Texas Department of Transportation Commission Meeting

Dewitt C. Greer Building
125 East 11th Street
Austin, Texas

Thursday, February 24, 2005

COMMISSION MEMBERS:

RIC WILLIAMSON, CHAIRMAN
JOHN W. JOHNSON
ROBERT L. NICHOLS
HOPE ANDRADE
TED HOUGHTON, JR.

STAFF:

MICHAEL W. BEHRENS, P.E., Executive Director
STEVE SIMMONS, Deputy Executive Director
RICHARD MONROE, General Counsel
ROGER POLSON, Executive Assistant to the Deputy Executive Director
DEE HERNANDEZ, Chief Minute Clerk

PROCEEDINGS

MR. WILLIAMSON: Good morning.

(Audience said good morning.)

MR. WILLIAMSON: It is 9:09 a.m. and I would like to call the February meeting of the Texas Transportation Commission to order. It is indeed a pleasure to have each of you here with us this morning.

I would note for the record that public notice of this meeting, containing all items on the agenda, was filed with the Office of Secretary of State at 2:31 p.m. on February 16, 2005.

As we always do before we begin our meeting, if you would please take just a moment to stop and think about where your personal device is, reach in your pocket or purse and get it and put it on the silent mode.

MR. NICHOLS: I don't have one. You can't call me.

(General laughter.)

MR. WILLIAMSON: Thank you very much.

As is our custom, we will open our meeting with comments from the commission, and we traditionally start with the commissioner to your far left, Ted Houghton, from southern Beaumont -- oh, no, western El Paso.

MR. HOUGHTON: Western El Paso. Far left on the map too if you look at the map.

Good morning, everyone. And I've noted another historic first again in transportation here. I think we're going to, hopefully -- I'm not being presumptuous, I hope -- talk about the new pass-through toll, one of the many tools that were passed in the last several years by the folks across the street. I'm looking forward to that Montgomery County and looking forward to the other initiatives that we have, I think SH 121, some opportunities up north in North Texas.

And I bid you all a great morning and hope we have some fun today. Thank you.

MS. ANDRADE: Good morning and welcome to all of you. Thank you for your interest in transportation. For those of you who have come to make public comments, I look forward to listening to you. And finally, Mr. Chairman, I know we've got a busy agenda so I look forward to taking care of business so that we can keep moving transportation forward in our great state of Texas.

MR. JOHNSON: Good morning. When you bat third in the lineup, you see a lot of the same pitches, so what I would like to do is simply welcome you and thank you for your interest. And from the weather forecast that I've been seeing, it looks like a good day to be indoors and maybe attending a meeting. So thank you for being here.

MR. NICHOLS: Welcome. We appreciate all of you being here, and those of you who took time out of your work to leave your community to come be at our meeting, we especially want to welcome you. We look forward to your comments. When the meeting is over, please drive carefully. Thank you.

MR. WILLIAMSON: Thank you, commission members.

Let me just add once again my sincere appreciation for each of you taking the time out of your day to be with us and attend to matters of interest in the transportation world.

We have a saying around TxDOT that time is the most valuable thing that people have to give or to have taken away from them, so we appreciate your giving some of your time to this matter.

We are going to take up several, I won't say controversial, but I will say interesting topics today. I want to direct your attention to discussion Item 4 wherein we will delve into the world of the procurement of professional services.

I observe that at most of our meetings a large percentage of the audience probably are individuals who are employed in the world of the procurement of professional services. We're going to be asking our staff some questions about how that process works, and we might be giving our staff some direction about what we want to do, whether or not the legislature chooses to make some changes itself.

If you fall into the category of being a professional person from whom we procure services and you wish to offer a comment or a response to the day's discussion, I encourage you to fill out one of our cards, and that little soliloquy bought my staff enough time to go get the cards where I can show them to you from the podium.

If you intend to comment on an agenda item, I need for you to fill out the yellow card, and you can find blank cards in the lobby or the foyer of the Greer Building. If you intend to comment on any other thing in the open comment section, I need for you to fill out a blue card. And in any event, unless we get into a great exchange of philosophy, we would ask you to keep your comments limited to about three minutes.

We are also going to take up and perhaps act upon the first formal pass-through toll provision, one of the many great tools the legislature authorized the commission to use to catch up from 20 years of under-investment in the transportation world. And at the appropriate time, we're going to commend Montgomery County for its forward thinking approach to solving its own problems.

Finally, we are going to take up and discuss and probably make a decision on what could be the next significant private sector investment in the state's highway infrastructure. It comes later in the agenda, and traditionally when we got through some of the things towards the middle, people leave. We hope that some of you who might be interested in ascertaining how the commission will approach the future, stick around a little bit and watch the dialogue on that matter. It should be pretty interesting.

Mr. Behrens, where would you like to start?

MR. BEHRENS: With the minutes.

MR. WILLIAMSON: Then we will start with the approval of the January minutes. Do I have a motion?

MR. HOUGHTON: So moved.

MR. JOHNSON: Second.

