Sunday, November 08, 2009

Contract engineering firms and lawyers benefit from NTTA's creeping toll tax bureacracy and ballooning debt

Outside contract work taking bigger toll on North Texas Tollway Authority


The Dallas Morning News
Copyright 2009

The North Texas Tollway Authority spends hundreds of millions of dollars each year to design, build and repair its roads, to market itself, and to solve its legal problems.

But only a fraction of the hundreds of professionals who perform those tasks actually work for the toll authority, whose impact on North Texas drivers has soared in the past few years as it has increased its debt to about $7 billion to vastly expand its network of toll roads.

Instead, NTTA relies on a handful of gold-plated firms that for decades have given that work to their own employees, routinely charging NTTA three to four times what a staff member might earn to do it.

Hundreds of firms are paid to do work for NTTA each year, including some small outfits and some that are national engineering powerhouses.

But five legacy firms, each of them among the nation's best at what they do, have held key roles for NTTA since long before it was created in 1997 out of the old Texas Turnpike Authority.

Three of those firms have worked for the toll authority and its predecessor since the 1950s, and one since 1962. NTTA's financial adviser, RBC Capital Markets, a subsidiary of Royal Bank of Canada, is the newcomer, working for the authority since 1983.

National toll road behemoth HNTB has been the agency's general engineering consultant since the authority's creation in 1953 and occupies an office building owned by NTTA across the parking lot from the authority's sprawling Plano headquarters. It billed NTTA $30 million last year.

And for more than 50 years, when NTTA has needed a lawyer, it has called one of the most prestigious, and most expensive, law firms in Texas, Locke Lord Bissel & Liddell. One of the founders wrote the statute to create the turnpike authority in 1953 to build the Dallas-Fort Worth Turnpike, which is now part of Interstate 30. The business has stayed with the firm ever since.

The long tenure is more than just institutional. Senior partner Frank Stevenson has worked on NTTA legal matters for 29 years and been its outside general counsel since 1995.

"There is an incredible amount of personal loyalty to NTTA here," Stevenson said. Beyond that, his firm has developed exceptional expertise, he said. "We're the best there is at this. We just are. We're really, really good at this."

Excellence at a price

Those long-standing relationships provide NTTA with unquestioned expertise, flexibility to ramp up during an emergency and to cut staff loose during a slow time, as well as guaranteeing deep familiarity with its work.

But they come at a steep price.

That's become especially so during the last couple of years, as elected officials in North Texas have increasingly turned to tolling as a way to pay for new highways, instead of relying on gas taxes and the state Department of Transportation. As NTTA's portfolio of projects has grown, it has hired relatively few employees and instead has increased its spending on outside firms.

Last year, for instance, Locke Lord billed NTTA nearly $7.7 million in legal fees, three times more than it billed in 2006. About $3 million paid for NTTA's aggressive pursuit of right of way, a program that has seen it go after 200 parcels of property for its planned expansions. As NTTA's borrowing soared, payments to McCall Parkhurst, its bond counsel since 1955, jumped to $3.4 million, up from $233,148 just two years before.

But NTTA also paid millions for other legal chores, many of which could have been done far more cheaply by smaller firms or by a lawyer on the NTTA payroll.

Until last month, NTTA had no attorney on staff. It hired a new general counsel last month at a salary of $215,000, and both NTTA officials and Stevenson said legal bills should be much smaller next year as a result.

On the engineering side, NTTA, like all heavily leveraged toll entities, is required by agreements with its creditors to employ a general engineering consultant, usually a top-notch design and construction management firm that oversees much of its road work. But after nearly 60 years of working for NTTA, HNTB's job duties have grown far beyond than what is required by the agreements.

Currently, HNTB provides senior engineers, including managers, who direct nearly all aspects of some of NTTA's top projects.

It also keeps scores of other employees on call, many of whom fulfill routine roles. For instance, it has the equivalent of five full-time employees to augment NTTA's communications staff.

That's a form of mission creep that NTTA executive director Allen Clemson said the authority is reviewing. Some of its largest contracts have grown to include work that smaller, less expensive firms could probably do easily – a fact that Clemson and his bosses on the board of directors have acknowledged.

"Here's how it works," said Clemson, who five months ago became the agency's fifth top boss in as many years. "Somebody here needs something done, and they get on the phone [to HNTB]. Maybe they need a map or a glossy presentation, and need something produced quickly. Well, pretty soon some of the brightest, most creative people in the business come across the street and start working on it. That happens too much."

It's not the companies' fault that NTTA had grown too lazy in its use of them, NTTA Chairman Paul Wageman said.

"It's our fault," he said. "We needed to find a competent, experienced public administrator to the run the agency the way it ought to be run. I think we've done that. We're maturing as an agency. Candidly, it may not have been happening as quickly as it should have. But it now commands the full attention of our board and our staff."

Adding it up

How expensive are consultants? In NTTA's case, very.

