Travis County Commissioners Court

April 17, 2012 - Item 21
Agenda

View captioned video.

Number 21, consider and take appropriate action on a report by Ernst & Young that includes the feasibility analysis of delivery options and a value for money analysis for a new civil and family courthouse and by the way, there are a couple of other items that we need to discuss this afternoon.
we will get to those after this item.
I am told that this item may well take an hour and a half to two hours.

>> good afternoon.
roger jeff areries, executive of county for justice and safety.
in '06 you entered into a contract are with ernst & young to advise us on the feasibility of various procurement options for civil and family courthouse.
over the course of the last self weeks, a large group of people including ernst & young and we have representatives of hawkins and del efield as well have been working to present findings and we have them for you, to my right is belinda powell who is planning manager with pbo and a contract administrator during this project.
I was project executive.
we have mark gibson and tim philpots from ernst & young and eric perkins from the law firm that advised us on the legal a add missibility of the procurement options and carrie buckfield is back from ernst & young and we welcome here.
and we would like to briefly acknowledge -- again, there were a lot of folks that worked on this, your internal team which included leroy nellis, various stages, leroy and less lee strict is land, jim collins, tom knuckles, susan, diane warrener, April bacon and said and hoe is- and jose, we got input from the civil and court judges and the court staff and various professional groups and many Travis County residents who showed up to public hearings to provide public input and of course you all which provided input and feedback as well and with that I will turn this over to mark and let him begin his presentation.
thank you.

>> judge, Commissioners, it's a great pleasure to be here again.
very much am looking for ward to presenting this.
I would really like to ask a question if I might at the beginning which is how would you like to do this?
we have a presentation which you have seen.
I think you have already received the full book, but we also have a slimmed down presentation, a summary presentation.
we are perfectly willing, able, capable to walk through this.
that could easily take an hour or more to walk through this report.
we can do an accelerated version of that, which we think might take 30 minutes to 45 minutes, or we can move directly to questions, judge, whichever you think is the most appropriate method.

>> well, in my view the accelerated version sounds like a whole lot of fun.

>> [laughter]

>> and if we have specific questions, we can either interrupt you or ask questions at the end.

>> okay.

>> how is that?
and then we will take as long as we need to?

>> perfect.
so the distinguishing feature of the accelerated method, as I speak quicker, so it requires more aggression with the interruption, so please go ahead and stop us at any point.
we very much like to make this interactive.

>> okay.

>> we recognize this is very much a summary presentation and there is a lot more detail complaint it and I am sure you -- there is a lot more detail behind it and I am sure you have questions about the detail so please --

>> can I ask up front.
for those who would like to see a copy of the presentation, do we have like an executive summary available?

>> it is actually in that box over there.

>> okay.

>> there is a few in that box over there.

>> okay.
so for those here today, they can go get one, right?

>> yes.

>>

>> [indiscernible], no audio.

>> okay.

>> so, what I might start with is a couple of more detailed explanations who we have at the table here because each of us will present a part of this and you will see it is very much a team effort.
it's not just a team effort with Travis County but it's a team effort within ernst & young.
we are a large organization.
we have many different components and parts and all of those were brought to bear, including tax advisory, financial advisory, construction advisory, all of those different components of ernst & young were involve and we are very grateful of the support of hawkins and delefield who helped us with the helper misbility on these things -- about the legal a per misbility of that and so we are glad he is here.

>> I am phil

>> [ audio problems] of north america -- sorry -- done a lot of projects including projects like long beach courthouse in california.

>> okay.
good afternoon.
my name is eric peterson, a law partner with the law firm and we have a practice in public private partnerships.
we have worked on over 100 projects in the last 15 years in 25 states in the p3 field, so we are a specialized firm that has expertise in the procurement and contracting aspects of public private partnerships and we brought that expertise and in the area of law that we bring to you.

>> I am here on the project in case you have any reference questions to the base book.
you can shoot them my way.
I am carrie.

>> and she was responsible for the compilation of this document.
it took hurting a lot for that, no small every time on that.
if you could turn to page 3.
what did we do?
we started ton sixth of January with you.
we held a number of public meetings and a number of meetings with stakeholders and I look over my shoulder and I see a number of people involved with those and very grateful to see them here at at the conclusion of this project.
we presented to you, and then you accepted a number of the components of the analysis we took place and you will mainly see where did this go.
one of the questions you asked us in that meeting what happens next.
you will see this happens next so those components that you voted on and approved were then used as part of the analysis that led to the rest of this documentation.
you can see that all the way through, hawkins delefield were compiling their legal memorandum and we had a large number of conversations together discussing some of the nuances of this, so I am our sure one of the questions you have is did our report take into account the memorandum of law and did the report take into account the to th legal per misbility and that's a very much yes and then the money which takes up a large proportion of this.
in the middle of this process, the investors asked us how do we do a real estate analysis and you will maybe a third of this is around the real estate analysis and the market situation and we will go into more detail about that.
so any questions on what we did?
once I get into the flow of this, you will be hard to stop me, so at the end of every page I will stop.
let's give you the highlights of what we found.
we believe the three primary procurement options that were selected which were design bit build, design build, design, finance, management and operate are all financially feasible.
they all take into account lega per misbility and they are all close to each other in terms of their financial advantage, but you will see that the nonipara additional methods of design build and design build finance and operate and maintain and operate do come out slightly ahead of the traditional design bid build.
that's a very interesting result and a good result, we believe.
qualitative benefits exist for the design build and design build finance operate including risk, transfer and flexibility, and so when you compare the financial advantages with the qualitative and intangible benefits, that would lead you to believe that a nontraditional method may be the most appropriate for you.
commercial development was looked at so the second tower.
you will here a lot more about that.
ha that was a very interesting finding and very much influenced by the real estate analysis that we did.
in the current marketplace, we believe that is a case for the second tower commercially for a commercial developer to do it but it is not overwhelming case, we believe the current fluctuation in the Austin market, while strong, is very much influenced by the amount of build-out that goes on so we are back to concept of absorption rate and as a consequence of that we can't unequivocally say you should build a second commercial tower or have a developer do that.
it could be worth nothing or it could be worth up to approximately $25 million.
the truth of the matter is, it is probably somewhere in that range and given the current situation, it is very hard to predict where in the range it is.
that's the main findings.
we will also go into a little bit about what is next, the next steps and you will get to that soon, what we think you should do next.
if we could turn to page 5.
how did we go through this?
the diagram in the middle, which I am sure if you read the report you would have burned on your brain, almost on every page.
this is the methodology we used.
we used inputs from a number of sources: yourselves, the general public, the Travis County court team, a number of different influences came to the inputs and many of the inputs look like filters as well.
we used a lot of inputs to do the filtering because many of the inputs were filters.
I will give you an example of that.
maximize the site.
we heard that from a number of occasions and heard that very much from the general public.
maintain the grid, the master grid.
we heard that.
that's both an input and a filter to all of the decisions we came to.
we looked to procurement and physical options so we started with a long list of ideas, and they were filtered down and started with number of evaluation criteria.
that's what you voted on last time.
so what did you want us to look at.
that's basically what the evaluation criteria says.
we then mixed that up into a filtering process, so in a number of workshops and a number of techniques you will see in the main report, we filtered those inputs, filtered the methods and the evaluation criteria.
there was a lot of thinking and debate.
this is very much the creative process of what we do, and out of that came the option scenarios.
from the option scenarios, we then went on to do the value for money and then from that produce a governance model which is a high level advice at this point but we hope will help you in your journey of constructiveness building.
any questions on our process?
I don't think we -- I don't think we need to dwell much on page 6, the project is in there for everyone and we showed this to show that we all looked at the property.
all of us walked the property.
all of us walked adjacent properties.
we spent some time looking at what is around and talking to people.
as you remember, we did a number of public meetings but we also engaged with a number of stakeholders as call them, people who could influence them.
the downtown alliance being a good example of that and we listened to what they said about the subject property and our view on the overall design -- although I hesitate to use the word design, it is nothing more than a blocking plan.
a lot of that was influenced by those conversations and the site itself.
a very good example of that is a desire to have the courthouse face the park so when you look at our solutions and the way we came up with the costing and money analysis, that was by that request or that input or that filter, however you like to call it.
you are all very familiar with the site so I don't think I will dwell on that too long.
one of the first major things we did and found on page 7, objectives and evaluation criteria.

