NTTA Takes $5 Billion Tollway From Cintra - NCTCOG regret at not mentioning that Price Waterhouse Cooper worked for Cintra on TTC Bid

"Eastland said that he regretted that he had not mentioned that Price Waterhouse Cooper had worked for Cintra on the Trans-Texas Corridor."
by Richard Williamson - The Bond Buyer - June 19, 2007 Copyright 2007

DALLAS — In a dramatic reversal, the North Texas Regional Transportation Council yesterday handed a $5 billion toll project to the North Texas Tollway Authority less than four months after it originally selected private development team Cintra/ JPMorgan.

The vote must be seconded by the Texas Transportation Commission, which had already approved Cintra’s bid in February — before the competition with the NTTA.

Despite the NTTA’s late-entry to the bidding, top officials said the authority could quickly catch up to Cintra’s plans for completion of the road by 2010.

“We’ve already commenced work to ensure on-time delivery,” said NTTA executive director Jerry Hiebert. “We’re certain NTTA will be on time for the financial close.”

The battle between the NTTA and Cintra was set up in March, just days after the 23-mile tollway in Denton and Collin counties north of Dallas was awarded to Cintra. Cintra emerged as the favored bidder after three years of developing its proposal.

By contrast, the NTTA developed its 800-page proposal in less than a month after state Sen. John Carona, R-Dallas, persuaded the RTC and Texas Department of Transportation to reopen the bidding to the toll authority, a division of the state.

While the NTTA proposal appeared to trump Cintra’s bid by about $100 million, analysis by TxDOT and the auditing firm of Price Waterhouse Coopers showed that Cintra’s proposal netted out as the better value due to a variety of factors.

In its presentation to the RTC board Thursday, NTTA board chairman Paul Wageman and Hiebert sweetened their original offer of $2.5 billion in an up-front payment and $833 million over the life of the project. At the board’s request, the NTTA would make the entire $3.3 billion payment for the project up-front, they said.

The authority, which operates 64 miles of toll roads in the Dallas-Fort Worth area, has complained of unfair treatment of its proposal and of conflicts of interest involving Price Waterhouse Coopers. After PWC issued its report favoring Cintra, it was revealed that the firm was working as auditor for Cintra, the Spanish developer whose full name is Cintra, Concessiones Infraestructuras de Transporte.
PWC and Cintra claimed that there was no conflict because the PWC auditors in Spain were a separate team from those who conducted the analysis for the RTC.
But Wageman disagreed, pointing to the fact that PWC also worked with Cintra and its partner Zachary Construction of San Antonio on development of the Trans-Texas Corridor, a proposed network of tollways in Central Texas whose final cost could reach $150 billion.

“How can Price Waterhouse Coopers possibly be unbiased and fair in evaluating its partner’s proposal against a competitor’s?” Wageman asked.

The NTTA originally passed up the SH 121 project when the 23-mile toll project was under discussion for financing in 2004, according to TxDOT. Cintra was one of the private developers that responded to financing proposals.

The NTTA has acknowledged comments from the three rating agencies that its credit rating will likely fall as it more than doubles its debt to build SH 121. But officials say they can stay within an A-range.

“We’re going to see a decrease in our credit rating,” Hiebert said. “But the inverse of that would be to just take our money and sit on it.”

Under a protocol agreement with TxDOT and Cintra last year, the NTTA was designated the toll collector and operator for the SH 121 project while Cintra was in charge of construction and financing.

Asked at Thursday’s RTC meeting why the authority earlier had ceded the project to Cintra, Wageman pointed to legislation favoring comprehensive development agreements with private developers in order to preserve bonding authority for government entities. That position was reversed last week with Gov. Rick Perry’s signing of SB 792, which gives toll authorities first shot at projects in their regions.
“We thought the better part of valor was to step back and accept a process that SB 792 has now extinguished,” Wageman said. “This has been an imperfect process.”

Mike Eastland, executive director of the RTC, said at yesterday’s meeting that PWC was the only viable contender to accomplish the analysis of the bidders in a short period time.
Eastland said that he regretted that he had not mentioned that PWC had worked for Cintra on the Trans-Texas Corridor. “We made a mistake,” he said. “We admit the mistake, but I do not think it is material.