By Clemson's estimate, much of the work NTTA pays to have done by someone else costs about three times more than if NTTA did it.

It adds up in ways both big and small.

In August, for instance, two HNTB communications staffers assembled routine packets that board members receive before each meeting – booklets that sometimes are hundreds of pages long and explain each item on a board meeting's agenda.

One HNTB employee, whose salary is about $38 an hour, spent 21/2 hours putting the packets together, and another, paid about $20 an hour, spent nine hours, including some time being "on call for packet assembly."

Together, they were paid $273 to assemble the packets, but when the bill got to NTTA, adjustments for profit and overhead – standard multipliers common in most consulting contracts – meant that the bill totaled $757.

At the other end of the scale, NTTA pays engineering firms such as HNTB and others to provide top-paid professionals to build, manage and maintain its roads. The most senior engineers earn up to $150,000 a year or more, but when NTTA pays their employers for their time, the bill for each can reach nearly a half-million dollars per year.

In all, NTTA relies on the full-time equivalent of about 150 professional engineers to manage its workload, though that number can jump or drop, sometimes with little notice.

It has eight engineers on staff.

Longtime NTTA executive Rick Herrington, who recently left to rejoin his old firm, HNTB, to help lead its toll road operations nationwide, defended NTTA's approach to contractors.

He said that when the new agency was formed out of the old turnpike authority in 1997, its mission was smaller, and the officials who created it wanted to avoid creating a big, costly agency. "They didn't want to create a miniature TxDOT," he said.

Instead, the NTTA followed a model used in dozens of other toll authorities across the country. It kept the professional staff small and brought in outside firms capable of quickly adding – or shedding – workers and expertise as required.

"We could ramp up our staff, and then bring it down," Herrington said. And until the State Highway 121 deal, NTTA had little need for a large, permanent engineering staff. After all, its responsibilities included maintaining the aging Dallas North Tollway, still its largest cash generator, and building the Bush Turnpike.

It's mostly been ramping up since 2007, when NTTA agreed to borrow about $5 billion to build the Highway 121 toll road, a deal that also required it to pay Texas some $3.2 billion in cash for the right to collect tolls on the road forever.

It also promised local elected officials that it will aggressively build a growing roster of other costly toll roads.

When Clemson arrived earlier this year, he was surprised to see how few engineers NTTA employed, and how big its payments to contractors were each month.

With encouragement from the newly expanded nine-member board of directors, he began to wonder whether NTTA could get by with hiring more employees who could perform the routine tasks it pays some of the most expensive firms in the industry to do.

"The numbers are big, very big," he said. "Sometimes you need an all-pro professional, and sometimes we just need a good solid professional."

Changes ahead

Some changes already are being made. By 2010, NTTA plans to hire about 25 positions, including 10 information technology staffers, a few engineers and a landscape architect.

After paying those new salaries, it expects to save nearly $4 million in fees to contractors.

"There is a palpable effort being made to see that the NTTA has the staffing in place to perform what are seen as areas of core competence," said Stevenson, the Locke Lord lawyer who said the new general counsel will reduce payments to his firm significantly.

"In the cases where NTTA can look at what its contractors are doing and say, 'We're always going to need this guy doing this job,' then it makes sense [to bring it in house]. I applaud that, and it's something I've told them they ought to be doing."

But the savings aren't likely to be seen by drivers who are just getting used to higher toll rates. Next year, NTTA expects its revenue to be $410 million, including $377 million from tolls.

Its biggest expense – some $158 million – will be to service its fast-growing debt load. It will spend about $102 million on operations and maintenance, and an additional $128 million for capital improvement projects, maintenance reserve and other items.

By 2013, NTTA expects to spend about $400 million a year to service its debt.

Contracts up for grabs

Clemson said he has not yet completed a review of how NTTA spends its money. He said some additional staff members may be brought in house in the future.

But the biggest opportunity for change arrives next year, when each of the five firms must compete for new five-year contracts.

When they bid, they will bring enormous advantages to the table. Making a change to that roster would be difficult, and at least one attempt by NTTA board members to do so has failed in the past.

But Clemson said he wants NTTA to approach the new contracts with a new focus on efficiency. That will include unbundling some of the biggest contracts to make sure that the top-priced firms are only used for the sophisticated, highly specialized work that requires top dollar.

Even some of the professional work, such as more routine legal and engineering help, could be broken off into smaller contracts. That could have the bonus, board members said, of helping NTTA improve the diversity among the firms that it pays to do its work, including adding firms owned by minorities or women and companies in Tarrant County.

"I am new at this organization," Clemson said. "I don't have a single relationship with anybody in the law firms or the engineering firms. So we are going to make sure that our request for proposals are properly structured, and cover the body of work that we need to have, and don't have a bunch of tricks in them. I want to encourage, and hope to get, good firms to compete. We will evaluate them in very open and transparent way and see what happens.

"I would think that of all the times these contracts have been in place, that this is a very likely time for changes to happen."

© 2009 The Dallas Morning News:

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