>> thanks, mark.
in a previous session with the court, vote on February 28 so we won't dwell much on that because we want to get to the good fun of the rest of the report but the first thing we wanted to do was to develop essentially an evaluation framework.
so what we did with the project team was to have a number of workshop sessions where we looked at the objectives of the project and of both the project and procurement itself.
we looked at the constraints, both internal from the internal and external market constraints and used the objectives in the constraints to come up with a set of filters, evaluation criteria that we then used as a framework to evaluate the procurement options and the physical options.
the result of that with 15 evaluation criteria that we list at bottom of this slide which were done the 28th of February which take into account all of the factors the project team and the court felt were important for the project so they looked at things like timeliness, integration with the community and looked at aspects like value for money and we will go to this later as we talk about the multi-tiered analysis and the overall observation.
thank you.

>> help me understand the importance of the courthouse facing the park.

>> it was a -- a number of people said that was the desirable solution.
we heard that from a number of different sources, and the -- an important part of this is making the courthouse a statement of county -- Travis County.
and so an important part of that is its aspect to the rest of the city of Austin and the park is clearly an asset, and the courthouse is clearly going to be an asset, so I think the courthouse facing the park seemed like a reasonable and, in fact, good solution based on those inputs.
now, this is not firm.
none of the blocking diagrams are firm.
you can certainly rotate the site 90 degrees.
it is a nice thing about having a square site.

>> I am not against it.
as a country boy I hadn't thought about it.

>> it is arguable.
if I was a commercial developer, I might want the nice view out of my office and I may want to rotate that 180 degrees and that may come through the future procurement if you go through that type of methodology but a lot of people said that they would like for the courthouse to face the park and I agree with that.
I think it would be nice.

>> okay.

>> I think it builds nicely on the real estate analysis.
the great thing about the real estate analysis is if you tuck to 500 people in the streets, you will get 500 different answers and synthesizing that together becomes quite interesting so we rely a lot on true data, the data sources we use are actually listed in the book and I won't bore you with all of those but they are commercially available data sources, used by most people who do these sorts of analyses.
there is very interesting data about Austin.
you live in a great city.
it's really a growth city.
it's in many ways one of the few truly growth cities in america that has been sustained through the recent economic downturn, much more so than, say, some of the other cities we would immediately point to like las vegas, phoenix, and miami, so they convenient more cyclical.
you are smaller than most cities, clearly, and that does influence the real estate analysis.
it doesn't take many buildings to be added, particularly hotels, for instance, to create an absorption issue in the market space.
now that is a teething problem like a growing city of your own and that's not uncommon, in fact, quite usual.
the issue comes, yes, you should build a hotel here and it only takes one 750 hotel to take up all of the absorption space due to size of the city.
whereas chicago, it would be a different conversation in that regard.
but high growth city, no question about that.
a great place to live.
we have seen apple coming here.
we have seen many other high-tech.
they go to places where people want to live.
that's tremendous for you as a city.

>> I thought they went to places that provided

>> [indiscernible]

>> some of us negotiate many of those and that is also true.

>> [laughter]

>> that was quite an interesting conversation.
I am usually on the receiving end of those questions.
that's pretty interesting.
yes, they do that, too, but at the end of the day, people like apple are most concerned about retention, and that's clearly something they are seeing here.
so is that's really -- so that's really a strong indication of what a great city Austin is, particularly for that sort of company.
compliments to that.
the issue you've got we think is around absorption and at the end of the someday, after a long series of consultations with the marketplace including real estate brokers in the marketplace who live and die by their ability to sell space, we came to the conclusion that it was unlikely you would get full absorption on a 25 to 1far.
that means the maximum you could build on that would be 25-1 which is roughly 1.9 million square feet, exclusive of the courthouse.
we don't believe the courthouse could sustain that economically.
now, wait two years and we might have a different opinion.
this is the problem with being in the current fluctuation stage of our economy.
even given that, we think it is highly unlikely that the site warrants 25-1f.a.r.
however, we do for office of roughly 350,000 square feet net and retail of about 70,000 square feet net could be absorbed by the marketplace.
now, the value you place on that as a developer is very difficult to calculate.
we have a calculation in our full documentation, as you know, waned have applied reasonable real estate principle to that.
we think the site, or that component of it could be worth up to $25 million to you and we would recommend probably selling it as an heir rights building or doing it currently as a development.
it could be a possibility but at the end of the day it looks like an heir rights transaction.
it could be worth, 0, though, the only way to test that is the truth is go to the marketplace and ask them.
how much is a develop prepared to pay and the developer would base the price on what he or she believes to be the future absorption rate.
that's the key here so the developers will take some risk in that.
that's the beauty of our system, and what that risk is, we put some proportions around that as you know, but it will be somewhere between 0 and 25 and until you go to the marketplace you won't actually know.
the good news is it is worth something, we think.
so that's good news.
any questions on the real estate analysis?
I am sure there are lots of questions on the real estate analysis.
you will catch them later.
okay.
that is the art of what we have done in many ways.
so the next piece we look at is the procurement options.

>> as mark said, there is a wide range.
of the options that will come on -- there is also a wide range of procurement options and what we set out in this chart is really synthesis of a number of meetings we had with the project team.
to run through a wide range of procurement options and looking at everything from the traditional kind of ppp type project which would be the bottom left-hand side of this chart, the dfmo type process where the private sector is responsible for the bulk of the financing and responsible for the majority of the maintenance and the design and the construction site, right through the complete spectrum of dbfmo through dbf and through the move traditional design build bid type approach, which is what is called the baseline option in our report, which is the way that it would normally do the development, which is the county funding through either a bond or a certificate cat of obligation -- certificate of bond or obligation and then do a design build type construction and then design it over the life of itself and the life of project.
one of the things we wanted to touch on quickly is in terms of what we meanly operations and maintenance, because we spent some time with the project team considering kind of what operations meant in the context of the court and of the project, and the first thing is the operations doesn't mean the judicial services.
that's -- that's kind of --

>> could you repeat that statement again?
I didn't catch it.
go ahead.

>> it doesn't include the judicial -- anything to do with the court operation itself.

>> securities?

>> yes.
so it wouldn't include security or any of the operations of the actual a court itself.
it would only look at at aspects -- physical aspects of the building like cleaning, catering, maintenance of the facility, long-term maintenance, parking, managing commercial space.
we spent quite a bit of time with the project team running through what type of services would be provided and getting everyone's thoughts on what could and shouldn't be included within any operations bundle.
so that was one aspect of it.
what we then did with these procurement options is we then ran those through the filters, evaluation criteria and if we skip to the next page, the multi-criterion assessment, what we then did is took the six procurement options and we evaluated the procurement options against each of the -- 14 of the evaluation criteria.
the one we didn't evaluate is the value for money and the value for money as you will see later is quite extensive exercise and we only compared three short set options on a value for money perspective.
ed so what we did was actually held a workshop session, first of all, to go through each of the procurement options and make notes as a team on how the procurement options fair against the evaluation criteria.
and then once we had done that, we actually split the project team up into various groups.
the groups were ourselves at ernst & young.
it was the capital and budgeting office, lease management office, purchasing office and the county attorney, and everyone went away and in groups scored each of the procurement options against the evaluation criteria and so we had five separate rankings of the procurement options against the individual evaluation criteria and that we then did is calculated those together to calculate what is essentially the average score.
as you will see from the chart here, the highest ranking option under this multi-criteria analysis was the dbfmo option and the lowest was the lease to own option.
what we then did from this is we selected the shortest options that we took forward for further analysis and the three options that we took forward were the two highest rank options which is dbfmo option and the design build option, db option and then the traditional option because the one we are considering the merits of an alternative approach we need to compare it to the delivery option that the county would normally undertake which is design bid build approach, and so the three options we shortened for further analysis and the design bid build and the design build and the design build, finance, maintain operations.

>> okay.
any questions on that?

