CALIFORNIA CENTER FOR INNOVATIVE TRANSPORTATION
INSTITUTE OF TRANSPORTATION STUDIES
UNIVERSITY OF CALIFORNIA, BERKELEY
Innovative Corridors Initiative:
Business Model Analysis
Task Order 1010 Final Report
Rachel S. Finson
Project Manager, Innovative Mobility Research,
California Partners for Advanced Transit and Highways
1357 S. 46th Street, Building 452, Richmond, CA 94804- 4603
510- 665- 3455 ( O); 510- 665- 3537 ( F); E- mail: rfinson@ path. berkeley. edu
Virginia Lingham
Graduate Student Researcher
California Center for Innovative Transportation
Susan A. Shaheen, Ph. D.
Policy and Behavioral Research, Program Leader
California Partners for Advanced Transit and Highways
1357 S. 46th Street, Building 452, Richmond, CA 94804- 4603
510- 665- 3483 ( O); 510- 665- 3537 ( F); E- mail: sashaheen@ path. berkeley. edu
August 2007
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Acknowledgements
This work was performed under Task Order 1010 for the California Center for Innovative
Transportation ( CCIT) of the University of California, with the California Department of
Transportation in cooperation with the Metropolitan Transportation Commission ( MTC) in the
San Francisco Bay Area, the Los Angeles Metropolitan Transportation Authority ( LA MTA),
Intelligent Transportation Society of America ( ITSA), and the numerous industry partners that
participated in the Innovative Corridors Initiative ( ICI). The authors would like to acknowledge
California Partners for Advanced Transit and Highways ( PATH) for their contributions to this
study, and Cynthia McCormick for assistance with background business model research. The
authors would also like to acknowledge Srikanth Balasubramanian, the Caltrans ICI project
manager and David Harris the Caltrans legal Counsel.
The contents of this report reflect the views of the authors who are responsible for the facts and
the accuracy of the data presented. The contents do not necessarily reflect the official views or
policies of the State of California. This report does not constitute a standard, specification, or
regulation.
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Abstract
The Innovative Corridors Initiative ( ICI) Business Model Analysis examines public- private
partnerships designed to deploy intelligent transportation system ( ITS) technologies that can
improve transportation system management and provide real- time information to users. This
study builds on the business models proposed by industry in response to the ICI Call for
Submissions ( CFS). 1 In addition, case studies examine the business models that are developing
between the private and public sectors for roadside rest stop wireless Internet access, vehicle
infrastructure integration, and Traffic. com, Inc. Caltrans’ current procedures for encroachment
and procurement are reviewed briefly to identify possible areas of conflict that may need to be
resolved prior to launching future CFS- style solicitations. Planning recommendations are
provided to assist Caltrans with planning for future CFS- style solicitations, including
considerations regarding goals, purpose and project partners, authority, and post- demonstration
relationships. Issues for Caltrans to consider pertaining to the authority for CFS- style
solicitations as well as the procurement of products that are demonstrated under these
solicitations are highlighted.
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Executive Summary
The Innovative Corridors Initiative ( ICI) Call For Submissions ( CFS) represented recognition on
the part of the agency partners, the California Department of Transportation ( Caltrans), the
Metropolitan Transportation Commission ( MTC) based in the San Francisco Bay Area, and the
Los Angeles Metropolitan Transportation Authority ( LA MTA) that intelligent transportation
systems ( ITS) technologies are changing system management and individual choices with real-time
information about road conditions, public transit, and non- recurring incidents. ( See Task
Order 7 Innovative Corridors Initiative: CFS Implementation and Evaluation Final Report.) The
agencies also recognized that these technologies have the potential to redefine the traditional
relationship between the public and private sectors.
Transportation agencies are increasingly shifting their emphasis from building new capacity to
improving the management of existing capacity. ITS technologies have the potential to enhance
transportation system management with real- time data delivered seamlessly to the system
managers that can best use the information. However, ITS technologies are evolving rapidly and
installation and operation can be costly. In many ways, ITS technology belongs in the domain of
the fast- paced business entrepreneur.
Call for Submissions Business Models
To foster innovation, the ICI CFS did not specify a problem to be solved nor a technology to be
used. The goal was to see what ideas industry would propose when faced with minimal
constraints, given their technical expertise. Beyond inviting industry to propose projects that
would use public agency assets ( rights- of- way or data) at no cost to the public sector ( except
staff time), the CFS did not specify the type of public- private relationship to be included in the
CFS proposal. All 28 CFS proposals were evaluated in terms of the “ business model” that was
proposed either explicitly or implicitly. For the purposes of this project, “ business model” refers
to the relationship between the public agencies and the private sector including the assets
requested, the flow of funds to install and operate the system, and the benefits to both parties.
The three business models are identified as: 1) the self- sustaining model, 2) the cost- share model,
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and 3) the procurement model. The self- sustaining model closely fits the traditional model of a
public- private partnership ( PPP) with both the public and private sectors assuming some risk as
well as some of the potential benefit if successful. Under this model, no funds are exchanged.
The cost- share model also closely fits the traditional model of a PPP with both the public and
private sectors assuming some risk as well as some of the potential benefit if successful. Like the
self- sustaining model, no funds are exchanged. However, this model requires the agency to
absorb some costs for project implementation, in addition to staff time. The procurement model
does not fit the traditional model of a PPP as closely as the previous two business models
discussed. Under the procurement model, the private sector wants short- term access to the rights-of-
way to install equipment for a limited demonstration. Under this model the private sector may
absorb more risk than the public sector since the public sector is under no obligation to purchase
the product.
ITS Public- Private Partnership Case Studies
In addition to the ICI project and the release of the CFS in 2003, Caltrans is active in other PPPs
for ITS technologies that use public rights- of- way. These include: 1) a Roadside Rest Stop
Wireless Internet Access ( WiFi) demonstration, 2) a Vehicle Infrastructure Integration ( VII)
research project, and 3) a partnership with Traffic. com, Inc. While more time is necessary to
evaluate the ultimate configuration of these PPPs, and if they will prove to be successful, the
case studies are useful to contrast with CFS- style solicitations.
Caltrans Rights- of- Way and Procurement Overview
Caltrans has numerous mechanisms for interacting with the private sector that could influence
the character and outcome of PPPs for ITS technology deployments. These can be broadly
separated into: 1) granting access to rights- of- way ( encroachment) and 2) procurement of goods
and services. Encroachment governs private sector access to the public rights- of- way, while
procurement governs the mechanisms and methods by which the public sector purchases goods
and services from the private sector. The ICI CFS and future CFS- style solicitations touch on
both of these processes. For the ICI, CFS industry partners were offered a streamlined
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encroachment process, and encroachment fees were waived. Procurement was not addressed
when the ICI CFS projects were initiated, as all projects were designed as demonstrations.
Policy and Planning Recommendations
The ICI CFS, as well as the three case studies, revealed that there is great potential for PPPs to
accelerate the deployment of ITS technologies on public roadways. However, implementing a
new way of doing business requires careful consideration to ensure that all legal and procedural
requirements are followed. Policy and planning recommendations are provided regarding: 1) the
authority for the CFS; 2) the goals, purpose and partners for the solicitation; and 3) the post CFS
agency- industry relationship.
The authority for a CFS- style solicitation may include legislative authority and/ or a Feasibility
Study Report ( FSR). Under a CFS- style solicitation where no funds are exchanged neither
legislative authority nor an FSR appear to be required in California. The relationship between the
agency and the industry partner after the close of the CFS demonstrations will determine if either
legislative authority or an FSR is required at that time. If the agency were purchasing products or
services or receiving revenue from a profit- share arrangement, legislative authority and/ or an
FSR may be required.
Although a CFS- style solicitation does not guarantee an agency/ industry relationship after the
close of the demonstrations, planning for such an event could facilitate public access to the
technologies. Under the self- sustaining business model the industry partner requires long- term
access to the rights- of- way in exchange for providing data to the public agency. Under this
model the industry partner does not have a product to sell to the agency, and procurement is not a
factor. For the procurement model, however, the industry partner does have a product that they
want to sell to the agency. Caltrans must adhere to State mandated legal requirements for fair and
opening bidding. This means that, 1) the CFS should be designed so that participation would not
preclude an industry partner from bidding on future solicitations from the agency, and 2) if
Caltrans did want to purchase a product at the close of the demonstration, State requirements
would need to be followed including an open access bidding process.
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Table of Contents
Acknowledgements .................................................................................................................... i
Executive Summary................................................................................................................ iii
Section I: Public- Private Partnerships and ITS....................................................................... 1
Section II: ICI CFS Business Models .................................................................................. 4
Self- Sustaining Model............................................................................................................. 4
Cost- Share Model ................................................................................................................... 6
Procurement Model................................................................................................................. 7
Final Resolution of the ICI CFS Projects................................................................................. 8
Section III Case Studies of ITS Public- Private Partnerships ........................................... 10
Roadside Rest Stop Wireless Internet Access ........................................................................ 10
Vehicle Infrastructure Integration ( VII)................................................................................. 18
Overview of Traffic. com, Inc. .............................................................................................. 23
Section IV: Caltrans’ Mechanisms for Private Sector Interaction.................................... 26
Encroachment Permit Overview............................................................................................ 26
State Procurement Overview................................................................................................. 31
Section V: CFS- Style Solicitation Policy and Planning Recommendations..................... 33
Section VI: Conclusion........................................................................................................ 42
References ............................................................................................................................... 45
Table of Figures
Table 1 - WiFi Comparison Chart ............................................................................................. 17
Table 2 - VII Summary ............................................................................................................. 23
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Section I: Public- Private Partnerships and ITS
The Innovative Corridors Initiative ( ICI) Call For Submissions ( CFS) represented recognition on
the part of the California Department of Transportation ( Caltrans), the Metropolitan
Transportation Commission ( MTC) based in the San Francisco Bay Area, and the Los Angeles
Metropolitan Transportation Authority ( LA MTA) that ITS technologies are changing system
management and individual choices with real- time information about road conditions, public
transit, and non- recurring incidents. ( See Task Order 7 Innovative Corridors Initiative: CFS
Implementation and Evaluation Final Report.) The agencies also recognized that these
technologies have the potential to redefine the traditional relationship between the public and
private sectors. Historically the relationship has been one of client and provider with the agencies
issuing RFPs or other solicitations for services or goods, industry responding with a proposal,
and the award of a contract for the specified work at the bid price. More recently, public agencies
have entered into public- private partnership ( PPP) agreements with industry to build and operate
toll roads. According to the Federal Highway Administration ( FHWA), PPPs with the tolling
industry began in 19922. Currently, 21 states and one U. S. territory have enacted statutes that
enable the use of various PPP approaches for the development of transportation infrastructure3.
