a notice of
intent with the FHWA to apply for credit assistance through the
Federal Transportation Infrastructure Finance and Innovation Act
(TIFIA) program and in October submitted a detailed proposal for
the 495 Express Lanes to VDOT. A VDOT advisory panel in June
2004 then recommended that the detailed proposal be further
developed and, subsequently, in October 2004, negotiations for the
comprehensive agreement began.
The partners of the project team included Fluor Daniel, HNTB
(design), Lane Construction, Vollmer Associates (transportation
forecasting, revenue analysis and transportation engineering), Bear
Stearns & Company (financial planner and underwriter, since
bankrupt), Reed Smith (law), RSM, Inc. (public opinion polling),
and Wetlands Studies and Solutions, Inc. (wetland mitigation and
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45
40

7. development and processing of permits). Transurban joined the
team in 2004 as an investor and the concession operator.
Over the next year, negotiations continued, the scope of work
was revised, and the FHWA approved the work agreement
authorizing the negotiation of a comprehensive agreement and
confirmed that the project did not have significant environmental
impacts. After FHWA and VDOT agreed to proceed with Fluor-
Transurban’s proposal, the public partners agreed to a series of
procurement procedures. In April 2005, the public–private
partners entered into a Comprehensive Agreement to develop,
design, finance, build, maintain, and operate (DBFOM) the 495
Express Lanes. A year later, in April 2006, the FHWA signed the
environmental impact study of the 495 Express Lanes concept with
four additional lanes with significantly smaller project footprints
than the previous proposals. Meanwhile, the negotiation between
the Fluor-Transurban team and VDOT continued. Many challenges
were presented in examining the environmental impact of the
project. Right-of-way restrictions, high ground water, caving soil,
overhead power lines, and limited capabilities for installing sound
walls hampered project delivery (GeoStructures Inc., 2013).
On December 1, 2007 a Master Indenture of Trust was created
between Capital Beltway Funding Corporation of Virginia and
Wells Fargo Bank, and on December 19th the contractual
obligation was transferred to the combined Fluor-Transurban
entity called the Capital Beltway Express (CBE). Financial close
occurred on December 20th with the signing of the Amended and
Restated Comprehensive Agreement (ARCA) by VDOT and CBE,
effectively advancing the project to the construction stage. As Levy
points out, the negotiations from start to finish lasted for five years
before closing (Levy, 2011).
The completed agreement between the public and private
partners includes a 28-mile (45-km) toll road (14 miles or 22.5-
kkm in each direction) between Springfield, Virginia, and the area
of Virginia near the American Legion Bridge, just north of the
Dulles Toll Road (Fig. 6). Four additional lanes (2 northbound and 2
southbound) were to be constructed to provide three-person high
Fig. 6. 495 Express Lanes from I-95 to Dulles Toll Road.
Virginia Megaprojects Capital Beltway HOT Lanes in Virginia (Capital Beltway HOT Lanes, 2013).
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45 41

8. occupancy vehicle access (HOV-3) to alleviate traffic in heavily
congested Fairfax while also providing connections to I-95/I-395,
the Dulles Toll Road, and I-66.
The agreement had several noteworthy characteristics. The
project scope included upgrading and reconstructing existing
bridges, traffic lanes, interchanges and signs, and an electronic toll
payment system was to be installed. The private sector partner was
responsible for operation and maintenance of the Express Lanes. The
Fluor-Transurban team was obligated to design, build, operate and
finance the project. The construction agreement was a fixed-priced
design-build contract (Levy, 2011). Furthermore, the agreement
required the private sector partner to indemnify the public sector
partner for any legal responsibilities that might arise due to any
misconduct by the private sector partners (Virginia Department of
Transportation and Capital Beltway Express, 2007). Effectively, the
construction risks were allocated to the private sector partner.