>> so the next thing we look at is physical options to be build.
and I started on that to very heavily influenced by two factors.
one what we heard from everybody else and two the real estate analysis.
one of the very interesting aspects of this is parking.
transportation is clearly an issue in Austin and the use of the motor car as opposed to public transportation was debated long and hard in those meetings.
the parking is a complication.
there is no question about that.
at the end soft day we came to the conclusion -- at the end of the day we came to the conclusion that the best solution but not the only solution, the best solution for the courthouse would to bear the parking across the entire site below grade.
why did we come up with that solution?
first of all we heard loud and clear the courthouse needs to be a statement building, putting the car parking above ground and the courthouse above the parking reduces the opportunity to make it a statement building.
you can still do it with some sophisticated fence around the front of the building but the truth of the matter is that is very difficult and it makes the cost of the car parking actually expensive because of the way you have to clampitt and put vents, not air conditioning in the car parking.
it drives a number of architectural and parking challenges.
so putting the entrance of the courthouse at grade level makes more sense or slightly above grade, maybe a few steps up, but that basic principle makes the most sense.
the -- that, because of the necessity to 535 parking spaces, if I remember off the top of my head -- because of of the necessity to have that number of car parking spaces, you need a large car park and that takes up -- fortunately it only takes up 3 stories across the site because we believe, no signs, guesswork, based on what the west -- the w.
hotel we believe you need to go down 3 stories before you hit more troublesome ground conditions, mostly water.
and as a consequence of that that, three stories makes the most sense.
as a consequence of that, you need to take the whole site of car parking to get to 535.
that's a unique solution, actually, because you see from the left-hand side diagram it makes it unique and architectural diagram and it is no solution, and certainly an architect may come up with an alternative solution but that is fairly neat.
when you talk about commercial solution, you talk about what is on the right-hand side, you clearly need parking for that.
that you can above grade and in an elevated car parking space, actually.
in fact, ernst & young's own building here in Austin is that dethen you have the commercial development above it.
you have the retail component and you can see the concept of the podium as well and then you have the existing parking throughout so that, again, is a fairly neat solution but once again, it is not the only solution.
both of those solutions match the real estate analysis, so the -- if you are looking at the diagram on page 11, the park would be on the left in this diagram, and one things that interesting is if the commercial development is built and not at the same time as the courthouse, there is the potential for some noise and slight disruption to the courthouse during the construction of the commercial development sometime in the future.
so there is a lot of debating around optionality, and phasing of that tower and no great answer was arrived at, other than that is regular and customary in urban environments to build buildings right next door to one another and unfortunately, may have to live with disruption during the construction of the customer tower if it is done at a different time than the courthouse.
it is clearly a down side to the phased option.
the upside to the phased option or the upside to that optionality is you can maximize market space is what thissal a hows this design is what is known as heir rights buildings, so you would effectively sell the retail parking above grade and commercial components to a commercial developer at some time in the future for a considerational payment.
you can do that at the same time as the courthouse or you can do -- if you don't get the value you believe because of the current fluctuation in the market due to the real estate analysis, you can wait for sometime in the future and effectively keep half of the site available for a commercial development.
that, again, I would recommend you test the marketplace to determine that.
the great news is you don't need to make a decision until you think it is economically viable.
so that's the physical options we came up with.
we looked at lots and there was lots of great work done in the initial feasibility analysis around the courthouse and we weighed heavily upon that.
so those three core components, the commercial component, how many square feet should they build, office a, retail, et cetera, the type of procurement, and the physical lay-out, those three components were then filtered and discussed and debate and refined and we came up with, the next page.
the four scenarios to test the value for money.
option one, scenario 1.1, core task only using design bid build, baseline option, effectively.
we always knew we would test that one.
that is always going to be on the test, scenario 1.2 is courthouse only but using design build methodology.
and scenario 1.3 is the courthouse only using dbfmo or b3 as it is sometimes called.
option 2 is the courthouse and office and retail and this is building the commercial development at the same time.
and what is interesting is due to the higher element of risk on the price of that, somewhere between zero and 25 million gain to you, we ended up discounting that one and the scenarios, while in the appendices you see the modeling, come out as the same number as option 1.3 in terms of value of money to you because we cannot predict zero to 25 and we chose zero and took the very conservative approach.
you may say I think I will get half of that, in which case it gets added to the individual options.
makes no effect on the difference of the options.
it only makes effect on the absolute value of the options.

>> do you want me to talk a little bit?

>> sure.

>> even my own team has to interrupt me.

>> mike here.
yes, is the mic on?

>> yes, thank you, Commissioners and judge Biscoe.
our charge at hawkins, delfield and wood as the special counsel legal advisor on this, as you recall, we have separate legal services agreement with the county to specifically look at the legal per misbility of the various procurements you heard summarized and through the separate legal services agreement, we did as we mentioned prepare quite a lengthy memorandum that runs 40-50 pages, addressing this legal permissbility question.
we were addressed by brown mccarroll that looked at issues of leasing, leasing power of the county and the power of the county to contract for the court building in general, and so the memorandum that we delivered to you is a joint product of our analysis and brown mccarroll and we also did have discussions with your bond council regarding some of the financing issues and exchanged ideas with them.
so our general conclusion is that the -- there is a sound and reasonable legal basis for proceeding to procure the court building and if you choose, if commercial tower, using any of the three procurement methods that ernst & young identified in their report.
we divided analysis into two parts.
we call the first part county debt and procurement options, more of conventional delivery, either with design bid build as tim described or design build under relatively new design build law and separately the so called p3 analysis which would involve one contract for several functions, design build, finance, operate, and maintain as tim summarized it.
so, first we looked at the basic questions, does the county have the power to contract -- construct and operate a court building in later parking facilities, again, we were assisted with brown mccarroll in that.
we concluded the county certainly does under current law have that power.
does the county have the power to procure it not only traditionally but with design build?
we believe the answer to that is yes as well.
there is a slight difference between a procurement method for buildings versus civil works.
civil works is more of a lump sum design build procurement, buildings involve more of qualifications base selection.
we can talk more about the details of that if you'd like.
does the county have the power to issue debt for the court building and parking garage procured under design build or design bid build.
we believe the answer to that is clearly yes, either through bonds or certificates of obligation.
you are very familiar with that.
so when it comes to the traditional delivery, design bid build or design build, we think the power is clearly there for the county to engage in those kinds of procurements.
there are nuances we can discuss but in general we believe it is a sound and reasonable basis for those more traditional type of procurements and turning to p3 option, newer option, thinkty the county was fortunate that sb1048 passed, I am sure you are familiar with it from previous discussions.
under the act the county can contract for development services or operating services or any combination of those services and they do include all of the elements we are talking about here and one comprehensive agreement, it's called under that statute, sb1048.
and it can contract for the court building, the parking, and what the law calls necessary or desirable real estate improvements, and we would read that as saying that could include the commercial tower, so if you want to contract for the project, not only the court building and related parking initially but also the commercial tower, that could be subject of procurement under sb1048.
the law, as you probably are aware, requires the county to adopt procurement guidelines, and interestingly enough, the procurement guidelines require the contractor to contract for the design build portion of the project in the same way you would contract for it if you contracted for it directly so the guidelines would have to reflect that principle.
we don't think it would opportunity mentally alter what they -- we don't think that would alter what they would do and we looked at the constitutionality of the p3 law and we believe that it is constitutional.
the only areas of -- that could be at issue are potential challenges we think -- in the area of the economic development because the Texas constitution, like most state constitutions have specific restrictions in their learning of credit or giving grants to private businesses and so forth but as long as the actual contract that emerges from a procurement done under this law has a recognized public purpose and the Texas constitution recognizes economic development as a public purpose and there is adequate consideration in the contract are and there is sufficient controls in the contract to protect the public interest, we think that it should sustain the particular project done under this law would be sustained under any constitutional challenge.
the law specifically requires that the county must determine that there is a public need or a benefit for the project.
and if you include an economic development portion of the commercial tower that would include determination as to public need or benefit for the commercial tower.
so we believe that the -- the act is constitutional.
there is, I think, a fundamental structural element that you have to take into account if you did this project using the p3 authority under new sb1048 and that is this.
when you hear that the project agreement or the comprehensive agreement, as the law calls it, would include all of these different services in one contract and the word "financing" is in those services, either in whole part or in part a, as the ey report indicates, that suggest it is private company will issue their debt to pay all or a portion of the cost of the court building and so as you make your service payments toward -- under that contract, toward the full service of constructing and operating, maintaining the court building and financing, there will be an element of your service payments which they will then apply toward paying their debt, and so the question naturally arises, is that a debt of the county?
and we are quite clear and the law is quite clear it cannot be structured to be a debt of the county in the way that you -- and the way you deal with that would make the payments subject to appropriation so there is no obligation of the county until you appropriate each year.
if we structure the transaction that way, carefully draft it, we don't think there would be any constitutional issues relating to unauthorized debt.
finally we looked at the question of whether or not the county can lead the project to the company in a -- and a mortgage be put on the project by the borrower as security for their private borrowing to the extent they privately borrow, we think there is authority for the county to grant those kinds of leases.
lastly, we think there is authority, if the county wants, and as one of the recommendations for the p3 contains, to partially fund the cost, the p3 law specifically says that counties can pay costs of the project and as long as the financing source of that debt or certificate obligation is done in accordance with the law you can make those contributions towards the construction costs.
so, in conclusion, of 40 or 50 pages of legal analysis here, we do believe, as I said, that there is a sound and reasonable basis to proceed with this project under any of the procurement options that have been offered here.
I do want to say that this is a new law and it's only been on the books less than a year.
judicially untest and when you have a new law like this, there will be many novel issues raised to potentially question it.
we think all of these legal challenges can be met, but because it's a new law, we need to know that there is some potential litigation risk there for potential challenges.
think those challenges will be sustained.
thank you.