According to the FHWA, some of the benefits of using PPPs to deliver transportation projects
include: expedited completion compared to conventional project delivery methods, project cost
savings, improved quality and system performance from the use of innovative materials and
management techniques, substitution of private resources and personnel for constrained public
resources, and access to new sources of private capital. With PPP projects, risk generally rests
with the party that is the best equipped to manage the risks, and contracts can include incentives
that reward private partners for mitigating risk. As defined by the FHWA, risk factors can
include technology performance, environmental flaws or delay, market revenues, completion
costs, operation and maintenance costs, policy/ political constraints/ support, phasing, timing, and
resources as well as liability.
Transportation agencies are increasingly shifting their emphasis from building new capacity to
improving the management of existing capacity. ITS technologies have the potential to enhance
transportation system management with real- time data delivered seamlessly to the system
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managers that can best use the information. However, ITS technologies are evolving rapidly and
installation and operation can be costly. In many ways, ITS technology belongs in the domain of
the fast- paced business entrepreneur. As demonstrated with the ICI CFS projects and the three
case studies outlined in Section III, there is an opportunity for PPPs in ITS, which provide a
benefit to the public agency participants as well as offering a profit opportunity for the private
sector partner.
The FHWA defines PPP as: 4
“… contractual agreements formed between a public agency and private sector
entity that allow for greater private sector participation in the delivery of
transportation projects.”
FHWA further notes that:
“ Expanding the private sector role allows the public agencies to tap private sector
technical, management and financial resources in new ways to achieve certain
public agency objectives such as greater cost and schedule certainty,
supplementing in- house staff, innovative technology applications, specialized
expertise or access to private capital.”
“ The private partner can expand its business opportunities in return for assuming
the new or expanded responsibilities and risks.”
The National Council for Public Private Partnerships defines a PPP as: 5
“… a contractual agreement between a public agency ( federal, state or local) and a
private sector entity. Through this agreement, the skills and assets of each sector
( public and private) are shared in delivering a service or facility for the use of the
general public. In addition to the sharing of resources, each party shares in the
risks and rewards potential in the delivery of the service and/ or facility.”
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Central to a PPP is that both the public and private entities expect a benefit and also absorb some
of the risk. In the case of toll roads, the public entity accomplishes the goal of providing
improved transportation facilities, and the private entity stands to gain profit based on toll
collections. The ICI project targeted a new style of PPP based on the delivery of ITS goods and
services that could provide benefit to both the public and the private sectors. With ITS, the public
entity accomplishes the goal of collecting real- time transportation information to better manage
the system, and the private entity can gain a profit by selling the data to the public in the form of
real- time travel advisories. The CFS projects also demonstrated an opportunity for entrepreneurs
to showcase their technologies to agencies in real- world situations, providing partnerships in
testing and refining the technology to fit agency needs.
While the ICI CFS did not specify what public asset the private industry could request, rights- of-way
appeared to be the asset of greatest value to the private sector. Therefore, this business
model analysis focuses on Caltrans’ rights- of- way as the primary incentive for private industry to
participate in PPPs to deliver ITS technologies. The ICI project demonstrated that through inter-agency
cooperation between a state DOT and a local MPO, the MPOs could benefit from this
business model as well. In the case of the ICI, MTC gained valuable real- time data through
partnership with both Caltrans and the industry partners. Other public assets, such as data or
access to public buses or trains, could also be involved in similar PPPs for ITS technologies.
Section II examines the business models that industry proposed in response to the ICI CFS and
the outcomes of the ICI CFS projects after the close of the demonstrations. Section III reviews
three case studies of ITS projects that involve the public and private sectors working together.
The three case studies are: 1) roadside rest stop wireless Internet ( WiFi) access, 2) Vehicle
Infrastructure Integration ( VII), and 3) Traffic. com, Inc. Section IV provides a brief overview of
Caltrans’ current procedures for interacting with the private sector, including encroachment and
procurement. Finally, Section V closes with planning and policy recommendations for public
sector consideration for future CFS- style solicitations for ITS.
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Section II: ICI CFS Business Models
To foster innovation, the ICI CFS did not specify a problem to be solved or a technology to be
used. The goal was to see what ideas industry would propose when faced with minimal
constraints, given their technological expertise. Beyond inviting industry to propose projects that
would use public agency assets ( rights- of- way or data) at no cost to the public sector ( except
staff time), the CFS did not specify the type of public- private relationship to be included in the
CFS proposal. Therefore, the 28 proposals that were submitted included a broad variety of
arrangements between the public and private sectors.
All 28 CFS proposals were evaluated in terms of the “ business model” that was proposed either
explicitly or implicitly. For the purposes of this project, “ business model” refers to the
relationship between the public agencies and the private sector, including the assets requested;
the flow of funds to install and operate the system; and the benefits to both parties. Not all of the
proposals or business models appeared viable from an agency perspective. In some cases, the
industry partner was not planning to engage in business activity based on their CFS proposal.
However, in all cases examining the proposals proved instrumental in highlighting the range of
possible business models from the private sector perspective.
Self- Sustaining Model
Many of the CFS projects fit some variation of what we are calling the self- sustaining model. For
some of the industry partners the intent was to use the CFS as a jumping- off point to launch their
businesses. In these cases, the industry partner identified a clear expected revenue stream. For
other industry partners, the CFS project was confined to a demonstration, where the possible
revenue stream was not articulated. In these cases, the researchers determined if a potential
revenue stream could be identified, but they did not ascertain if it was robust.
The self- sustaining model closely fits the traditional model of a PPP with both the public and
private sectors assuming some risk as well as some of the potential benefit, if successful. Under
this model, no funds are exchanged. Because Caltrans and MTC had different assets available to
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industry, the characteristics of the self- sustaining model differed between these two agencies.
The characteristics for Caltrans’ self- sustaining model are as follows:
• Company gets access to public rights- of- way.
• Company operates a business, generating income by selling information to the traveling
public on a wholesale or membership/ subscription basis.
• Company provides data to public agencies at no cost.
• Public agencies benefit through access to better data for transportation system
management at no cost.
• Company benefits through access to rights- of- way from which to collect data that they
can process and sell.
• The traveling public benefits through access to better information.
Examples of the self- sustaining model that relied on access to rights- of- way include SpeedInfo’s
Speed Sensor project and Circumnav’s ( now Dash Navigation, Inc.) Dynamic Route Advisory
CFS project with Caltrans District 4 ( in close coordination with MTC). For both of these
projects, the industry partner wanted to place equipment in Caltrans’ rights- of- way with the
intent to sell the data as real- time transportation information either to information service
providers or directly to their own subscribers. In both cases, data were provided free to Caltrans
and MTC. However, the agencies agreed to restrict their use of the data, so as not to compete
with the companies by providing company generated travel data via public websites. This is an
important aspect of the self- sustaining style of PPP, since the companies cannot operate a
successful business if the data they are generating are available to the traveling public for free.
For projects with MTC, the asset that the companies wanted was access to the 511 data stream or
access to the 511 system. Characteristics of the self- sustaining model that rely on access to data
or other resources from MTC include:
• Company processes the data ( sometimes augmenting it with their own data) for
presentation in a user- friendly manner directly to the traveling public or via an
intermediate source, or;
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• Company utilizes the 511 system to provide personalized service.
• Company sells the processed data or service.
• Benefit to the company is creating a market based on ( mostly) public data.
• Agency receives the processed/ augmented data for free.
• The traveling public is better informed.
Examples of self- sustaining project models in partnership with MTC include NAVTEQ’s 511
Level Two Demonstration and Tele Atlas’s TV511 Demonstration. For both of these projects,
the companies did not intend to launch a business. The intent was to demonstrate the technology
and the potential for a business model based on partnership with a public transportation agency.
For NAVTEQ’s 511 Level Two CFS project with MTC, NAVTEQ wanted to access MTC’s 511
system to demonstrate a “ concierge service” of personalized information that subscribers
purchased. Although in this case, the industry partner did not provide data to the public agency,
there is the potential for revenue sharing. The Tele Atlas project used the 511 data stream to
create real- time maps of traffic conditions around the San Francisco Bay Area that were aired on
television. From a business model perspective, the goal was to gain advertising or government
sponsorship.
Cost- Share Model
The cost- share model also closely fits the traditional model of a PPP with both the public and
private sectors assuming some risk as well as some of the potential benefit, if successful. Like
the self- sustaining model, no funds are exchanged. However, this model requires the agency to
absorb some costs for project implementation, in addition to staff time. Following are the
characteristics of the cost- share model:
• Company supplies vehicles or other equipment at their own cost.
• Agency installs roadside equipment along the rights- of- way or otherwise provides
infrastructure at their own cost.
• Benefit to public agencies is access to better information for system management.
• Benefit to the company is enhanced market access and data.
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• Benefit to the traveling public is access to better information and products.
Although projects were proposed via the ICI CFS solicitation that followed this model, the CFS
stipulated that no public funds were available. Because this model required agency resources
beyond staff ( i. e., installation of roadside equipment) none of these proposals proceeded to
agreement.