4.3. Project demand
In preparing and presenting its Capital Beltway HOT Detail
Proposal in October 2003, Flour Daniel relied heavily on surveyed
consumer sentiment, as well as a detailed traffic and revenue
demand forecast conducted by their project partner Vollmer
Associates, which was based on 1997 traffic data collected by TPB
(Daniel, 2003).
In its Annual Urban Mobility Report, the Texas Transportation
Institute (TTI) has consistently ranked the metropolitan Washing-
ton region among the worst large urban regions in annual hours of
delay per peak hour traveler. In 2005, TTI ranked the Washington,
DC, metropolitan area as the second worst in the country with 81%
of rush hour mileage occurring in congested conditions, with 60 h
of average annual of commuter delay, costing Virginians
US$2.3 billion annually in delays and wasted fuel (Northern
Virginia Transportation Alliance, 2013). As a result, when surveyed,
7-in-10 Northern Virginians supported highway tolls for improve-
ments and two-out-of-three northern Virginian’s favored HOT
lanes as the proposed solution (Ballantine, 2013). Subsequently, an
independent public opinion survey conducted in September 2003
and cited by Fluor Daniel indicated that a proposal to increase the
number of lanes on the Capital Beltway by adding HOT Lanes
would win public acceptance (Daniel, 2003).
The original Vollmer Associates traffic model was based on its
previous experiences with the SR 91 Express Lanes in California.
Tolling revenue was initially estimated to begin in 2005 using a flat
rate of US$2.20 per trip or 15.7 US cents per mile (9.8 US cents per
km) (Daniel, 2003). Using the 1997 TPB data (known as TPB Version
1), Vollmer estimated that the average weekday traffic on the
Capital Beltway HOT Lanes would be 283,990 in 2005, of which
204,110 would be toll-paying (Daniel, 2003). Vollmer also
assumed a 5-year ramp up period with capacity reaching 95% in
2010 (Daniel, 2003). The numbers were subsequently adjusted to
reflect a 2010 opening date, dynamic time-of-day pricing, opening
year tolls ranging from approximately US$1.00 (off-peak) to
US$4.80 (peak hours), and average annual toll rate increases of less
than 3.3% annually (Daniel, 2003). Based on these adjusted
numbers, Vollmer estimated that 2010 revenue would be
US$36.8 million on 14.3 million transactions; rising to
US$60.2 million on 16.2 million transactions in 2025 (see
Table 1). Vollmer then assumed that toll revenue would grow at
an annual rate of 2.5% thereafter (Sharn, 2007).
Following release of the Vollmer traffic and revenue forecast,
considerable debate ensued regarding the accuracy of the model.
Concerns were raised by TPB about the use of the 1997 TPB Version
1 traffic data, the length of the average customer trip, the actual
consumer time savings, and the impact of free HOV and changes in
traffic patterns resulting from additional network improvements
including the opening of the 95 Express Lanes in early 2015 (Kirby,
2004). Subsequently, the TPB and Metropolitan Washington
Council of Governments (MWCOG) conducted a new ‘‘sketch
level’’ traffic and revenue forecast utilizing new TPB data (Version
2.1C) that had received federal approval as part of the 2003 update
to the Constrained Long Range Plan. The new TPB/MWCOG sketch
analysis concluded that the proposed Capital Beltway Express
Lanes were a ‘‘complex corridor, with travel demand very largely
driven by regional development patterns’’ including the addition of
new HOV/HOT connectivity, and that consideration should be
given to amending the framework with Fluor Daniel (and
subsequently Transurban) over time (Kirby, 2004).
A new Vollmer/Stantec traffic study was ultimately finalized in
February 2007. It estimated that with opening (now scheduled for
late-2012), the average weekday trips over the first full year of
operations would be 66,132 vehicles per day with first year
revenue of US$46.1 million. After four years of operation, volume
was expected to rise to 117,000 weekday trips per day and annual
revenue of US$79 million (Toll Road News, 2013).