>> okay.
so has anybody asked for an ag opinion on the --

>> no, this is -- our analysis is the first cut and of course we would go there next step, ag opinion.
but we want at least as a first cut analysis, present our view, at least, that any of these methods will be legally permissible and we can do there as we see a more refined definition and procurement approach and then we can go to the ag as well as with the county attorney's office.

>> okay.
how common is the dbfm in the united states?
I can think of long beach.
I guess that's where it is, right?

>> very similar to long beach transaction but this -- let's call it p3 for shorthand, design build finance option.

>>

>> [indiscernible]

>>

>> [laughter]

>> it's been widely used in the transportation sector including here in Texas, as well as florida.
it's been widely used in water and wastewater sector as well.
it's not that common, though.
it's not prevalent because it does involve taxable financing generally.

>> okay.

>> yes, sir.

>> I guess -- you compare the db -- we will call it p3, I won't say that dbfmo.
I will just cut it down to p3.
I guess my concern, though, is if I am looking at the money -- either one of these scenarios, they run almost neck in neck.
it is like there is a race, where, on the one hand we look at the county's responsibility if we were to do it ourselves, or looking at partnering with persons that are -- and I guess saw some of the risks from the county that did a p3, but when you look at this overall and you start making the comparison, I start looking at factors as far as you brought terms um earlier about the legality and the legal aspects of some things and that's where I kind of ran into a head way, and because I want to make sure that even though I know it may be embedded in what we are looking at here in the p3, as far as legal things are concerned, my concern, I guess, is how as far as our staff, county staff, and how can we address the legal aspects on our end to make sure that the policing of the legal side is really checked by another legal to make sure that all of the gaps and cracks crevasses and all of those things are in the best interest of the taxpayers of Travis County.
I do not know as far as the purchasing, the team itself, as we go through these -- these particular scenarios have -- is comfortable on our county staff.
I am saying Travis County attorney staff is comfortable in looking at some of these high powered contracts, because that's really what we are talking about here.
we have some really high powered complicated contracts that, if we go db -- well, I will say p3.
I won't say it.

>> [laughter]

>> I won't say a that.
if we go to p3 route, then -- which means the relationship with the -- many relationships, do we have the staff here in house to actually -- I am saying legal staff -- to actually oversee and make sure that all of our is and ts are dotted and crossed to make sure that -- come ago to the Travis County taxpayer with these investments of what we are going to be doing here.
so I guess my question here is to staff, at this time, do we have legal from the county attorneys' capabilities of making sure what contracts will be derived from the scenarios, do we have somewhere here to make sure all of the is are dot and the ts are crossed?

>> Commissioner, we have a great deal of expertise in the county attorney's office but we would strongly encourage you to consider bond council's support, or if you are interested in looking for other type of legal support in dealing with the financing side of it.
it's extremely complicated and our office is consistently -- our office has consistently advised you to go outside of bond council before because it is a delicate expertise.

>> then seeing that we will, a after some future date, go out with some is kind of request, it just appears -- a request for proposal or whatever that, we go through this process and I don't know where the court is going to land, after you look at the value for the money.
you look at the scenarios and they -- they are pretty close.
I mean, but the bottom line is do we solve more risks versus less risks?
and, again, I really would like to maybe here, at some stage of this process from persons that will let me know, as far as the team and stuff like that is concerned, when we do go out -- if the court decides to vote that way -- I don't know what the court is going to do -- but if we decide to go out for request for proposal, what are we really looking for in those particular requests?
you mentioned bond council, that's one thing because that's the issuance of bonds by the private sector, because we issue that, also, but as far as they are concerned, but I am just saying the legal aspects of the contract itself need to maybe be examined.
I am just wondering how we are going to do this.
that's my concern.

>> Commissioner, if I can chime in here.
I think something that the judge said on this is highly prevalent on pp3 contracts or p3 contracts, on global basis, north basis and even u.s.
basis, there is a lot of experience around the development of ppp contracts, dbfm contracts.
I think it will be essential that if you do embark on p3 project that you have a legal counsel that has developed the contracts before, that understands in detail the risk allocation, the structure of documents and it does go beyond just bond counsel.
it goes to the whole transaction.

>> well, that's what suggesting.
I know bond counsel is one thing.
but I am a understanding -- I am saying depth of contract where is are dotted, ts crossed to the extent that the investment of the relationship that Travis County has in the contractual context is to the point where there is legal entity that can look at another legality and --

>> there is a lot of good experience out there.
there is a lot of good legal firms out there that have a lot of experience in that.

>> don't forget, Commissioner, I am sitting beside one of the architects of the deal with the city of Austin, how they built their city hall in a triple p kind of fashion.

>> well, I am not putting you down --

>> [laughter]

>> I am putting you down.
what I am saying is just what I am saying.
I am just letting out, they have made the observation and they have laid out, I think, a good scenario here and when you look at the value for money on both of these type of scenarios, like I said, it is just like a horse race, running neck and neck, but I want to make sure that we are -- whichever one we end up going with, we will protect it.
let me is another question and I will shut up because I know my colleagues are just anxious to get on to the next question.
but as far as maintenance and operation, you look at that, on the private sector, I think the mno, whereby -- my understanding, it's kind of privatized, and I guess there are probably escalators in that as we go through the process during the duration of the contract.
my question is this.
and I think you may have mentioned earlier that the makers operation, the upkeep of the building, all of these other kinds of things like that, which could be a privately owned, a privately outsourced situation, and if that is the case, I understand that there may be a cost savings but I want to make sure that even with the escalation of the cost, if we end up with a not to exceed type situation for this kind of stuff, what -- what guarantees do we know that this building will be well maintained?
how will that work?
I -- I just want to make sure that I -- who is going to be accountable?
that's maybe another contractual situation.
I don't know.
but someone -- pardon me?

>> sorry, Commissioner.

>> someone is going to have to be accountable to the maintenance of people, the building, let's painting, all of the things that they do with the responsibility of doing these things.
I just want to kind of lay out.
is that a contractual -- if that's a contractual situation, make sure that's done.

>> okay.

>> that is the agreement and it's to the contract and it speaks clearly what maintenance is required, the frequency of the maintenance and it is measured by key performance indicators or kbis and compensation to the operator of the building is based on those two things, basically kpi, actually.
example, if there was a spillage in a courtroom that needed to be cleaned up, there would be a work order request that would cogo out and someone would fill that out -- or they could have something happen and go mop it out or could be outside and mop it up.
they will have a handheld device that will track when they receive the work order and when they executed the work order.

>> ...
that's going to be a lot of contractual things, one example.
many, many.
that's why I'm saying, that contract is -- you know, it's -- the difficulty is -- kind of complicated but it is something that I think we can work out.

>> it has been done many times before.
when we started working at long beach they had never gone through this process.
performance, ensuring, that in 10 years time the court still looks look I could a new court.
what all of the mechanisms and check marks in place, we spent a lot of times with the asc and eric hawkins actually going through and, you know, developing a very strong robust contract based upon precedent that had been used elsewhere to develop and give the aoc in that case the comfort that it would protect them the entire 30 years throughout the contract period.
furthermore, when they got it back at the end, it would be in a very sort of good state.
it wouldn't be a 30-year-old building, essentially, it would be a well-maintained building with exceptional life left in it.

>> your accepts that these contracts are large and complex is correct.
I mean, this contract can run upwards of 500 pages and they -- they reflect the fact of you having all of these functions in one contract.
normally you have a contract for one of the functions; here you have four or five.
so if you apply all of these precedent that tim was referring to, you have a very clear and detailed set of performance requirements.
very clear.
much more so than a conventional lease.
the consequence for the company, the project company not complying is they don't get paid.
if they are late delivering the court building, they don't start getting your availability payments.
if they don't meet these key performance indicators, there's deductions, offsets in legal terminology on what you are paying them.
there's a very powerful -- those are very powerful motivators for good, solid performance on the part of the contracting company.
it's a single point of accountability enforced by non-receipt of payments that secures the performance of the court building services to Travis County.