Procurement Model
The procurement model does not fit the traditional model of a PPP as closely as the previous two
business models discussed. Under the procurement model, the private sector wants short- term
access to rights- of- way to install equipment for a limited demonstration. The private sector may
absorb more risk than the public sector, since the public sector is under no obligation to purchase
the product. A benefit to both parties is the chance to customize the equipment to fit specific
agency needs. No funds are exchanged during the demonstration, but success from the private
sector perspective would be that the agency purchases their product. Following are the
characteristics of the procurement model:
• Company gains access to public rights- of- way to install limited technology for a
demonstration at their cost.
• Agency provides access to rights- of- way. There is no cost to agency.
• If agency likes the product they can purchase from the company after the demonstration.
• Benefit to company is the opportunity to showcase new technology to the agency in a
real- world setting and possibly gain a new market.
• Benefit to the agency is a chance to “ test- drive” the technology before purchasing and
work with company to customize technology to meet specific needs.
• Benefit to the traveling public is improved transportation system management.
Examples of CFS projects that fit the procurement model include Infotek Associates’ Intelligent
Loop Detector Application and ENCOM Wireless Data Solutions’ Seamless Wireless Integration
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for Traffic Applications. For both of these companies, the goal was to develop a relationship
with the public agencies and ultimately to sell their product to the partner public agency or other
public agencies that experienced their technology demonstration.
Final Resolution of the ICI CFS Projects
When the CFS was issued ( October 2003), the agencies did not know what type of projects
would be proposed by the private sector and ultimately agreed upon with the public agencies.
Thus, it was difficult to plan for the relationship between the parties after the close of the
projects. CFS Agreements between Caltrans and the companies did outline the minimum
requirements at the close of the projects for the industry partners to be allowed to respond to a
subsequent public bidding process for similar technology. This included the removal of all
equipment from the rights- of- way at the close of the project, obtaining new encroachment
permits, and steps to maintain legal requirements for open procurement processes. Following is a
brief summary of the outcomes of the CFS projects from the perspective of a new business
model for public- private partnerships. In some cases, the final outcome or relationship between
the agencies and the companies has not been resolved.
The three projects with MTC ( NAVTEQ’s Level Two 511, Tele Atlas’ TV511, and Outreach’s
Bay Area Web Congestion Mapping and Traffic) all closed before the end date of their CFS
agreements, and there is no continuing relationship between the private companies and either
MTC or Caltrans on these projects. While this does not indicate that there is no room for a
public- private partnership regarding MTC’s 511 database, it does indicate that making a business
case using the 511 database may face additional challenges.
For projects that requested access to Caltrans’ rights- of- way, two followed the procurement
model ( ENCOM Wireless Data Solutions and InfoTek Associates), and two followed the self-sustaining
business model ( Circumnav ( now Dash Navigation, Inc) and SpeedInfo Associates). a
a NAVTEQ and Caltrans signed a CFS agreement for NAVTEQ’s Vehicle Infrastructure
Cooperation project. However, NAVTEQ did not place any of their roadside units in Caltrans’
rights- of- way, so ultimately there was not a Vehicle Infrastructure Cooperation CFS project.
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At this time, it is not known if ENCOM Wireless Data Solutions or Infotek Associates will
continue to work with Districts 4 and 7 regarding their technology or if these Districts or other
Caltrans’ districts may purchase equipment showcased during the CFS demonstrations.
Dash Navigation has discontinued use of the equipment they placed in Caltrans’ rights- of- way
under their CFS agreement. Dash Navigation may donate this equipment to either Caltrans or
MTC, but at this time, the final resolution of the equipment has not been determined.
Jurisdiction for the SpeedInfo devices was shifted to MTC with a new encroachment permit held
by MTC. Under this arrangement, the SpeedInfo devices were not removed from the rights- of-way
at the close of the CFS demonstration. MTC and SpeedInfo have established a business
relationship with MTC purchasing data from SpeedInfo. Neither MTC nor SpeedInfo are being
charged for access to Caltrans’ rights- of- way. Under this arrangement MTC can use the
SpeedInfo data for calculating and reporting driving times and traffic conditions on the 511
phone system and the 511. org web site and for transportation planning and system management.
Caltrans is allowed to use the SpeedInfo data for low power AM or FM broadcasts, incident
management, traveler information, highway operations, highway planning, messages on
changeable message signs and for emergency management and public safety purposes.
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Section III Case Studies of ITS Public- Private Partnerships
In addition to the ICI project and the release of the CFS in 2003, Caltrans has been active in
other PPPs with the private sector to test and deploy ITS technologies. These include: 1) a
Roadside Rest Stop Wireless Internet Access ( WiFi) demonstration, 2) a Vehicle Infrastructure
Integration ( VII) research project, and 3) a partnership with Traffic. com, Inc. For all three case
studies, the projects are in- progress with the outcomes yet to be determined. While more time is
necessary to evaluate the ultimate configuration and success of these PPPs, the case studies are
useful to contrast with CFS- style solicitations.
The benefits of partnering with the private sector for the deployment of ITS technologies include
reduced costs to the public agencies, access to emerging technologies, and real- time information
for system management and the traveling public. The benefits to the private sector are the
opportunity to operate a for- profit business using some aspect of the public rights- of- way. The
ability for the private sector to operate a viable business is key to private sector participation.
Roadside Rest Stop Wireless Internet Access
Wireless Internet access has revolutionized the public’s relationship to the Internet, creating the
ability and the expectation to be “ connected” even when away from work or home locations.
WiFi access at “ Internet cafes” has become ubiquitous, exhibiting two dominant business
models. Under one business model, the user pays a service company that has contracted with the
“ café” for either daily access or they join for unlimited access based on a monthly fee. Under the
second business model, the service is provided at no cost to the customer with the “ café” paying
for the access fees. Under this model, the business presumes that additional customers offset the
costs associated with providing the Internet access. The growth of WiFi availability at coffee
shops and cafes indicates that customers appreciate the Internet access.
Caltrans, other State DOTs, and some private WiFi providers have hypothesized that access to
WiFi for business, vacation or occasional travelers while on the road would be a valuable
service. The user could check road and weather conditions, make a hotel reservation,
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communicate with the office or home or check the Internet for information regarding the next
portion of their journey. Roadside rest stops, provided by state DOTs to improve safety, may be
the ideal location for WiFi access for travelers. Travelers stop to get refreshments from vending
machines, stretch, take a nap, check maps, and generally prepare for the next segment of their
trip.
Caltrans is participating in a WiFi demonstration at two roadside rest stops that includes an
industry partner and a non- profit partner. In addition, a number of state DOTs have started
implementing WiFi at rest stops in conjunction with private service providers. This analysis
reviews the business model for the Caltrans WiFi roadside rest stop demonstration as well as a
number of rest stop WiFi deployments in other states. The business models vary among the states
and between the WiFi providers. The key variables are:
1) Which party ( agency or industry) pays to install and operate the service,
2) Which party ( agency, industry, or user) pays for the use of the service,
3) Which party ( agency or industry) receives the usage fees ( if charged), and
4) Which party ( agency or industry) receives the revenue from advertising ( if
applicable).
These four variables determine the business model and are summarized below on a state- by- state
basis. The three private sector providers involved in WiFi access at roadside rest stops are
SBC/ ATT, Coach Connect, and Zoom Information Systems. SBC/ ATT also has active
partnerships in California and Michigan to provide WiFi services at other public facilities such as
state parks. The WiFi partnerships outlined here may not include all states that are providing
WiFi at roadside rest stops nor all of the businesses involved in providing this service, as an
increasing number of states are investigating or initiating roadside rest stop WiFi access.
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California
In 2004, Caltrans embarked on a pilot project to provide WiFi access at two safety roadside rest
stops in the Central Valley of California on State Route 99. The private partners for this project
are the Great Valley Center ( GVC), a non- profit organization and Coach Connect, a Texas- based
business. Caltrans and the GVC have an agreement, which gives GVC the right to operate the
WiFi service at the rest areas. GVC has contracted with Coach Connect to be the WiFi service
provider. The installation and operational costs are divided between Caltrans and Coach
Connect. Caltrans is responsible for providing the T1 connection to the wireless equipment.
Coach Connect is responsible for all wireless hardware, development of the web portal,
installation of the wireless equipment, and support services. 6
Traveler information and other information offered on the Caltrans site and related sites are
available for free. In addition, each user will be given sixty minutes of free WiFi access over the
course of the pilot project to visit other sites. The project partners anticipate charging user fees
for any usage over the 60- minute allocation, but the fee structure has not been determined at this
time. User fee revenue will go to Coach Connect. Coach Connect will also be allowed to sell
advertising space on the web site. All proceeds from the sale of advertising will go to Coach
Connect.
Florida
In Summer 2006, Florida DOT began a pilot program to provide WiFi to travelers at 88 locations
across the state including rest areas, weigh stations, and traveler information areas. The program
also includes 40- inch plasma screens to display travel information and advertisements at select
locations. Under the agreement between the Florida DOT and Coach Connect, Coach Connect is
responsible for the installation and operation of the WiFi access and the plasma screens,
including support services. There are no costs to the State. In the future, the program may deploy
kiosks ( with touch- screen traveler information systems) and/ or computers ( for broader Internet
access) for travelers that do not have their own devices. The State may also determine that
additional plasma screens to display information at more rest areas are necessary. The cost
13
structure for these additional installations and service had not been determined at the time of this
research. 7
The WiFi service is free to users in Florida with no time or use constraints ( other than
inappropriate sites) known at this time. Since there are no user fees, there is no revenue from the
service. However, if a user fee were implemented, there would be profit sharing once Coach
Connect meets a predetermined profit threshold. The agreement with the State allows Coach
Connect to sell advertising and, after Coach Connect meets a profit threshold, there are
provisions for profit sharing with the State. The threshold to be met and exact percentage shared
is unknown at this time.