© 2007 The Bond Buyer:

Board members and conflict of interest ethics violations

Several members of the NCTCOG RTC are probably in violation of Chapter 176 of the Local Government Code which reads:

(4) describe each affiliation or business
relationship with a corporation or other business entity with
respect to which a local government officer of the local
governmental entity:
(A) serves as an officer or director; or
(B) holds an ownership interest of 10 percent or
more;
(5) describe each affiliation or business
relationship with an employee or contractor of the local
governmental entity who makes recommendations to a local government
officer of the local governmental entity with respect to the
expenditure of money;
(6) describe each affiliation or business
relationship with a person who:
(A) is a local government officer; and
(B) appoints or employs a local government
officer of the local governmental entity that is the subject of the
questionnaire; and
(7) describe any other affiliation or business
relationship that might cause a conflict of interest.
(d) A person described by Subsection (a) shall file an
updated completed questionnaire with the appropriate records
administrator not later than:
(1) September 1 of each year in which an activity
described by Subsection (a) is pending; and
(2) the seventh business day after the date of an event
that would make a statement in the questionnaire incomplete or
inaccurate.

Refer to the Chapter 176 Local Government Code

The By Laws of the RTC cites adherence to Chapter 171 of the Local Government Code which has a more narrow interpretion of Conflict of Interest.

At the June 14 RTC Meeting of the NCTCOG, a member inquired about possible conflicts of interest by RTC members specifically in relation to the upcoming vote on awarding the lucrative SH121 contract at the Monday, June 18th RTC meeting. A specific question was asked about members of the RTC who are TxDOT officials refraining from voting. A NCTCOG official replied that it would be left to the members, including NTTA Board Member Dallas Mayor Lauri Miller to decide whether they have a conflict of interest.

In a February phone call to NCTCOG Executive Director Mike Eastland, he stated that "We (the NCTCOG) do not usually attempt to enforce ethics conflict of interest rules on members of committees who are appointed by member governments." When questioned about a specific member with alliances which created at the very least, the impression of a conflict of interest, Eastland replied: "You'll have to go to the District Attorney in the county where the member lives to file a complaint of ethics violations." Concern was expressed to Mr. Eastland that the NCTCOG did not attempt to monitor ethical conduct of members serving on their boards and commissions in regard to actions in relation to their service on NCTCOG Boards and Commissions.

Application of ethics rules by Councils of Governments varies:
in March 2007, the Executive Director of the East Texas Council of Governments said: "We take very seriously the actions of members of boards and commissions as well as staff in service to the COG. Our attorney explains very clearly to all our members that they are to avoid conflicts of interest and the perception of conflicts of interest." He said that they "monitor and try to avoid possible violations," rather than referring them to the home county of the members. This statement was made in a telephone call within days of NCTCOG Executive Director Mike Eastland's explanation that at the NCTCOG they leave it to each member to determine if they have a conflict of interest.

At the RTC June Public Meeting in Arlington, concern was expressed that three members of the RTC serve on the Board of Directors of NASCO CORRIDOR, an organization with a mission statement to influence local, regional, state and federal governments to enact laws and fund improvements and construction of multi state tranportation corridors to priotize the shipment of international cargo over passenger transportation solutions. NCTCOG Transportation Director Mike Morris stated he saw no conflict of interest in three NASCO CORRIDOR Board Members (Tarrant County Judge Glen Whitley, RTC Chairwoman Denton County Commissioner Cynthia White and RTC member Denton Mayor Pro-tem Tex Kamp) serving on the Regional Transportation Committee, where they set policies for this region and vote awarding contracts for construction projects.

Thursday June 14 at the RTC meeting was the first time since these queries earlier in the Spring to Executive Director Mike Eastland, that RTC members have openly discusses possible conflicts of interest of RTC members. Those members who voiced the subject are to be commended. Commissioner Maurine Dickey of Dallas asked how the NCTCOG RTC bylaws address conflict of interest. Staff replied that they 'were not sure' but would research it and post the bylaws on the RTC website before the Monday meeting.

Examining the bylaws today revealed that the bylaws address adnerence to Chapter 171 of the Texas Local Government Code. It is recommended that the NCTCOG instruct its members and vendors that they must also adhere to Chapter 176, which addresses Members of Board of Directors as having conflicts of interest in addition to those who own 10% financial interest in a business or investment.