Continued concerns about the short- and long-term traffic
estimates were ultimately reflected in the concession agreement.
For example, no cap was put on toll rates and Fluor-Transurban is
entitled to reimbursement of up to 70% of the prevailing toll rate if
‘‘free’’HOVtrafficonthe Express Lanes exceeds24% of total traffic for
at least 45 min in a single day (Minnesota Department of
Transportation, 2009). However Fluor-Transurban’s annual rate of
Table 1
Projected Capital Beltway HOT Lanes toll rates and revenue.
Projected toll transactions, rates and revenues
Year Number toll transactions Percent change Average toll rate Percent change Toll rate per mile Peak toll rate Annual toll revenue Percent change
2010 14,265,168 $2.58 3.20% $0.184 $4.90 $36,804,133
2011 14,444,248 1.26% $2.66 3.10% $0.190 $5.05 $38,363,923 4.24%
2012 14,613,365 1.17% $2.73 2.63% $0.195 $5.19 $39,923,712 4.07%
2013 14,773,327 1.09% $2.81 2.93% $0.201 $5.34 $41,483,501 3.91%
2014 14,924,858 1.03% $2.88 2.49% $0.206 $5.48 $43,043,290 3.76%
2015 15,068,608 0.96% $2.96 2.78% $0.211 $5.62 $44,603,079 3.62%
2016 15,205,161 0.91% $3.04 2.70% $0.217 $5.77 $46,162,868 3.50%
2017 15,335,044 0.85% $3.11 2.30% $0.222 $5.91 $47,722,657 3.38%
2018 15,458,735 0.81% $3.19 2.57% $0.228 $6.06 $49,282,446 3.27%
2019 15,576,665 0.76% $3.26 2.19% $0.233 $6.20 $50,842,235 3.16%
2020 15,689,229 0.72% $3.34 2.45% $0.239 $6.35 $52,402,024 3.07%
2021 15,796,784 0.69% $3.42 2.40% $0.244 $6.49 $53,961,813 2.98%
2022 15,899,657 0.65% $3.49 2.05% $0.249 $6.63 $55,521,602 2.89%
2023 15,998,148 0.62% $3.57 2.29% $0.255 $6.78 $57,081,391 2.81%
2024 16,092,530 0.59% $3.64 1.96% $0.260 $6.92 $58,641,180 2.73%
2025 16,183,056 0.56% $3.72 2.20% $0.266 $7.07 $60,200,969 2.66%
Public Works Financing (Sharn, 2007).
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45
42

9. return was capped at 12.98% and VDOT is entitled to a revenue share
of between 5% and 30% when profitability exceeds certain gross
revenue limits.
4.4. Project concession, financing and risk
The concession contract term is 80 years (85 years total: 5 years
for construction, 80 years for the concession). The Fluor-Transurban
team was granted five years to complete the construction, which
effectively allocated the availability risk (e.g. construction delays) to
the private sector partner to a great extent.
Over half of the project was financed through US$1.1 billion
in public debt – a US$586 million TIFIA loan and US$586 million
in private activity bonds. In 2008, Fitch gave the series of bonds
ratings between AAF1+ and A+F1 (The Free Library, 2008). The
dedicated revenue stream for the repayment of the debt is
dynamic tolls based on time of day and traffic conditions,
ranging from 20 US cents per mile (12 US cents per km) off peak
to potentially US$3–US$6 per mile (US$1.86 to US$3.73 per km)
during rush hour, however there is no cap on the toll that can be
levied. There are no tollbooths; all drivers are required to obtain
an electronic transponder and accounting device called E-ZPass.
The road also is free for automobiles containing 3 or more
people, buses, motorcycles, and emergency vehicles. Carpools
require preregistration and must have a specialized electronic
transponder.