Iowa
Free WiFi access was introduced as a pilot project in six of Iowa’s rest areas in June 2005. The
pilot proved beneficial in providing travelers with access to key highway safety information, and
in helping drivers stay connected to their home and office while on the road at no cost to the
State. Under the pilot program, a company called I- Spot provided the service without cost to
Iowa and attempted to support itself with advertising revenue. Although the Iowa DOT
considered the pilot WiFi program a success from a user perspective, I- Spot went out of
business. Based on the success of the pilot, Iowa DOT made a decision to expand WiFi access to
all 40 of the State’s rest areas and decided to pay for the WiFi service. The Iowa DOT purchased
and installed the wireless equipment and is also paying the Internet service provider. 8
In 2006, Zoom Information Systems was awarded the statewide contract to provide WiFi
services in Iowa. Zoom is responsible for the costs of software development, web design, and
technical support. The WiFi access is free to the user for the first thirty minutes of Internet use.
The contract between the Iowa DOT and Zoom allows subscription fees to be collected for
Internet access that exceeds thirty minutes. Users are allowed to pay for up to two additional
thirty- minute periods. The cost to the user for the additional periods is unknown at this time
because the subscription fees have not yet been implemented. Currently, users have free
unlimited use of the wireless services. Once a decision is made to collect user fees, the revenue
14
will go to Zoom. Advertising is not allowed on any of the State sponsored travel information
sites, monitors, or kiosks, but it is allowed if the user decides to visit other sites. At this time, the
State is not receiving any of the revenue generated through advertising.
Kansas
The Kansas Department of Transportation ( KDOT), in collaboration with Kansas Highway
Patrol and the Kansas Department of Commerce, solicited proposals to partner with the State to
establish WiFi service at rest areas and visitor centers with the expressed requirement that there
be no cost to the State. A contract for a one- year pilot began in February 2006, and it includes
the option for the State to renew the contract for one additional four- year period before having to
put the services out to bid again. A contract was awarded to Coach Connect to provide these
services. 9
Coach Connect pays all operational and installation costs, including support services. There is no
cost to KDOT for these services. Users will be able to use the Internet without charge for a
limited period. After the free time period ends, there will be a charge for service. The cost to the
user for the additional time is unclear, but fees are likely to be implemented. During the pilot
project, all user fee revenues will go to Coach Connect. If the program is extended beyond the
pilot, 10 percent of gross receipts of wireless subscriptions will be shared with the State. During
the pilot project, all advertising revenues will go to Coach Connect. If the program is extended
beyond the pilot, 10 percent of gross receipts of advertising revenue will be shared with the
State.
Michigan
In Michigan a partnership was developed between Michigan's Department of Information
Technology, Department of Natural Resources, the Department of Transportation, the Michigan
Economic Development Corporation and SBC to provide WiFi throughout the State. WiFi access
is available at three rest areas/ welcome centers and seven parks/ harbors. Michigan has over 80
15
rest areas. In 2004, Michigan and SBC entered into a three- year agreement for the pilot project.
The installation and operational costs, including support, are paid by SBC. There is no cost to
Michigan in providing this service. SBC has developed a web page, which allows users to either
connect through a link to Michigan state sites, which are free, or directs users to sign- in and use
the system for a fee. 10
The fees for the users to surf the web vary based on plan length, and if the user is a current SBC
customer. SBC customers who subscribe to DSL services at home or in the office have the
option to pay an additional $ 1.99 per month with a one- year term commitment for unlimited
access to all SBC hotspots. Those who are not currently SBC customers can purchase a 24- hour
session for $ 7.95 or a monthly subscription for all SBC hotspots for $ 19.95 and receive
unlimited access to SBC hot spots nationwide. All user fee revenue goes to SBC. Michigan’s
partnership with SBC allows advertising on sites that the user is paying to use and all advertising
revenue will go to SBC.
Oregon
In 2005 the Oregon Travel Information Council ( TIC) began a two- year pilot project with Coach
Connect to provide WiFi access at five rest areas and four state parks. There are over sixty rest
areas throughout the State. TIC is a semi- independent state agency or Inter- Governmental
Agency ( IGA), which acts as an intermediary in the interest of the State. IGA’s have different
purchasing guidelines than a state department, which allowed TIC the flexibility to research
wireless providers and contract with the company of choice without going through an open bid
process. 11
Costs for the service are shared between TIC and Coach Connect. TIC purchased the wireless
equipment and paid for installation and development of the website portal. Coach Connect pays
all operational costs and support services. Access to Oregon’s traveler information sites is free,
but users must pay to view other websites. Rates for visitors to access other sites are $ 1.99 for 20
minutes, $ 3.99 for 24 hours, $ 7.99 for seven days, and $ 32.99 for one month. User fees and
advertising revenue are shared equally ( 50 percent) between TIC and Coach Connect.
16
Texas
After a series of successful pilot projects beginning in 2003, the Texas Department of
Transportation made the decision to provide WiFi services at all 102 public rest stops and
welcome centers in Texas in 2006. Along with the WiFi access, the Texas centers offer touch
screen kiosks for travelers without wireless devices. A State contract was awarded to Coach
Connect to provide these services. TXDOT paid Road Connect ( affiliated with Coach Connect)
to develop their website portal. TXDOT also pays a monthly hosting fee for the website. Coach
Connect is responsible for the rest of the installation and operational costs, including support
services. 12
Prior to Fall 2006, the use of the wireless service was free to all users. Subscription fees were
allowed as of November 2006 for users to access sites other than the traveler information and
State website. The subscription rates ( if charged) are $ 1.99 for 20 minutes, $ 3.99 for 24 hours,
$ 7.99 for seven days, and $ 29.99 for one month. After Coach Connect meets a profit threshold,
25 percent of the subscriptions fees will go to TXDOT. Coach Connect is allowed to sell
advertising and keep all advertising revenue.
Washington
Beginning Summer 2006, WiFi has been available at 28 of 42 roadside rest areas along I- 5 and I-
90 in Washington. A State contract was awarded to Parsons Transportation Group to provide
these services, and Coach Connect is the prime subcontractor under this contract. 13 There is no
cost to the State of Washington. Coach Connect is responsible for all installation and operational
costs, including support services. Traveler information and other information offered on the
Washington DOT site and related sites are available for free. To view additional websites, users
must subscribe to Road Connect and pay the following fees: 20 minutes - $ 1.99, Daily - $ 3.99,
Weekly - $ 7.99, Monthly - $ 29.99. Coach Connect shares a flat gross percent of all user fees and
advertising revenues with the State. 14
17
Overview Summary of Roadside Rest Stop WiFi
This review of the current business arrangements that have developed between state DOTs and
WiFi service providers reveals that there is not one dominant model ( See Table 1: WiFi
Comparison Chart). The degree of risk sharing varies depending on the structure that determines
whether the public or private participant pays for equipment, installation, and operations. In
some cases, such as Iowa, the State has assumed a higher degree of risk by paying all installation
and operational costs. This model would not be considered a PPP and does not fit the model
established during the ICI CFS process where access to the rights- of- way was provided free of
charge in return for a private sector service that is also provided free of charge. At the other
extreme Florida, Kansas, Michigan, and Washington pay nothing for the WiFi service at their
rest stops. In these cases the right- of- way is available for free to the WiFi provider, which is
presumed to make a profit from user fees and selling advertisements. This model closely follows
the self- sustaining model of the CFS projects with the private sector absorbing a greater share of
the risk. In between these two extremes California, Oregon, and Texas have implemented cost
share systems where the state and WiFi providers share the costs ( risk) and/ or the revenue
( benefit).
Table 1 - WiFi Comparison Chart
Costs Revenues
State Installation Operation User Fees Advertising
California DOT Shared Company Company
Florida Company Company Shared Shared
Iowa DOT Shared Company N/ A
Kansas Company Company Company Company
Michigan Company Company Company Company
Oregon DOT ( TIC) Company Shared Shared
Texas DOT Shared Shared Company
Washington Company Company Shared Shared
At this time it is too early to know which business arrangement( s) will succeed. If the traveler
information services provide enough of a benefit, but the customer chooses not to pay user fees
to access other web sites, the Iowa model may be the most appropriate. In this case, the value of
18
the traveler information in terms of safety and more efficient use of the transportation system is a
high enough public value that it becomes a public rather than a private good. However, if the
value of Internet access to travelers is high enough that they are: 1) willing to pay the user fees or
2) generate enough Internet traffic that advertisers are willing to pay, then the service might be
best configured as a private good with the public sector gaining the benefit of improved traveler
information in return for allowing the WiFi provider access to the right- of- way. This model fits
the self- sustaining PPP for ITS identified during the ICI CFS process.
Vehicle Infrastructure Integration ( VII)
Vehicle Infrastructure Integration ( VII) is an advanced vehicle- vehicle, vehicle- infrastructure,
and infrastructure- vehicle communications initiative. VII can provide significant improvements
to the safety and operation of the transportation system, resulting in benefits to public agencies,
the private sector, and the traveling public. The primary benefits to the public sector will be
improved traffic information for more efficient incident and special event management as well as
overall traveler management to reduce congestion and optimize the network. For the private
sector, VII benefits range from allowing auto manufacturers to access vehicle information to the
entertainment industry developing in- vehicle media applications. The potential benefits to the
traveling public with the full implementation of VII include: improved safety, reduced
congestion, better traveler information, and access to entertainment while on the road.
The characteristics of VII, integrating communication between public roadways and vehicles, are
ideal for the development of public- private partnerships. VII is currently in the research phase,
which means the applications and the ideal business models are still being developed. Some
states are conducting VII research from the perspective of a PPP with cost and risk sharing,
while others have defined a more traditional model with the public agencies paying the costs of
the research and assuming the risk.
Since there are benefits to the public sector from real- time information, improved safety, and
more efficient use of the system, and there are benefits to the private sector in the form of profits
and/ or enhanced customer service, questions regarding implementation and operational costs are
19
paramount. Generally, it is presumed that automobile companies or aftermarket suppliers will
provide the on- board devices.
Purchase, installation, and maintenance of the roadside equipment ( RSE) are issues yet to be
determined, and the answer may depend largely on the business models of the participants. RSEs
could be the responsibility of the public sector based on the assumption that the RSEs represent
the public sector’s share of the costs in return for the benefits. In this case, the DOTs would need
to determine if the public costs are justified by the benefits that are accruing to the public. An
alternative model might place all of the costs with the private sector, including installation of the
RSEs. It is possible that more than one business could obtain benefit from the VII infrastructure,
each carving out a niche based on the service they provide. Finally, questions regarding
responsibility for quality control, system security, privacy, and technology disruptions remain to
be answered.