>> I just have a follow-up question to Commissioner Davis's question.
if this were a private contract for the maintenance, then would those jobs pay comparable to what Travis County would pay?
if we were to do it in the public sector?

>> I can't answer that directly because I would have to look at your compensation.

>> benefits and other things that we have for those employees.

>> the answer is that it's different.

>> how different?
less costly?

>> no, it's a different distribution of payment scheme.
people are paid differently in the private sector than they are in the public sector.
bonuses for instance, so it's done in a different way.

>> this typically -- there's typically provisions, when a government does there's typically provisions that say you can't pay the private sector a lower compensation package than you would in the public sector.
what the private sector would normally do would be to organize the labor a different way.
they would be able to -- to, you know, create efficiencies through -- through, you know, improved management type of structure.
so to enable better organization of -- of the facilities, maintenance contract or maybe to utilize your sort of a -- the efficiencies from being able to use other buildings that they might be operating in the vicinity and things like that.
so there's usually protections for -- for compensation.
but they normally would organize their facilities and management in a different manner.
which would create deficiencies.

>> that's correct.
it's quite typical for the private sector to pay more than the public sector.
but that's where this bonus scheme comes in.
the difference is the way the labors are organized.
tim said that, but the classic example of that is the technician in a truck where you might have a statutory engineer or statutory individual on site, working 30 to 50% of their time and they have to be there because there's nowhere else for them to work.
a private sector would have that person servicing two buildings and therefore more efficiently using that person's time.
that's called packing the truck.
if you have a cm called white truck driving around that is the tech in the truck right there.

>>

>> [indiscernible] can offer some assurance they would be paying the same prevailing wage as the county staff.

>> typically they do.

>>

>> [indiscernible] a little different.
but the prevailing range is usually set.
you can actually set it.
benefits are differently distributed.
a lot of these private companies actually have stock they can give them.
so if we could move on, if that's okay.
more time for questions.
sure.
project costs, we use the parametric measuring technology, tri angulating, a combination of our project from previous project plus pricing to triangulate that.
we have a lot of people in our team that have worked on projects all over the world similar to this.
for instance the basement excavation went through a number of discussions on what the appropriate pricing level would be for that.
we also phoned a friend.
we phoned some people we met actually in the public meetings who said do you think we're on target for these numbers.
so they have been verified from a number of different sources.
you will see that for effectively the same building, it is somewhat less expensive to do design-build, that's not surprising.
that's quite typical.
you might say why is dbfmo cheaper, that is bringing the developer influence into the construction of the project, these are based on historical precedent of similar projects around the world.
those are the typical percentage reductions that you see for similar projects.
cost per square foot, you might say why is it 261 versus 400ish, the office is a lot cheaper to build, you are spreading square footage over much cheaper space.
it's as simple as that, you just change the denominator.

>> but these numbers include all costs.

>> all construction costs in this page, yes.

>> so these do not include interior

>> [indiscernible]

>> it does.

>> it does?

>> yes.

>> it includes an allowance.

>> of course.
what costs are left out?

>> the operating costs.
because when we consider the whole life of the building, which is what we're doing here, the operating costs are a significant component of that.
so this is the construction cost and on the following page is the operating cost.

>> does it include everything necessary to make the building operational, constructed and make it operational, up to day 1.

>> in a minute, when we come to the value for money, there are certain costs that aren't in this which are things like onus costs.
we will come to that when we get to the value for money section.

>> being on.

>> yep.
then the operating costs, again, based on information supplied to us, by the county, plus our own historical information, we do a lot of this.
you were asking earlier about these contracts where earnest and young is actually the largest consultant in the major outsourcing deals, in fact we did the largest one that's ever been done, 156 million square feet.
the contract for that was this high.
the sla's looked like this.
interestingly the operator say the more detailed it's there, the better they operate their building.
a lot of us think too much paper on the legal side is not good.
actually the opposite is true in these agreements.
they are operating their buildings at $7.94 a square foot.
if you knew who that was, you would say how can they possibly do that, because they have an extremely high standard of maintenance.
it's a household name.
there aren't many customers in america with 156 million square feet, so you can probably guess who that is, so the precedent is out there about how to do these -- that's a 30 year agreement.
operating every building in their portfolio.
so a substantial operation.
very impressive.
contractors actually undertake that.
that is managed by a very small number of people in house.
so the precedent of doing this is out there at a huge scale all the way down to your scale.
and these companies are out there that do this.
so that's where some of these numbers come from and also publicly available pricing as well.
we combine all of that together.
now we have the options to look at.
now we have the baseline costs, the construction and the operating costs and we did pull some of the costs out of the construction, put them into the risk analysis that tim is going to talk about now.
so when I said yes, it's yes in the value for money.
but numbers you would -- sometimes see like the owners costs would sometimes see in the construction costs, actually have been pulled out for a separate line item for a very good reason so you will see all of that.
with that, let's talk about the risk analysis and the vfm.

>> moving on to risk analysis, I want to do a quick introduction to this first of all because risk has been mentioned a number of times.
it really is fundamental to -- to the feasibility analysis and to the value for money values.
really the whole tenet behind why the government are considering pvp or p 3 projects, it's the ability to transfer risks that is typically retained by governments to be able to transfer that to the private sector.
to use the old adage to transfer risk to the party best able to manage it.
the private sector is typically better at managing risks on large scale than many governments are.
a big part of the work that weunder took with the project team was around the risk analysis.
you are holding a number of workshops, a number of meetings to assess the risk, quantify the risk and do a lot of analysis around the risk under the three different options.
so essentially what did we do?
we used a fairly standard risk analysis type of approach, which is really sort of a three-stage analysis.
the first one is to identify the risks.
so we held a risk workshop that we facilitated and the first stage of that was to identify the risks.
so ernst and young produced kind of a pro forma risk register that was discussed with the project team.
as part of that, we identified a group of risk experts and they were broadly around the same teams, facilities management.
they were tasked with reviewing the facilities management type of risks.
and the risk experts went away to look at the risks that we had and to challenge whether it was complete, whether all of the risks were appropriate.
kind of the second stage was to do an initial assessment of the risk.
again we held a workshop that we facilitated, but that was really led on individually by the risk experts, which the purpose was to identify of the long list of risks that we had, which are the material ones that we would then take forward for quantification.
it was then really the third stage of the risk analysis, what was the quantification of the risks.
and what we did as part of that, as a project team, we quantified each of the individual material risks, so we looked at what is the probability of an event happening.
if a risk event does happen, what is the likely range of risks.
we used a plo type of approach, which is a perfect likely outrageous approach which says if it does happen, what is sort of a low case, likely case and then a really outrageously high case.
and we created a tri angular distribution of each of the risks.
following that, we then went away and did a bunch of risk modeling.
so we have a software package called at risk, which is a fairly standard industry package, which allows you to run probability distributions through excel and produce some quite good graphics around probability distributions.
we did that.
follow that analysis, I should have said the first quantification was purely looking at the design bid build numbers.
we then had a follow-up session that said okay what are the differences to the quantification under the design build and the design billed to finance and maintain options.
once we had run all of that analysis, we then had sort of a sanity check.
we went -- got back together, went through the numbers, because you end up with the garbage in garbage out process, you have so much information, it doesn't pass the smell test.
we had a sort of sanity check.
we did review a few and amend a few.
the outcome of the risk analysis is what's set out on this page 16.
which is kind of what you would expect from -- from an analysis like this.
and the -- the analysis demonstrates that under design bid build it has the highest retape retained risk and the p 3 has the lowest retained risk.
as Commissioners, judge, you'll see from the report, you will also see that the design bid build has a much wider range of potential outcomes as well compared to the dbfmo.
what I would say to one of your implicit questions, Commissioner Davis, the numbers are actually on the low end of what we would normally expect.
I've been involved in over 50 projects, this is on the low end of the risk numbers we have quantified.
the differential between the options is on the low end.
it's not that it's wrong, not that it's out of the box, it's on the other end of the risk register.
when we did the risk analysis this wasn't a -- a crusade to demonstrate the ppp is by far the best model.
it was a good, robust discussion, it arrived at I think a good position, good conservative defensible position.