Fluor-Transurban is liable for all demand risk (i.e., lower-than-
projected traffic volume). In addition, US$349 million of the project
cost was financed through private equity contribution for the
operations and project delivery and the Commonwealth of Virginia
contributed US$409 million, primarily for the I-95 interchange in
Springfield and other key nodes of the project. While the initial
projected cost was estimated to be US$1.4 billion, the final total
cost of the project with requested changes was approximately
US$2 billion.
The potential profitability of the private sector partner is
limited because revenue above a threshold is shared between the
public and the private sector partners. When the profitability
exceeds a 7.95% gross revenue return on investment, the revenues
must be shared with the Commonwealth to be used for the project
corridor (Virginia Department of Transportation, 2008).
The public sector partner bears several key risks of the project.
For example, the agreement requires that VDOT be responsible for
any economic losses due to changes in the law (e.g. changing
jurisdiction of the project to another entity). Also, the public sector
is ultimately responsible for the project in case of force majeure
events, where the private sector is unable to restore with
reasonable efforts. In such cases, the agreement can be terminated,
and the public sector partner is held responsible for the asset
(Virginia Department of Transportation and Capital Beltway
Express, 2007).
4.5. Construction during the 2008 Economic Crisis
Groundbreaking on the 495 Express Lanes project occurred on
July 22, 2008, just as the 2008 Economic Crisis began to accelerate.
By September 2008, credit markets in the United States had come to
a virtual standstill and on October 3, 2008 Congress passed the
Emergency Economic Stabilization Act, which implemented the
Troubled Asset Relief Program (TARP). A year later the U.S.
unemployment rate reached its recession peak at 10.2% (U.S. Bureau
of Labor Statistics, 2013) and unemployment in the U.S. construction
industry rose to over 18% (Engineering News Record, 2010).
Given the state of the economy, the Commonwealth of Virginia
would likely have had difficulties generating the taxpayer funds
needed to finance the US$2 billion project (Nichols, 2011). Further,
the fragility of the credit markets in 2008 would have made it
nearly impossible to finance the project through more traditional
financial instruments. Only with the assistance of private
investment and private activity bonds, which further leveraged
federal TIFIA loan dollars, was Virginia able to raise the funds
necessary to start and complete the project more or less on
schedule (Nichols, 2011).
The project also had a very positive impact on the Washington,
DC-area and Virginia economies during a period of very harsh
economic times. OTP3 has estimated that the project at its peak
supported over 31,000 jobs, while Fuller estimated that the project
would generate an additional US$8.5 billion for the regional
economy (Nichols, 2011).
4.6. Operations
The 495 Express Lanes opened to traffic on November 17, 2012
and was the first HOT lanes project implemented in the state of
Virginia and the first fully electronic toll facility using transponder
technology in United States (Federal Highway Administration
Innovative Project Delivery, 2013). The opening was somewhat
marred by several accidents and many drivers were confused by
the new electronic toll signage (William, 2013). Also, during the
first six weeks of operation Transurban estimated that the new
Express Lanes lost US$11.3 million due to less-than-expected
traffic volume. An average of 4974 vehicles used the lanes each
workday in the quarter ending June 2013, 40% of the first-year
average work day traffic of 66,000 vehicles projected when the
concession agreement was signed in 2007 (Essley, 2013; 495
Express Lanes, 2013).
The 495 Express Lanes are still in the early stages of operation
and it is certainly too soon to pass judgment on the project’s
operational and financial success. If the lanes achieve their
financial potential, Virginia, per the concession agreement, stands
to gain up to 30% of the revenue once the debt is paid off. To quote
495 Express Lanes spokesperson Pierce Coffee ‘‘We’re definitely in
the ramp up period. . .. It’s really so early that it’s too soon to tell.’’
(Essley, 2013).