Joyce Wenger with Booz Allen Hamilton has identified some of the key challenges for VII
business models as:
• Numerous business models for numerous stakeholders;
• VII environment requires that business models recognize the interdependency with other
models;
• “ Chicken and egg” deployment issue; and
• Most models are in early development and are not yet solidified. 15
A VII consortium has been established to determine the feasibility of widespread deployment
and to establish an implementation strategy. 16 Two of the consortium participants, California and
Michigan, are reviewed in more detail here. These states have structured their VII research from
the perspective of PPPs and may be instrumental to understanding key components for
successful longer- term deployment business models.
20
California17
VII California ( VIICA) is a PPP research project with the goal to implement a field operational
test ( FOT) to test and show specific VII capabilities. VIICA is being implemented in two phases.
Phase I took place in November 2005 at the Innovative Mobility Showcase ( IMS) of the ITS
World Congress in San Francisco, California. Phase II, the VIICA Bay Area Test bed, includes
development and operation through early 2008.
Caltrans and MTC are the primary public sector participants. Caltrans and its sub- contractors are
responsible for the development of the roadside infrastructure and provide overall project
management. California PATH, under contract with Caltrans will develop the RSEs, including
vehicle- infrastructure messaging and communication of the VII data at the roadside. MTC and its
sub- contractors serve as the facilitator/ coordinator with local agencies and lead the effort in
backend processing, backhaul communications, and development of traveler information
applications for the VII test bed. PB Farradyne, under contract with MTC, will design backhaul
communications and handle collection, processing, and archiving of data. Caltrans and MTC
have each committed $ 1.5 million ($ 3 million total) to the VII California program. Caltrans and
MTC are also providing access to public rights- of- way and data at no cost.
DaimlerChrysler Research & Technology NA, Volkswagen of America, and Toyota
InfoTechnology Center USA are the private sector participants with the responsibility of
providing vehicles equipped with technology to communicate with the RSEs.
In addition to the automakers that have joined the partnership and are providing equipped
vehicles, MTC and Caltrans are seeking to expand the program through a Call for Submissions
( VIICA CFS), which was issued July 2006. Similar to the ICI CFS, the VIICA CFS does not
award any funds, but Caltrans and MTC could provide access to state or locally- owned facilities,
including rights- of- way, cabinets, call boxes, light poles, traffic signal controllers, ramp meters,
21
electrical service, or telecommunications assets. b Currently, Caltrans and MTC are engaged in
negotiations with two private sector entities that responded to the VIICA CFS.
The goal of VIICA is to gain a better understanding of how VII can support the deployment and
operation of system management tools, such as ramp metering, electronic toll collection, and
advanced traveler information. Caltrans and the MTC have identified the following public sector
VII applications as priorities for testing: traveler information, ramp metering, electronic payment
( tolling), intersection safety, and curve overspeed warning.
Michigan18
The Michigan Department of Transportation ( MDOT) has made a commitment to the future and
potential of the national VII effort, including research, development, evaluation, deployment and
the publication of results. In the early stages of the VII program, MDOT and its partners are
developing and deploying a number of VII test beds to support National VII efforts.
Michigan’s VII effort assigns the State responsibility for infrastructure, the telecom industry
responsibility for information infrastructure, and the automotive industry responsibility for
equipped vehicles. Public sector stakeholders include MDOT, FHWA, the Road Commission for
Oakland County ( RCOC), the Road Commission of Macomb County ( RCMC), and the Cities of
Detroit and Wales. Private sector stakeholders include General Motors, DaimlerChrysler
Corporation, Ford Motor Company, Nissan Motors North America, Motorola, and Azulstar
Networks ( i. e., Ottawa Wireless).
The private sector role is to develop applications and components, both for in- vehicle and along
the roadway, including development, testing, and evaluation. The MDOT concept of operations
indicates that the private sector will be responsible for the planning, design, implementation,
integration, testing, and operations and maintenance of the following elements for all of the VII
test beds19:
b Access to these resources will be determined on a case- by- case basis. Use of state or local facilities may be subject
to successful application for an encroachment permit issuance and any other applicable statutes and regulations.
22
• Vehicle fleet ( including any vehicle- to- vehicle communications hardware),
• Cellular, or other non- roadside based, communications systems,
• Test bed participant facilities/ servers,
• Test bed participant Internet connection and security systems and protocols,
• Infrastructure installed on private property,
• In- vehicle communications and processing ( including data packetization and
sending/ unwrapping data),
• Advising MDOT as to the desired communications infrastructure to be tested at each
location, and
• Anonymizing and disseminating the data collected to MDOT via the Internet.
The role of the public sector is to support the private sector by providing infrastructure on the
roadside, coordinating activities, and funding some of the less commercially viable yet
operationally critical components, such as the safety applications. 20 According to an RFP for
services issued by MDOT in Spring 2006, the public sector is responsible to: 21
• Implement a wireless network on I- 696, M- 5 Connector and 12 Mile Road;
• Develop, engineer, install, optimize, and integrate a system to provide mobile broadband
data connectivity between equipped vehicles and the Internet; and
• Provide data connectivity between traffic control signals on 12 Mile Road and establish a
dedicated short- range communications ( DSRC) environment through the use of
appropriate surrogate technology for development and exploration of application use
cases.
The structure of the VII research managed by MDOT is based on a PPP concept with both the
public and private sectors sharing costs, risks, and benefits.
23
Table 2 - VII Summary
State Project Description Public Partners Private Partners
California VII application priorities for
testing include: traveler
information, ramp metering,
electronic payment ( tolling),
intersection safety, and curve
overspeed warning
Caltrans and MTC DaimlerChrysler,
Volkswagen,
Toyota
Possible additional
partners from the VIICA
CFS
Michigan Work zone safety, in- vehicle
signing, and lane departure
warning systems are
priorities. The three key
subsystems of this program
are the on- board equipment,
road- side equipment, and the
network subsystem.
Michigan DOT,
FHWA,
Road Commission for
Oakland County,
Road Commission of
Macomb County,
City of Detroit,
Wales
General Motors,
DaimlerChrysler,
Ford,
Nissan,
Motorola,
Azulstar Networks
Overview of Traffic. com, Inc. c
Traffic. com, Inc. ( Traffic. com) deploys a traveler information system that monitors and reports
traffic conditions to enhance the quality, availability, and accessibility of transportation data.
Traffic. com provides customized reports to radio, television, Internet, and in- vehicle navigation
system users in 40 of the largest metropolitan areas in the United States. Traffic. com operates
through establishing PPPs with State DOTs to access the rights- of- way for their sensors. In
return for access to the rights- of- way, Traffic. com provides the public agencies with real- time
and archived data for operations, reporting, and planning purposes. Under the agreement with the
FHWA, which provided seed funding for project start- up in 50 metropolitan areas, data are
provided to the public agencies for internal use at no cost.
In 1999, following a pilot program in Philadelphia and Pittsburgh, the USDOT provided $ 10
million to Mobility Technology ( now Traffic. com) to install a network of sensors in four
c Mobility Technologies changed their name to Traffic. com, Inc. in March 2005. For the
purposes of this report, Traffic. com will be used at all times, even when referring to the company
before March 2005.
24
metropolitan areas. In 2001, with the passage of TEA- 21d, an earmark was set aside for a
program called the Intelligent Transportation Infrastructure Program ( ITIP). At that time, up to
$ 50 million dollars was made available by the Federal government for Traffic. com to provide
real- time traffic information to USDOT, and the state DOTs, as well as to the public, at up to $ 2
million per metropolitan area. TEA- 21 Section 5117( b)( 3) provides the details of the agreement,
which state that the main purpose of the program is to advance the deployment of an operational
ITS system to aid in transportation planning and analysis and to contribute to the national ITS
program. 22 Under the agreement, Traffic. com is to build an infrastructure to gather real- time
traffic information via a wireless network to aid state DOTs in planning, analysis, and
maintenance including infrastructure, maintenance, and operation. Structured with an 80/ 20
match, the agreement provides for $ 2 million per metropolitan area, with $ 500,000 in local
funds. The agreement requires metropolitan areas to have a population larger than 300,000 and
must meet additional criteria to be eligible for this program. There is a provision for revenue
sharing with the states.
In 2004, congress passed the next major transportation bill, SAFETEA- LU, which included
Transportation Technology Innovation and Demonstration ( TTID). This was a direct extension
of TEA- 21’ s ITIP program. TTID has two parts: Part 1, which began in 2004, provides for the
selection of up to 11 additional metropolitan areas to receive federal grants of no more than $ 2
million each ( with $ 500,000 local match). Part 2, which began in 2006, expands the program and
begins awarding contracts on a competitive basis for the deployment of systems in selected
congested areas, with consent and coordination from the affected state DOTs. 23
Under the arrangement with the FHWA, Traffic. com is responsible for deploying, operating, and
maintaining the sensor network without government funding beyond the initial payments
received for each metropolitan area. Traffic. com retains exclusive right to market the traffic flow
data for commercial purposes. Traffic. com has committed to share up to 10 percent of the
d Section 378 of the FY 2001 Transportation Appropriations Act provided $ 50M for ITIP.
Section 1101 of the FY 2002 Defense Appropriations Act amended section 5117( b)( 3) of TEA-
21
25
revenue from the sale of data with state or local governmental agencies or reinvest an equivalent
amount in technology systems.