>> it does include for risks such as the contracting risk that you mentioned before.
those are factored into here.
it's the obvious risks, but some of the more exotic risks that you might say that are associated with the ppp or dbfmo, so this is a fair comparison.

>> you would agree we spent quite a bit of time sort of going through risk analysis and checking it again, coming back to it again.

>> amen.

>>

>> [laughter]

>> I think they were fed up with seeing us after a while.
so if we move on from the risk analysis, the risk analysis really feeds into the value for money analysis.
I mentioned earlier on there was 15 evaluation criteria that we developed and worked was signed off by the court in late February.
one of those was kind of the value for money.
we applied the value for money consists of three selective options, and we applied it quite rigorously to those three options.
so the first question is what did we do?
essentially the value for money analysis is a -- on comparison of the estimated costs under each of the options.
by costs we mean what is the expected cost.
takes into account all of the likely risks, all of the costs that you will be expecting, we will go through those in a minute and does it on a net to present cost basis.
it takes the future cash flows and digs counts them back into present data.
the important thing about the value for money analysis, it really is a synthesis of all of the work that was done.
so the tomb that we have on the table here, it's a synthesis, cost, procurement, fiscal options, real estate analysis, brings it altogether into a single kind of value for money values.
I will go through the assumptions on the next page, but what I thought we could look at here what would the overall kind of results.
as Commissioner Davis pointed out the results are fairly close.
we are looking at a value for money benefit of 3.6, 3.7%.
not a insignificant number, but also not a 10, 15%, which quite often governments do see in a lot of evidence that would demonstrate particularly in the canadian marketplace where I practice most of my time, most of those projects will demonstrate 10% plus value for money.

>> what is the reason for that, tim?
why would you say these are such a small differential?

>> I think one of the key things is that we have been conservative.
if you go out to the risk analysis it's a conservative approach.
it's also a novel approach.
because the answer to the judge's question, there aren't 40, 50, 60 projects that have been done similar courts, similar hospitals, similar building type ppp promises, it a novel approach by definition will probably be on the lower end of value for money.
the key drivers behind obtaining value for money for the -- for the p 3 option I think really are the ability to get risk transfer, I think there is significant risk transfer under a pp, ability to get innovation through links aspects such as the design with the operation and maintenance.
obviously offsetting that are some of the additional costs that are associated with the private sector with the finance.
on the design build side, similar level of value for money.
again driven by risk transfer and innovation, offsetting potential additional costs.
if we go to the next page, what we have here is a little detail around some of the costs that were -- summary the value for money table.
I think that it's worth spending a minute or so talking about how was the model actually created to do this.
if we think of the design build, the design bid build and the design build solution, it's quite a simple financial model to create because essentially the

>> [indiscernible] go out, expend money in the design and construction phase then there will be an ongoing 30 year operation and maintenance phase.
so it's quite easy to model.

>> under the ppp solution it's a different cost.
you undertake the long term maintenance.
so essentially the bulk of the payments from the guarantee would start once the court has completed.
so in order to do a net present cost analysis we had to create what we call a shadow bid model.
essentially putting together the project cost, operating cost, financing structure into rather complex financial model to mirror what we believe the private sector would do.
we take all of those cost inputs and estimate how much the private sector would need to be paid on an annual basis, that forms essentially the total service payment.
trying to take those cost inputs and decide what is essentially a private sector operation would be requiring.
if we went through the key assumptions here, the design and build -- project costs, obviously different in the three options.
the next line is the funding.
this is something that I did want to spend a bit of time on because we've called this the design

>> [indiscernible] finance and maintain project, implying that the private sector will finance the project.
that make go a lot of sense, a lot of benefits in the private sector to fund the projects.
that shouldn't be -- a -- doesn't -- done lightly.
what we are proposing there be a combination of financing that in order to reduce the overall costs to the county, and to reduce the -- essentially the weighted average cost of capital of the private sector, we proposed the county would essentially make payments during the construction phase amounting to about 60% of hard capital costs, hard construction costs.
what that does, it essentially means reduce the overall cost to the county.
because there's still roughly 50% of the total capital costs being provided by the private sector, it still leaves sufficient money expanding.
we can enforce the risk transfer which is obviously one of the key tenants of a ppp type of arrangement.
this is a fairly typical process now in ppp where the government entity would put up a significant amount of the capital.
the amount of the government would put up, rearrange anything from 30, 40% up to 80% on some of the large civil projects.
it's a fairly well established process and makes a lot of sense from an economic and practical perspective.

>> when you say put up what you mean -- you mean what?

>> essentially the county would borrow the fund and they would then make payments to the private sector.
at various milestones throughout the process.
during the construction process, when the private sector hits certain mild stones it would be foundations could be a milestone, could be, you know, there will be a number of milestones.
the county would then make a payment to the private sector at those points.

>> the mile stop would be based on the percentage -- milestone would be based on the percentage of completion.

>> or 100% completion of frame, say, something like that.
one of the key questions your money first or their or vice versa, more likely vice versa, you put your money in second, they put their money in first, their milestones will more likely been at the end of the construction process.

>> if we use the 30%, the county pushes 30% of reserves, pays it when due, what happens after that's exhausted in terms of payments thereafter?

>> if -- what we're proposing is that the county would -- would make basically 50% of the payment.
so if we took the whole capital costs, that the county would make, roughly half the payments during the construction period.
the other half would be funded by the private sector.
so they would need to go out, the private sector would need to go out and source the funding themselves, go to the capital markets or the bank and borrow the other 50%.

>> the cost overrun, judge, depends on the cause, but it's normally the responsibility of the developer or the concessionaire to provide those funds.
so if they underestimated the cost of the building that's their problem.

>> did the information we received from the 21 interested firms indicate that some of them were interested in this kind of approach.

>> absolutely.
of the 21 responses, I think the majority of them were supportive of a kind of a ppp type of approach, which would involve a design, build and finance or some variance thereof.

>> okay.
thanks.

>> moving down the construction cost phase, transferred risks and retained risks flow from the slide a couple before.
one of the important points to note is our sums around transferred risk, they are actually a cost to the private sector, they are assumed to be financed.
owners costs, that was your question, judge, they are related to the other costs of the county, of undertaking a project.
so they would be consultants, architects, engineers, other costs.
the operating cost, mark raised earlier on, around the cost of operation, maintenance costs, they represent the cost of life cycle, so the cost of repair to the building over 30 years.

>> you see that only in two of the three because that number is inside the total service payments number under dbfmo, whereas the others you would be responsible for those costs, that's why they are identified there.

>> a couple of other assumptions fed into the model.
Commissioner Davis you asked about escalation early on.
we factored escalation into this, there was 3% construction cost inflation and a 2.5% inflation assumed over 30 years for operating costs.
the discount rate is a net present cost analysis.
we assumed sort of a standard investment appraisal mechanism of risk adjusted cost of capital.
we used a project internal rate of return from the model that says 7% discount rate.
one of the other assumptions that is quite key to this is the -- when we looked at the construction periods for the three options, there was consensus that there's likely to be differences between the three options.
the design build was -- was deemed to be potentially the quickest of the options.
the dbfmo the second quickest, the design, bid build likely to be the slowest.
in terms of the analysis, the time tables were equalized.
the reason for that being if we were to do a net present cost analysis, assumes that it was finished early that would penalize it quite heavily.
they were all equalized from a timing perspective.
but obviously from the multiple criterion analysis, timeliness was a key career, the db and the dbfm would have scored highly.
in addition to the point analysis that you have here, we did a sent activity analysis around discount rates, around

>> [indiscernible] efficiencies, the probability distributions with risk analysis, also questions of affordability, to the county as well.
a lot of analysis was undertaken around this and -- synthesis of it.

>> one particular aspect that I would like to address, operating cost.
that it's more efficient to work in the private than public.
also the analysis of saying no it would cost exactly the same to operate it in the public and private sector.
which we have never seen, let's assume that it gets there.
there's still value for money under dbfmo and db.
actually under dbfmo still value for money under that scenario, even if cost to operate is identical, which is begin a very interesting finding.
if we move on to governance, we have done all of the number crunching now, we've covered that all three options are available.
all three options can offer or two of the options db, dbfmo, offer slightly better value for money than the tradition dbb, faster, better risk transfer, as I said in the opening, you would lean to some of the non-tradition.
how are we going to do it.
do we have the capability in the legal group, do you have the capability at all in Travis County to do any of dbb, db or dbfmo.
that question was raised by a number of people, can we do it?
the answer is yes you can if you put in place the right governance model.
we have put in place in the document quite a detailed analysis around governance, which you will see.
it's all based around lessons learned, I would like to mention a few of those, we are way over time from my estimate, I know.