5. Discussion
The findings above offer insights for testing the hypotheses of
the case study. The first hypothesis was that the investment was
possible because of the partnership with the private sector. The
initial HOV proposal was highly unlikely to succeed if pursued only
by the public sector; it was the private firm’s unsolicited proposal
of the 495 Express Lanes that enabled further discussion and the
eventual realization. During the next 80 years, it is possible that the
economy may enjoy another boom, in which case the government
may enjoy expanding the revenue base. Depending on the political
climate and the policy of government spending, the government
procurement for transportation programs may expand, lowering
the demand to partner with the private sector to invest in the
infrastructure. Besides the possible scenarios over the 80-year
concession period, the nature of the project profoundly changed
when the HOT concept was introduced: the user-fee financing
entered the scope of the societal decision-making.
The second hypothesis was that the P3 model allowed the
implementation of a project that was otherwise unfunded in the
fiscally constrained regional and state long-range transportation
plans. This was indeed the case with the 495 Express Lanes Project.
Improvements to this corridor to relieve congestion were included
in Virginia’s Strategic Highway Plan, as well as the first TPB
constrained long range plan (CLRP) in 1994 and thereafter. While
included within the CLRP, the initial price tag for the project –
between US$2.68 and US$3.25 billion – was well outside of the
N. Daito et al. / Case Studies on Transport Policy 1 (2013) 35–45 43

10. ‘‘reasonable funding’’ that VDOT was likely to receive. Only
through the introduction of other funding mechanisms as
proposed through Flour Daniel’s unsolicited P3 bid was the project
able to proceed.
The third hypothesis was that employing the P3 procurement
led to on-time and on-budget project delivery. Since construction
was completed in late 2012 and within the five-year window
specified by the concession agreement, the 495 Express Lanes
project met its schedule. As of August 2013, the project appears
also to have been completed within the budget specified in the
comprehensive agreement. What remains to be seen is whether
the highway traffic volume and associated tolls and fees will
generate sufficient overall revenue to both pay off the project debt
and provide the return on investment expected by both the public
and private partners.
Finally, the fourth hypothesis was that employing a P3
arrangement enabled a higher project quality and service, opening
the theoretical possibility for lifetime project cost saving attribut-
able to P3s. Like the first hypothesis, the jury is still out on whether
this is truly the case. While the 495 Express Lanes employ
innovative technologies (e.g., electronic toll collection and road
improvements), alternative innovative technology and financing
options, although possibly more costly, may have had as great a
social benefit. Similar to the first hypothesis, further data on the I-
495 safety and financial experience needs to be gathered before
any conclusion can be made.
Finally, as an instrument implemented during harsh economic
times, the P3 model used for the 495 Express Lanes project appears
to have been a relative success. Financing was secured during a
period of very tight credit and a project was completed that might
otherwise never have been started. In addition, the project
generated both jobs and indirect revenue that help the Virginia
economy and the economy of the entire metro Washington, DC,
region.
6. Conclusions
Using P3s to design, build, finance, operate, and maintain
roads in the Commonwealth of Virginia has had bipartisan
support. In this case, the use of a P3 model appeared to reduce
the political risk and offered new ways to finance transportation
projects during challenging economic times. The P3 model also
offered the opportunity to introduce new ideas and new
technology to the construction and financing of traditional
highway infrastructure.
However, P3s within the state of Virginia are not without
controversy. Issues have been raised about the transparency of the
bidding and contracting process, that lower priority transportation
projects are being given priority over other public project needs,
and that too much authority has been granted to OTP3.
It is too soon to tell how the 495 Express Lanes project will fare
but certainly, based on the state’s overall robust P3 activities, it is a
financial model that, at least in the short term, will continue to be
pursued. Certainly, future research should be conducted to look at
the operational and maintenance performance of this project to
evaluate the life cycle benefits that this P3 financial model may
produce.
Acknowledgements
The authors would like to extend their gratitude to the
Commonwealth of Virginia for its support of the research behind
this paper, and to Public Works Financing for granting access to its
P3 project dataset. Any errors or omissions are the responsibility of
the authors.
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