Traffic. com is currently operating in the following metropolitan areas: 24
Albany Indianapolis Pittsburgh
Atlanta Jacksonville Portland
Austin Kansas City Providence
Baltimore Las Vegas Raleigh- Durham
Birmingham Los Angeles Richmond
Boston Louisville S. F. Bay Area
Charlotte Miami Sacramento
Chicago Milwaukee Salt Lake City
Cincinnati Mpls. - St. Paul San Antonio
Cleveland Nashville San Diego
Columbus New Orleans Seattle
Dallas - Ft Worth New York St Louis
Denver Norfolk Tampa Bay
Detroit Oklahoma City Tucson
Greensboro Orlando Tulsa
Hartford Philadelphia Washington
Houston Phoenix
26
Section IV: Caltrans’ Mechanisms for Private Sector Interaction
Caltrans has numerous mechanisms for interacting with the private sector that could influence
the character and outcome of public- private partnerships for ITS technology deployments. These
can be broadly separated into granting access to rights- of- way, known as encroachment, and
procurement of goods and services. Encroachment governs private sector access to the public
rights- of- way, while procurement governs the mechanisms and methods by which the public
sector purchases goods and services from the private sector. The CFS and future CFS- style
solicitations touch on both of these processes. For the ICI, CFS industry partners were offered a
streamlined encroachment process and normal encroachment fees were waived.
Encroachment Permit Overview
Caltrans has standard procedures to grant access to public rights- of- way. These include
encroachment permits for utility and other private parties that require access to the rights- of- way,
as well as procedures for cellular communication towers and fiber optics installations. While
some of these users pay fees for usage, others pay just the cost of Caltrans staff time for
processing the permits.
Caltrans’ mission includes the goals of safety, mobility, delivery, flexibility, and stewardship.
Encroachment permits touch on each of these goals. When processing encroachment requests,
Caltrans is responsible to ensure that the public safety and the State’s assets are not
compromised, and mobility is minimally reduced from a temporary or permanent encroachment.
The most sensitive areas to encroach upon are the controlled access rights- of- way where there
are limited access points, high speed, and heavy traffic flow.
An encroachment is defined in the California Streets and Highways Code as: “ Any tower, pole,
pole line, pipe, pipeline, fence, billboard, stand or building or any structure, object of any kind or
character not particularly mentioned in this section, or special event which is in, under, or over
any portion of the highway.” “ Special event” means any street festival, sidewalk sale,
27
community- sponsored activity, or community- sponsored activity.” 25 According to Caltrans’
Encroachment Manual, encroachment permits are necessary for Caltrans to:
• Protect, maintain, and enhance the quality of the State highway system during and after
permitted work;
• Ensure the safety of both the traveling public and the permit holders;
• Ensure that the proposed encroachment is compatible with the primary uses of the State
highway system;
• Protect the State’s and public’s investment in the highway facility; and
• Ensure that temporary uses of State highway rights- of- way for special events, filming,
etc. are conducted safely and with minimum inconvenience to the traveling public. 26
An encroachment permit is a contract between the Department and an encroachment permit
holder, that describes the terms and conditions under which they are granted authority to enter
the rights- of- way to perform the specified activity. Anyone that wants to conduct an activity
within State highway rights- of- way or conduct an activity that may encroach on State property
may be required to obtain an encroachment permit. The encroachment permit application can be
obtained online from the Internet or at any of the twelve district permit offices statewide. The
permit holder must be in compliance with all applicable Federal, State, and local laws and
regulations and with the Department’s Encroachment Permits Manual and Encroachment Permit.
Future highway construction or maintenance may require the removal or relocation of the
encroachment entirely at the permit holder’s expense.
The Department processes a complete encroachment permit application within 60 days after it
has been received. Incomplete applications are returned and result in a new 60- day review period
when the completed application is resubmitted. The Department has an appeal process in the
event an applicant chooses to contest the denial of an encroachment permit.
The risks that Caltrans undertakes when issuing encroachment permits include: staff time being
used to review and approve applications, the safety of the motoring public, valuable real estate
28
being occupied by equipment, and that the project may not be aligned with the Caltrans mission
to improve mobility across California.
Risks taken by industry include time and efforts spent in the application process, the ability to
meet all safety, environment, and insurance requirements and the impact on a business that is
dependent on access to the rights- of- way.
Permitting for General Business and Public Access
For general business and public access to the rights- of- way the encroachment permit costs are
billed to the permit holder at the time of the application. The monies received from the
encroachment permit process are viewed as a self- recovery type of income. Thus, these fees are
used to cover the staff time involved with reviewing and approving the permits. Permit fees are
calculated based on the time spent reviewing the application and inspecting the work. The more
complex the project, the more expensive the permit will be. Review and inspection time is billed
at $ 82 per hour. 27
Permitting for Public Utilities
The most common utility facilities are water, cable television, sewer, electrical, natural gas,
telephone, and common- carrier petroleum pipelines. The Streets and Highways Code ( Section
117) allows utility owners to use public property, including state highway rights- of- way ( with
approval from the Department), for transmitting and distributing products and services.
Procedures for determining and collecting permit fees for utility facility encroachments owned
by utility companies differ from encroachment permits for general business and public access.
Typically, utility companies providing utility facility service to the public are billed for
application and inspection fees ( rather than paying at the time of applications).
Permitting for Cellular Communication Towers
Cellular communications towers are handled by Caltrans as a unique type of encroachment in
both controlled and non- controlled access rights- of- way. Cellular communications follow the
29
rules and regulations that a typical utility would follow, but with additional regulations and fees
because these businesses are part of a competitive market instead of a regulated one. The primary
goal for cellular communication tower permits is the improvement of public telecommunication
services along highways, which is especially important during emergencies. To reduce visual
impact, Caltrans manages the number of facilities built by erecting the towers through
centralized planning of tower locations and shared use of the towers. Another goal is to generate
additional revenues for statewide transportation projects. Furthermore, cellular towers improve
Caltrans’ communication systems through sharing wireless facilities with carriers and improving
services available to the traveling public.
The authority to operate these towers is held by the State of California, acting by and through its
Department of Transportation, Division of Right of Way. In 1996, and Executive Order was
issued to all Departments and Agencies in State Government to help facilitate and develop
policies to improve telecommunications within California. As a result of that order, the
Department of Transportation’s Division of Right of Way, with guidance from the Airspace
Advisory Committee ( AAC), and approval from the California Transportation Commission
( CTC), developed the Wireless Licensing Program as a part of the existing Airspace Program.
Pricing of individual cell sites is calculated using a formula based on the following criteria:
location ( rural, urban, and prime urban); size of the facility or " footprint;" and number of
antenna. Prices are increased annually at approximately 3.5 percent or higher if the Consumer
Price Index rises above 3.5 percent but not to exceed 5 percent. Effective July 1, 2003, for Marin,
San Francisco, San Mateo, Santa Clara, Alameda and Contra Costa Counties add 25 percent to
the Prime Urban price. In 2006, the pricing for Macrocell for Prime Urban, Urban and rural
respectively was $ 28K, 16K, and 13K. Minicell: $ 24K, 20K, 13K. Microcell: $ 20K, 16K, and
11K. There is also a one- time charge of $ 1,000 when applying for a site license. The income
from the Wireless Licensing Program is deposited into the State Highway Account, and once a
year, it is transferred into the Public Transportation Account for transportation projects
statewide.
30
Permitting for Fiber Optic Installations
Fiber optics installations are relatively new to the Department and appear to fall into a grey area
between utilities and cellular communications carriers. Caltrans policy is to consider any
proposal to install communication lines in controlled- access rights- of- way as long as the
proposal meets all safety and engineering standards and requirements and will be processed
through the appropriate District Encroachment Permit Office. 28 Caltrans’ goal for facilitating the
installation of fiber optics is similar as for cellular communications towers, including the
improvement public telecommunication services along highways, which is especially important
during emergencies and to generate additional revenues for statewide transportation projects.
Fiber optics has the potential to generate greater revenue for the state than cellular towers
depending on the pricing structure.
The process to install fiber optic lines is treated the same as other encroachments into the rights-of-
way and follows the same permitting procedure and regulations. Additionally, the permit can
have " rider" provisions specifying the annual compensation due, and if applicable, any other " in
lieu" conditions ( e. g., fiber, equipment, etc. dedicated for public use).
California’s pricing plan and agreements for fiber optic installations is highly controversial. A
high profile court case from 2002 to 2005 between SBC and the State of California over the price
of placing fiber optics in the rights- of- way concluded with the U. S. District Court upholding
Caltrans' right to keep their pricing structure. The wireless carriers continue to oppose the pricing
structure and requested the governor to intervene. As of August 2006, the pricing policy for fiber
optics has been suspended by the Administration. 29
The primary risk industry is taking by entering into an agreement with the State for fiber optics is
the cost. Additional risks such as damage to the line from digging or other construction in the
rights- of- way are also possible although there are processes set in place to prevent these kinds of
mishaps. As with all encroachment permits there is also the risk of time and cost being spent to
apply for permits with the risk of being rejected by the Department.
31
State Procurement Overview
Caltrans procurement procedures are governed by the California Government code, which
requires the purchase of all services, supplies, and equipment in excess of $ 100 for any State
agency to be made by, or under the supervision of, the Department of General Services,
Procurement Divisions. The Department contracts with both the public and private sector for a
wide variety of services. All service contracts and construction contracts ( less than $ 120,000) are
written and processed by the Division of Procurement and Contracts staff located in Sacramento
and the Irvine satellite office. Construction contracts, more than $ 120,000, are processed by the
Department’s Engineer Office. The contract managers and service contract analysts work closely
together and are responsible for the successful execution of each contract. The Division of
Procurement and Contracts uses primarily three procurement methods to competitively award
contracts for services: Invitations for Bid ( IFB), Request for Proposal ( RFP), and Request for
Qualifications ( RFQ). With few exceptions, the majority of contracts are written as a result of
such competitive documents. 30 An important principle of state purchasing is to promote and
provide for open and fair competition when competition is known to exist. There is a non-competitive
purchasing process for purchases of $ 25,000 or less where no competition exists.