>> empowerment, top of the list very good rope.
empowering your project manager, designated project manager is really important.
allowing them to make decisions, allowing them to drive the project forward.
clear reporting lines.
who is responsible to whom for what.
commitment from the Commissioners or the steering committee, that's in many ways goes along with the empowerment, but you need to basically say we are going to do this, we are going to keep driving this forward, even under some possible opposition.
experience.
you need to employ people who have done this before.
you need to stick to the time table.
set a realistic time table and stick to it.
develop a communications plan that everybody can follow and of course there's way more detail than I'm going through here.
develop stakeholder liaison involvement.
so a very important part of this and it's already been commenced under your direction is involvement with the people and the ladies and gentlemen in this room.
they are a very important part of this project, make sure that liaison continues.
and is listened to.
it's not just a forum for hearing, it is also a forum for listening.
and resource allocation, ensure the right resources are applied, not just financial, but human as well.
we designed a -- an operating solution for you which is in detail here that I won't go into detail with you.
but I think something to consider is two pieces that I haven't heard mentioned previously.
one is an advisory team.
that can be a small group of people, typically from the local community, but also it can be from national or even international to meet on a periodic basis to offer advice.
you may well employ more detailed advisory support from individuals on an as-needed basis on a particular element and a really good example of that is the contract that we've talked about today.
so employing external cancel to assist with formulating with the contract.
employing external individuals to help with the sla's, that's a specialized thing and probably want external support.
finance risk manager it's typical to have that individual.
that is different from day to day.
that is somebody who is going to oversee risks and financial exposure and give you advice around that.
that's not usually a large group of people, but it's a really important group of people, they should be a little independent.
of the rest of the team.
but embodied within the team.
a subtle, very important thing.
if you think of how internal audit often works, that's the sort of thing that we're talking about here.
although internal audit folks are typically not able to do this, it usually a separate consultant that does that.

>> I think that we need the lessons learned criteria regardless of the method of --

>> correct.
this is -- almost all of this is regardless of method.
the finance risk manager you might not need under dbb and possibly not under db, but under dbfmo you definitely need that person.
the advisory team would look ditch under dbb than it would under dbfmo.
you wouldn't have those legal restraints because you've done dbb many times.
the lessons learned be the same.
the governance, while there are subtleties in there, they are explained we have put in high level responsibilities, raci, responsibility, accountability, consulted and informed.
I have to still spell that out.
we put in high level raci charts for you.
they are subtly different for the three different methods, but the basic principles are the same.

>> next steps.
what should you do best.
we think there's two primary things that you could do.
you could take our report, consider it, vote, action it.
that's almost the simplest answer.
you might say I would like more consultation.
I would like more information.
I would like some people who are experts in the marketplace to look at this.
and come back to me with their opinion.
you might commission three or four people in the local community I would recommend.
who understand this.
to take a look at this report and give their opinion on it.
as ernst and young we don't think there's necessary.
we think that you have sufficient information in this document in order to make a decision on how to proceed forward.
those would be the two primary paths.
it would absolutely be your call judge and Commissioners on which path you took.
having done that and having then voted, because eventually you get to a path, whichever path you take, having selected a method to go forward, it is then that's selective procurement method on the next steps.
complete the probable cause charter.
that's -- complete the project chart earlier, empowers -- charter, empowers the team.
select the project manager from within your own organization, an individual, a single person, what microsoft loves to call the single throat to choke.
it's not a terminology I like, though.
will hire external support.
all of those people we talked about in the governance model and simply execute.
drive forward and do it.
it's really not that much more complicated than that.
clearly doing the work is more complicated but the next steps are really straightforward.
in summary all three methods are good methods, that is good value for money in db, dbfmo, there are extremely important, tangible consequential benefits to taking alternative methods and commercial development is a bit more difficult.
we would recommend you go to the market on that and test the market on the commercial development component.
it's a little too difficult to estimate at this time.
particularly with the changing marketplace.
one recommendation that's not on here that we would like to make is that move quickly.
there is momentum for this project, there is momentum from the rfi's that you sent out last year.
there is momentum from the marketplace buzz and all of the places we go and we hear about this project.
we have even seen it in the press in the last few weeks.
there's momentum there.
don't waste that, that's a very valuable commodity, particularly in the current marketplace it gives you the best pricing option that you will ever get.
the market is eager to come and support you.
we recommend that you move as quickly as you reasonable can.

>> Commissioner Eckhardt?

>> I have a question to that particular point.
I really appreciate the executive summary plus the robust backup which was really fun reading.

>> thank you.

>> with regard to speed, I am mindful that the three scenarios laid out before us from a projection standpoint are very close together.
all things being equal.
in your professional opinion, knowing that all things are not equal, which one has the tendency toward greater speed?

>> can I just -- it's interesting because I mentioned that we are

>> [indiscernible] long beach.

>> [indiscernible] actually see what they are experiencing at the moment.
I get regular emails where he's

>> [indiscernible] how far advanced they are, 12 to 18 months ahead of -- not just me.
the steel is up, ordered this, ordered that, so far ahead of where he thinks they would be if they were doing this themselves.
I know the way that the private sector will drive it forward in terms of a construction time table I think will be very different than in a traditional project.

>> go ahead.

>> we have an interesting circumstance here.
we've actually got in the document, design build being the fastest, for an interesting reason, actually dbfmo is the fastest method.
however we built in a lot of time at the beginning of that project for a lot of consultation between yourselves, the public, all of the teams. You could argue that is not actually necessary.
if you were an experienced p 3 builder, you wouldn't need that time.
it's only there because this is the first time that you are doing it.
first time is always slower.
actually dbfmo is the fastest method if you just went out and did it.

>> if we were to avail ourselves of -- I think a need for speed, I here you, we are in a recovery, the capital markets are tight, if we can ride that momentum of cap markets being tight, private sector, looking to us for our superior ability to lay hands on cash, this is the similar question.
I know that this analysis is all things being equal.
knowing that they are not, which one of the three methodologies has the greatest ability to harness -- private sective incentive for cost containment?

>> absolutely no doubt whatsoever that the ppp has a far better ability to harness that ability to end gender far more innovation than you would typically get.

>> can I add a little explanation as to why we think that's true.
lots of obvious reasons, but the two that strike me are there's greater collaboration and greater competition with p 3.
greater collaboration because you have all of these companies who self select to try to win the job.
they have to pick other companies that are going to have a successful proposal, they work with each other and try to achieve the efficiencies that you are describing to win in a competition.
and so you've got the collaboration together, you've got self selected teams competing vigorously with other self selected teams, so you have -- you have greater competition, greater collaboration, that now produces the kind of results that have been described here.

>> let me ask you a legal question with regard to that.
my understanding as a county in Texas for instance, and I think the county attorney's office would be a account to answer this for me.
but with us, as a county, contracting for say janitorial services for instance in the maintenance of a building, we cannot require in contract certain floor of benefits; is that correct?
at least that's what I read in the newspaper in terms of the city of Austin discussions.

>> well, it's a matter of county purposing, too.
if you are going to go out to bids, for janitorial services, several -- several ag opinions and appellate court cases on this, they say the legislature in the purchasing act ended you to get the lowest bid.
so you can't structure the contract or structure the bids to achieve nobel social ends.
the big supreme court case was when txdot started putting in their specifications only u.s.
steel.
and the supreme court said no you can't do that.

>> I am wondering if --

>> similar to that.

>> I'm wondering if in triple p for maintains and operation, whether we can go out to procurement where we say, you know, if you are interested in a -- in a -- triple p maintenance and operation, we're only interested in you if you have a prevailing wage and benefits.

>> well, I would say the case law and the ag opinions that I have read said that it was the competitive bid purchasing statutes.
that prohibited that type of thing, so since --

>> we would not be doing p 3 under those statutes, I would say those cases and ag opinions do not apply.

>> I think that is a valuable theme to explore.
because while I am very, very interested in harnessing the incentive for efficiency and cost containment under the triple p, I'm also very, very interested in -- in creating a level playing field on the bid build from the maintenance and operation standpoint so that we don't cheap out on Travis County workers through exploring this -- through going down this route.
I think actually there are some possibilities that we could do better by -- by private sector, Travis County workers, through a triple p than we can under design -- than we can under our own purchasing powers.