California Multiple Awards Schedules
California Multiple Award Schedules ( CMAS) offers an opportunity to negotiate prices in
advance for a wide variety of commodity, non- IT Services, and information technology products
and services at prices, which have been assessed to be fair, reasonable, and competitive. The
CMAS program was established in May 1994, and incorporated in PCC sections 10290 et. seq.
and 12101.5. CMAS contracts are established for IT and non- IT products and services that have
been competitively assessed, negotiated, or bid primarily, but not exclusively, by the Federal
General Services Administration. The program enables State departments under the purchasing
authority granted by the Department of Government Services ( DGS) to streamline purchases by
removing repetitive, resources intensive, costly, and time- consuming bid processes. Caltrans
adds California contract terms, conditions, procurement codes, and policies to the GSA pricing
and establishes an independent California contract.
32
The CMAS program does not reduce or relieve California State agencies of their responsibility to
meet statewide requirements, guidelines, procedures or policies regarding contracts or
procurements. Departments must make a valid attempt to secure offers from viable contractors
who are able to supply the goods and/ or provide the services. Neither a lack of sufficient CMAS
contractors nor the use of restrictive requirements meets the intent for achieving offers.
The CMAS process may be appropriate for some companies at the close of a CFS- style project
with Caltrans. However, the company would need to follow all CMAS applications guidelines
regardless of status as a CFS partner.
Feasibility Study Report ( FSR)
Section 13070 of the Government Code gives the Department of Finance general powers of
supervision over all matters concerning the financial and business policies of the State. This
includes the procedures for obtaining Finance approval of proposed information technology
expenditures. The mechanism for approving information technology projects is the Feasibility
Study Report ( FSR). The FSR establishes the business case for investment of state resources in
the project by setting out the reasons for undertaking the project and analyzing its costs and
benefits. An FSR must be approved for every information technology project prior to the
encumbrance or expenditure of funds on the project, including the use of staff resources, beyond
the feasibility study stage. The FSR is directed at all expenditures and staff time for software
development.
The FSR represents the first opportunity for agency management to assess the full implications
of a proposed information technology project. The FSR is also the means of linking a specific
information technology project to the agency's strategic business plans and information
technology plans and to ensure that the proposed project makes the best use of the agency's
information technology infrastructure.
In general, a key feature of CFS- style solicitations is that no public funds are to be expended.
This means that even if software development is required the cost would be absorbed by the
33
industry partner and an FSR would not be required. However, at the close of the CFS
demonstration projects if Caltrans were interested in a continued relationship with the industry
partner, an FSR may become necessary. This would be determined on a project- by- project basis
based on the expenditure of funds for software development
Section V: CFS- Style Solicitation Policy and Planning Recommendations
The ICI CFS, as well as the three case studies examined in Section III demonstrated that there is
great potential for PPPs to accelerate the deployment of ITS technologies on public roadways.
CFS- style solicitations as a mechanism to recruit industry partners, has many advantages for
public agencies, including low cost and controlled risks with potential high gain. However,
implementing a new way of doing business requires careful consideration to ensure that all legal
and procedural requirements are followed. The following policy and planning recommendations
are provided to assist Caltrans in preparing to issue CFS- style solicitations. Important areas for
consideration include: 1) the authority for CFS- style solicitations and subsequent PPPs; 2) the
long- term agency- industry relationship; and 3) the goals, purpose, and partners for the
solicitation. As discussed in Section II of this report, the two primary business models that result
from CFS- style solicitations are the self- sustaining model and the procurement model. Each
business model has different strengths and challenges from the PPP perspective.
Authority for CFS- Style Solicitation
Implementing CFS- style solicitations will require an assessment of Caltrans’ mandate and
responsibilities in relation to the State Legislature, other State authorities, and the FHWA.
Considerations include determining if legislative authority is necessary, the conditions that
would require a FSR to meet Department of Finance ( DOF) requirements, and the relationship
with the FHWA. In addition, Caltrans must not provide a gift of public funds, which could
include providing access to rights- of- way.
34
Legislative Authority
One of the defining characteristics of a CFS- style solicitation, is that no funds are exchanged
between the public and private sectors. Based on this characteristic, legislative authority is not
necessary for either the CFS- style solicitation or any PPP agreements that result from a CFS-style
solicitation.
It is possible for a CFS- style PPP, based on the self- sustaining business model, to include
revenue sharing. Under a revenue sharing scenario the private industry partner would share some
of their profit with the public sector partner, in addition to the non- monetary benefit provided in
exchange for access to the rights- of- way. The basic premise of the CFS- style PPP would remain
the same: the public sector partner would not expend funds, and the private sector partner would
base their business on equipment placed in the rights- of- way. Without specific legislative
authority, revenue received from a revenue sharing arrangement would be deposited in the State
general fund. If the revenue from a revenue sharing agreement were to go to Caltrans rather than
the general fund, legislative authority would be required. Examples of PPPs that allow for
revenue sharing include Traffic. com and some roadside rest stop WiFi arrangements.
Traffic. com’s agreement with FHWA includes an option to share 10 percent of revenue with the
state or local transportation authority or put this amount back into the project in the form of
technology. In California, without specific legislative authority, Caltrans would not be able to
accept the funds from revenue sharing. It might, however, be possible for the local metropolitan
planning organization ( MPO), such as MTC, to accept revenue sharing funds. This would need
to be determined in consultation with the MPO. In addition, it might be possible for the DOT to
accept the 10 percent revenue in the form of additional technology deployments.
Another example of revenue sharing can be found in some of the PPPs for roadside rest stop
WiFi service between state DOTs and the WiFi service provider. Of the states reviewed here,
Florida, Oregon, Texas, and Washington have provisions for revenue sharing from either user
fees or advertising, although not all of the states had collected revenue at the time of this
research.
35
Final determination regarding legislative authority rests with DOT legal counsel and would need
to be determined on a state- by- state and project- by- project basis. If Caltrans considers potential
revenue from ITS- based PPPs important, Caltrans may consider taking steps to obtain legislative
approval for accepting revenue sharing from PPPs based on CFS- style solicitations. For example,
an “ ITS fund” could be authorized by the legislature for receipt of funds obtained from ITS-based
PPPs with the private sector. Alternative solutions might include crafting PPP agreements
that send the revenue to a local MPO ( if allowed) or crafting PPP agreements that accept an
equivalent amount of the profit sharing in a non- monetary form, such as additional technology
installations.
Feasibility Study Report
An FSR is to be prepared for the California Department of Finance ( DOF) in advance of all
expenditures for software development for IT projects. For the ICI CFS and other CFS- style
solicitations, an FSR would not be required because public funds are not being spent on the
projects. However, if the industry partner were following the procurement business model they
would be offering products for sale after the CFS demonstration. If Caltrans wanted to continue a
relationship with an industry partner that included purchasing equipment that required software
development, an FSR may be required.
For example, as part of SpeedInfo’s CFS agreement, SpeedInfo provided data to Caltrans in a
format compatible with the Caltrans system. Therefore, Caltrans did not need to develop
software to process the data from SpeedInfo. However, if Caltrans were to purchase the
SpeedInfo devices and needed to develop software to process the data, an FSR would likely be
required. A similar scenario exists for Infotek Associates. Under Infotek’s CFS agreement
software development was not necessary because the company provided data to Caltrans for free
in any data format requested. Again, if Caltrans were to purchase the Infotek Wizard devices and
also needed software development to process the data, an FSR may be required. ( Note: The
above situations are hypothetical and do not indicate that software development would be
required for the purchase of either SpeedInfo or Infotek devices.)
36
The ultimate decision for an FSR requirement rests with Caltrans and DOF authorities and will
depend on the IT characteristics of the project. If Caltrans legal advisors did determine that an
FSR was required for a specific situation, Caltrans could make sure that the project was included
in and compatible with the agency’s strategic and information technology plans.
FHWA Notification/ Approval
Currently FHWA’s jurisdiction does not include authority to approve of CFS- style projects that
use the public rights- of- way. For the ICI CFS, FHWA was notified of the industry partner’s
projects that used the rights- of- way. However, the FHWA may be sensitive to shifts in the use of
the rights- of- way and/ or acceleration in the number of private parties granted access. This
situation should be monitored in relation to CFS- style solicitations in the event of a change in
policy at the FHWA.
Gift of Public Funds
Caltrans cannot provide a gift of public funds, and this would include providing access to the
rights- of- way without gaining a benefit, for example, in the form of improved data for system
management. Critical to the determination of what constitutes a gift of public property is the
primary purpose of the project. Regardless of what Caltrans is receiving in exchange for granting
access to rights- of- way at no cost to the private sector, the intent of the project must be for public
benefit. The benefit that the private sector receives should be incidental to the benefit to the
public sector. The public benefit is not defined by a monetary benchmark and is not based on the
actual profit that the private sector partner generates through access to the rights- of- way. In
keeping with this requirement, all CFS- style solicitations should be planned and designed to
maximize benefit to the state highway system and to provide public benefit.
37
Long- Term Agency- Industry Relationship
For both the public and private sector partners of a PPP based on a CFS- style solicitation,
success will be defined by the long- term relationship that develops within the partnership ( self-sustaining
business model) or after the close of the CFS demonstration ( procurement business
model). Important considerations to increase the likelihood of long- term success include; 1)
maintaining a level playing field, 2) resolving procurement issues, and 3) designing PPPs under
the self- sustaining business model that maximizes benefits to the public sector while allowing
the private sector to conduct a successful business.
Level Playing Field
CFS- style solicitations and subsequent PPP agreements must maintain a level playing field
between the industry and agency partners and between the CFS industry partners and non- CFS
industry partners. CFS industry participants should not gain an advantage or realize a
disadvantage through their association with the CFS. To achieve this goal: 1) the CFS should not
give industry partners any advantage over non- CFS participants in future public solicitations; 2)
CFS industry partners should not be treated as consultants; and 3) solicitations should be broadly
disseminated. In addition, potential industry partners should be provided full disclosure of all
possible consequences to the industry before agreements for partnership are executed.
The CFS agreement was designed to protect ICI CFS industry partners from gaining unfair
advantage through their participation in the CFS that could prevent them from bidding on
subsequent public solicitations. To achieve this goal, Caltrans legal counsel determined that the
CFS industry partners must remove all of their equipment from the rights- of- way at the close of
their projects. Removing the equipment serves to remove any advantage the industry partner
might have gained through the CFS partnership, thus allowing them to bid on subsequent public
solicitations. The ICI CFS agreements included language requiring that all equipment be
removed at the close of the CFS demonstration. Similar language is recommended for future
PPPs based on CFS- style solicitations.
38
Caltrans is not allowed to engage consultants in follow- on contracts. To prevent industry partners
from being labeled as consultants, which could preclude them from further work with Caltrans,
language should be included in future CFS- style agreements that clarify that the industry partner
is not acting in the role of consultant and that the CFS agreement does not constitute a consultant
contract. If such language is not included in future CFS- style PPP agreements, industry partners
should be notified that there is the potential they could be bared from future consultant contracts
with Caltrans.
Universal publication of all CFS- style solicitations will prevent the appearance that any industry
partners gained an advantage through relationships with the public sector developed during
execution of previous CFS agreements. Universal publication of all CFS- style solicitations is
recommended.
Finally, although every effort should be made to mitigate unexpected negative consequences to
the private sector participants regarding future relationships with the public sector, PPP
agreements based on CFS- style solicitations should inform the private sector of all possible
negative consequences.
Procurement Business Model and the Public Private Relationship
For CFS- style partnerships based on the procurement business model, the relationship between
the public and private partners after the close of the demonstration period is paramount. Under
the procurement business model, industry desires short- term access to rights- of- way with the
potential for public procurement of goods and/ or services demonstrated through the CFS. The
advantage to the public sector is an opportunity to gain experience with the technologies prior to
purchase and a period of time to interact with the technology provider on specifications and
expectations. This style of PPP presents greater risk to the private sector because the public
sector is not obligated to purchase the goods or services demonstrated.
For the public sector, there are legal requirements for fair and open bidding for all products
purchased by Caltrans. Although the ICI CFS was an open solicitation and any business or entity
39
was allowed to submit a proposal, the process did not meet requirements for fair and open
bidding. At the close of the CFS demonstrations, Caltrans was not able to purchase technology
demonstrated by the industry partners. From the perspective of the private industry partner with a
procurement business model, the motivation to participate in a CFS- style PPP is greatly reduced,
if there is not an avenue for the public partners to purchase products after the close of the
demonstrations.
For future CFS- style solicitations, potential participants should be notified in advance that all
State requirements for fair and open bidding would be implemented, if Caltrans determines that
the purchase of technology or a device demonstrated under the CFS was desirable. The potential
industry participant cannot expect that a successful demonstration will lead to a purchase without
a competitive bid. While this situation may dampen some potential industry partners’ enthusiasm
to participate in a CFS- style solicitation, State procurement requirements must be met. Potential
industry participants will need to gauge if the benefit of working directly with Caltrans staff and
installing their equipment in the rights- of- way for demonstration purposes is of high enough
value to participate in a CFS- style solicitation.
Self- Sustaining Business Model Public Private Relationship
For CFS PPPs based on the self- sustaining business model, the industry partner desires long- term
access to rights- of- way to establish a profitable business in return for providing data or other
services to the public sector at no cost. Procurement is not relevant for the self- sustaining
business model. Issues that are relevant include: 1) allowing numerous and potentially
competitive companies into the rights- of- way, 2) data sharing and the exclusivity of data
generated by the industry partner, and 3) the length of time for the PPP. Revenue sharing, as
discussed previously, may also be an important consideration for PPPs based on the self-sustaining
business model.
Allowing numerous companies with a similar business model into the same rights- of- way
locations may be beneficial to the public sector but not advantageous to the private sector
partners. The industry partner may want exclusive access to certain rights- of- way locations to
40
maintain an edge over competitors in the same space. The public interest may best be served by
allowing more than one company into the rights- of- way to ensure the agency and the traveling
public are gaining the best data or technology available.
Data sharing is another area where the interests of the public and private partners may diverge.
The companies that respond to the CFS solicitation intend on establishing and sustaining a
business based on the value of the data they collect. Providing all data to the public sector partner
for unlimited usage may not be in the best interest of the private sector. This is in contrast to the
public sector’s goal to gain as much valuable data as possible through the partnership and could
conflict with the mandate to not provide a gift of public property. If the public sector intends to
use the data in a manner that would cause competition with the private sector business the
conflict will be more difficult to resolve.
Finally, the timeline for a PPP based on the self- sustaining business model is significantly longer
than the timeline for the procurement business model. For the self- sustaining business model to
be successful, access to the rights- of- way over multiple years is necessary. While granting long-term
access to the rights- of- way in return for data is not necessarily bad for the public sector, a
longer agreement may carry greater risk.
One approach that Caltrans might try for future CFS- style solicitations targeting self- sustaining
business model participation would be to open all of its available rights- of- way to all entities
with proposals for innovative ITS technologies with the following three conditions:
1) The private sector partner would need to be able to meet all requirements for
obtaining an encroachment permit.
2) If two or more private sector partners wanted access to the same stretch of rights- of-way,
a random lottery system would be used to determine which partner would be
granted access to which rights- of- way.
3) The private sector partner would need to share data with the Caltrans and other
potential public sector participants, such as MPOs, with consideration given to
41
protecting the private sector partner’s ability to make a profit based on the data they
generate.
Goals, Purpose and Partners for the Solicitation
Advance planning for CFS- style solicitations requires the careful assessment of a number of
factors that will shape the PPPs that result from the solicitation. Some of these factors will
impact the legal authority for such projects as well as the structure of the CFS agreements and
the long- term public private relationships that result from both the self- sustaining and the
procurement business models. Important factors for advance planning include:
• Determine the goals and purpose for the solicitation and confirm that the CFS- style is the
best mechanism to achieve the goals. For example, is the purpose of the CFS- style
solicitation to gain experience with new technology, reduce costs for the government,
obtain improved data, or to solve a limited technology challenge?
• Determine a timeline for the projects in advance. A shorter- term deployment may result
in reduced risk to the public sector and more limited requirements, while a longer- term
deployment may be more beneficial to the potential industry partners. Deployment
duration should be aligned to fit with the goals of the solicitation and the expected
resultant business model arrangement ( self- sustaining or procurement).
• The ICI CFS solicitation was designed with multiple agency partners and multiple private
sector partners. In advance of issuing a CFS- style solicitation, a determination should be
made regarding the number and type of public sector partners to be involved. For
example, the lead could be the DOT headquarters, District offices, MPOs, or even local
governments. To a great extent the answer to this question will depend on the purpose
and goals for the solicitation, including the problem to be solved, the public assets being
offered, and if the CFS is targeting PPPs based on the procurement or self- sustaining
style business model.
42
• For the private sector to participate there must be a profit motive. If a project or problem
statement is defined to provide a benefit to the public sector, but it does not leave room
for private sector profit the private sector will have no motivation to participate. This is
especially relevant for the self- sustaining style of PPP.
• For the self- sustaining style of PPP, determine if generating revenue for the State general
fund or a DOT controlled fund is desired. If generating revenue for the DOT is a goal,
legislative authority may be necessary.
• While the ICI CFS did not distinguish between procurement and self- sustaining business
models for the PPPs that would result from the solicitation, for future CFS- style
solicitations it may be beneficial to determine in advance the desired style of PPP. Each
has different characteristics that would impact the scope and nature of the CFS
agreement, as well as the long- term relationship between the public and private sectors.
Section VI: Conclusion
The ICI CFS demonstrated a new style of public- private partnership that could accelerate the
deployment of ITS technologies for private and public sector benefit, as well as for the traveling
public. In addition, PPPs for roadside rest stop WiFi access, Vehicle Infrastructure Integration,
and Traffic. com’s business model all point towards increasing interest in PPPs for ITS that could
provide benefits to the public and private sectors, as well as risk sharing. This analysis indicates
that limited access to public rights- of- way has value to the private sector, provides benefits to the
public sector, and could be beneficial to the traveling public.
CFS- style solicitations do not involve the exchange of funds and thus it does not appear that
legislative authority or an FSR would be required. However, if a self- sustaining business model
were developed that included revenue sharing, legislative authority might be beneficial. Under
the procurement style business model an FSR may be required before the public sector could
purchase technology or equipment that was showcased during the a demonstration. The ultimate
43
decision regarding legislative authority and FSR requirements rests with agency legal counsel
and would need to be determined based on the characteristics of the particular PPP.
The style of business model as well as decisions made during the planning phase pertaining to
the goals, purpose, and partners for the CFS solicitation are important to determining the legal
requirements and post- CFS considerations.
The two business models for the private sector participating in a CFS- style solicitation are the
self- sustaining model and the procurement business model. For the self- sustaining business
model, the industry partner gains long- term access to the rights- of- way to generate data that they
can sell. Key issues for the self- sustaining business model include: 1) creating a level playing
field for potentially competitive private sector participants, 2) determining a length for the CFS
agreement that provides the longer- term access required by the private sector while minimizing
risk for the public sector, and 2) designing data sharing agreements that maximize public benefit
by providing the public sector with the greatest possible access to data, while preserving the
private sector profit motive.
For the procurement business model, the industry partner desires short- term access to the rights-of-
way to showcase their technology with the goal of selling the technology to the agency after
the close of the CFS demonstration. Key issues for the procurement business model include: 1)
maintaining a level playing field such that the private sector participants are allowed to continue
bidding on public sector solicitations after the close of the CFS demonstration, and 2) notifying
the potential private sector partners that any State purchase of their products or technology after
the close of the CFS demonstration will be conducted under State mandated fair and open
bidding processes.
For either style of business model, the private sector partner will need to be able to meet all
encroachment requirements to obtain an encroachment permit. A key determinant in issuing a
CFS- style solicitation is that the public sector does not provide a gift of public funds. Thus, the
primary purpose for the solicitation should be to enhance the state highway system and provide
44
public benefit regardless of whether the procurement- style business model or the self- sustaining
style business model is the desired outcome of the solicitation.
45
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