>> I would agree, most governments don't allow a two-tier compensation package, they don't allow that.
there are protections, it's I think for good reasons.

>> so do you recommend that we digest this information, choose a method, and then issue a formal solicitation?

>> yes.
in fact, maybe not the formal solicitation, I would appoint my project manager, I would have the project manager produce a detailed work plan in order to execute on the project, some part of which would be the solicitation, yes.
but there's a little more complicated than that, judge, but in simplistic terms what you said is correct, yes.

>> the key thing is that you need to be prepared, you need to have the right team, it goes beyond the project manager, it goes to making sure that you are equipped to enter into this fray.
one thing that was interesting talking to the project team, this project is five times bigger than anything travis has ever done before.

>> [one moment please for change in captioners]

>> because this is your first, if you do it, and because it's the first under the p 3 law and because the proponents -- the successful proponent in the new broad beach building we understood spent somewhere between 10 and $15 million seeking the work.
and they don't spend that kind of money lightly obviously.
so the planning foundation work of this has been described to you by earn its young is --ents young is extremely important.
it will be really important.
and I think also we definitely should note that because it is the first one, if you will, here and under the law, the further procurement and legal and structuring decision making that's going to be necessary to put forth a very sound procurement will take a little bit of time.
and if you go forth with the p 3.
in the process of doing so will involve I think further discussions with the county attorney's office, maybe with the ag's office, and as we refine the details of what this procurement solicitation will look like to make a credible procurement from the point of view of the proponents.

>> what would be the down side of issuing an r.f.p.
that allows responses to choose -- let's say we narrow this list down to two methods.
allow the responders to choose one of the methods and indicate why they would be able to achieve it for us.

>> I think that was actually tried in the alberta courts, al gary courts, where they went out without framework, without essentially a good procurement route, and it failed.
and I think if you go out and say look, we want to compare this 400-pound gorilla, and I think you will have a procurement.

>> they're all very different if you think about it.
if you think of the difference between dbb, you go out to your point and architect and they design a building, you write a procurement document, you get a contractor, that's one method.
design-build you use an architect plus a contractor using the system that we know here based on capability and then it is a completely different document, you're talking about operations, you're talking about financing.
they are truly, completely different methods.
so it's almost impossible to write a document that encompasses all of those.
voled to write three documents and that's for three types of solicitation and there's no way you could compare them.

>> I think from a private sector perspective, I've just come back to to the firm from a the private sector, if I had an r.f.p.
I wouldn't respond to it.
I would think my bid costs -- if I was going to pursue it, would be enormous.
and any marl reaction is that the canter body doesn't know what they're doing and isn't committed to a process and I wouldn't invest my time if I was on private side.

>> that's an extremely important point.
you have momentum from the rfi's.
you look like you're committed to a p3 method and if you switch horses and go to a dbb or dbbd, the market thinks you're on the p3 horse and time to take that horse forfeit line.

>> let's not forget we have to do the guidelines under the p 3 law.

>> I'm looking at page 18 and I see every word on it.
but when I think of value for money in layman's terms, what should I think?
in terms of simple everyday meaning?

>> it's slightly cheaper to do dbfmo.

>> that's what that means.

>> that's what that means.
more value for the dollar.

>> what we're saying is that we believe that if given the assumptions that we've set out, which I think were conservative and realistic assumptions, that we think that a very good probability that the ppp will and the db will provide benefit, would provide a lower cost than the dbb.
there is also in the main report, judge, there's a chart that shows you the range of results as well.
this is obviously the pinpoint estimate.
and with my risk there's a range of probabilities.
and the range under the dbb is significantly larger than it is under the p3 because of a transfer of risk.
so I think that's another important component.
in layman's language we think it has every reason to expect it will be cheaper under the ppp.

>> and it's more likely to occur.
that's the thing that tim was getting at that I was going to go with my second point there not only is it cheaper, but it's more likely to be cheaper.

>> and tell me again why there's no number in the value for money category for dbb?

>> because that's the baseline.
so the value for money is compared to the baseline.
so it's 312 is 11 million less than 324.
is that what you mean from this box on the bottom here?

>> not really.
I missed that point.
I'm looking at the numbers above the value for money, but I'm looking at the category pal valero for money too -- category value for money too.

>> in the gray box?

>> I'm looking at the yellow.

>> okay.
yeah.
in the yellow box the two value for money numbers, the 3.6 and the 3.7 percent, they are estimated value for money compared to the dbb option.
so the dbb is our baseline.
six that would be zero.

>> so it's --

>> so that would be zero.

>> that would be zero.
irk these are the starting point.

>> so it's dbb.

>> they're cheaper.
they're 11 and a half million and 12 million cheaper than the dbb.

>> and the dbb is just the old traditional design-build.

>> correct.

>> okay.
court members, any other questions, comments?
thank y'all very much.
we appreciate it.
any comments from anybody in the audience?
any brief comments?
come forth, have a seat, give us your name and we'd be happy to get your brief comments.
this is -- we will not take action on this today, but will we be ready next week or two weeks or what?
we'll have it back on the agenda for action next week.
they want us to move quickly.

>> judge, just to clarify, for approval or to make a decision on an option?
or approval of the report?

>> I'm going to postpone both, mr. Jeffreys.
how is that?
judge?

>> Commissioners, we appreciate y'all spending the two hours to listen to this presentation, but I would be remiss if I didn't speak for the brothers and sister judges that we have been pushing for this since 2004, and we're now eight years later, and we urge you to keep the pressure on, to keep the momentum going.
because very, very soon we are going to have operational difficulties at the courthouse.
y'all were talking about maintenance.
we're down to one elevator now.
and we have crowds that are gathering because this is a jury week.
the juries are having difficulty getting up places.
and the age of the building is becoming a deterrent or a detraction to our ability to operate and to process the people's building.
so we urge you with the same attention that y'all have given this presentation, to keep the momentum going on this project.
thank y'all.

>> judge dietz, would you recommend at this point, knowing that you have been involved in this process for, gosh, has it been 15 years at this point?

>> in terms of recommending to the court?
no.
I think the first letter that I sent to y'all and the first presentation that I made to the court was in about 2004, as I recollect.

>> it seems that the next step would be the agendaizing of moving forward with a request for proposals on an owner representative.

>>

>>

>> [ inaudible ].

>> that was our purchasing agent with a question that nobody heard.
would you like to be on the microphone?

>> you're absolutely right, the next thing is to select a procurement method.

>> and we realize -- I mean, this is something that we've been saying since we visited brooklyn and new york and had the briefing on long beach and other types of things.
that there was always going to be a five to six hundred page agreement and the problem has always been not who is sitting on that other side because I believe we would be able to attract the best and the brightest.
not just locally, not just regionally, but in the world, that there's that kind of interest in doing this project.
the problem has always been for Travis County who sits over on this side and who is going to handle it.
and I believe the presentation has quite clearly indicated that we need to in addition to lawyering up, we need to be able to get, I mean, all of our executive capacity to be able to process this.
we shouldn't be frightened because it's something we haven't done before or it's brand new or it's hard.
as I look back in our present building, we have a hard time remembering this, but in 1929 there was catastrophic economic times throughout this country and there were five people just pretty much like y'all sitting at 11th and congress who were having to make the decisions as to build -- whether to build this courthouse across the street or not.
and they did and they spent $700,000.
and the public was up in arms going, my gosh, are y'all crazy, spending that kind of money!!??
and yet in retrospect, what a hell of a deal that was.
we have been able to get a building that has had 83 years of useful life, that has had millions of people to go through it, and is still being used, and it has come at a cost of virtually $7,000 a year.
so how wise they were.
so we ought not to back down from the challenge, but we should embrace it.
but the message is that we're going to have to get quite a bit of executive capacity in order to -- that we don't presently have in order to process and to make these decisions.
and hopefully we're all of like mind, and I believe we are.
everybody has treated this serious.
and I think we have the courage to do it.
now, it would be nice if we had the support in addition to those who want to see us, build a signature building.
if they would step forward and help with the public in terms of -- we're not asking to develop a legal taj mahal.
what we're trying to do is get a building that works for the people here, now, and in 35 years in the future.
and so I think this had been a team.
I think our instincts are correct, that we want to try to get as many of the community involved, but essentially y'all have got to make a decision and respectfully the sooner y'all make it, the better off I believe we'll be.

>> thank you, judge.
anybody else?
who has something new and different to say.
thank y'all very much.
we know how to reach you.

>> [ laughter ]

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