MR. WILLIAMSON: I have a motion and a second. All those in favor of the motion will signify by saying aye.

(A chorus of ayes.)

MR. WILLIAMSON: All opposed, no.

(No response.)

MR. WILLIAMSON: Motion carries, the minutes are approved.

And Mike, I think I'll hand it off to you and take us forward, please.

MR. BEHRENS: Thank you, Chairman.

Our first item will be agenda item number 2 which will be the presentation of an award, and I'll call Kathy Murphy who is representing the Travel Division this morning in place of Doris Howdeshell who is still off on some medical leave but she's doing fine, we understand.

So Kathy, I'll turn it over to you and you can introduce our guests.

MS. MURPHY: Thank you. It's my pleasure to introduce Stacy George Cantu. Stacy is currently the executive director for Keep Texas Beautiful. KTB has been known as the grassroots arm of the Don't Mess With Texas campaign since its inception. KTB's partnership with TxDOT goes back even further in history to the 1960s when KTB was formed.

Currently Stacy and the KTB staff work under contract to manage the Don't Mess With Texas Trash-off, providing a local network of 339 affiliates, manage the Governor's Community Achievement Awards, and other litter prevention initiatives for the department.

Stacy?

MS. CANTU: Thank you, Kathy.

I am Stacy Cantu, and I get to be the executive director of Keep Texas Beautiful and I come with good news today. The first piece of good news is that TxDOT is a winner. You once again won the Keep America Beautiful/U.S. Department of Transportation Partnership Award for your partnership with our program. You won a very special award this year -- you were the only DOT to win it -- and that was an award for special recognition for Great American Cleanup achievements. Both of these awards will be presented later by Keep Texas Beautiful President Joanne Weik.

We were happy to nominate the Don't Mess With Texas "Excuses" TV and radio campaign. They both placed first and you were presented those awards last December. I think that's good news.

Numbers are up. Keep Texas Beautiful's Lake and River Cleanup Program in 2004 supported 133 cleanups. That's up 38 percent in the last two years. Of the 33,000 participants statewide, nearly 40 percent were kids, youth under the age of 18.

Texas Recycles Day Public Awareness Campaign had 662 events last year statewide, up 98 percent from 2003. We reached millions with the recycling message.

Keep Texas Beautiful does manage the Don't Mess With Texas Trash-off. It's the signature event of the Great American Cleanup which is held March through May of each year. Last year more than 130,000 Texans participated in cleanup activities statewide.

We are so happy to announce that we received an EPA grant this year to fund our Stop Trashing Texas, It's the Law Program. We expect to reach and train 800 law enforcement officials on illegal dumping and littering violations.

So our programs are growing, numbers are up, we're reaching more people, more people are hearing about our programs. What does all of this mean? Well, it means less trash in our parks, waterways, roads and communities, and that's good news.

I'm excited to report we received a record number of entries on the Governor's Community Achievement Awards last year. As you may recall, the Governor's award honors communities for their achievements in improving community environment.

I want to tell you about Munday. Munday is a town out in west Texas with a population of 1,476, and they won the Governor's Award last year. When businesses in a nearby town began closing their doors, community leaders in Munday thought the same thing could happen to us. So organizers for Keep Munday Beautiful said, "We're going to teach these citizens about the benefits of a clean and beautiful community."

They came up with the 5 Ps: Plan, Project, Promote, Protect and Procure. These 5 Ps help volunteers, teachers and project organizers stay focused. In Munday they educated kids in grades K through 12; they appeared before city council and encouraged enforcement of local ordinances; they cleared abandoned and overgrown lots; they removed an old eyesore of a water tower; they made numerous improvements to their downtown; and probably best news to you guys, they adopted 15 miles in all four directions -- they formed new Adopt-A-Highway groups and adopted 15 miles in all four directions from their town.

After ten years of losing at least one business per year, Munday has six new businesses which have opened since 2002. Isn't that good news?

It's always about money -- I'm not here to ask for any today, though. I'm happy to report that Keep Texas Beautiful is doing more with the resources we have. We always have our eye on more funding to help us reach our vision to make Texas the cleanest, most beautiful state in the nation.

Our affiliates locally match every government dollar with $10.21 of in-kind services and volunteer time. Ultimately that means cost savings to government entities. Keep Texas Beautiful and our 339 affiliates are good stewards with your money and our natural resources, and that's good news.

More good news. Doris Howdeshell is recovering well, and we're glad to hear that, but we've been very happy to work with newly-hired Brenda Flores-Dollar in the Travel Division.

Now I have the honor of introducing you to KTB President Joanne Weik. Joanne is the community outreach representative for BASF Corporation in Freeport, Texas and has served as our volunteer president since June of this year.

This means I'm finished with my report, and that's definitely good news.

MR. WILLIAMSON: Wait, wait, wait. First of all, we appreciate all of your hard work.

MS. CANTU: Thank you.

MR. WILLIAMSON: And in the Keep Texas Beautiful projects you described, does any other state agency participate with us?

MS. CANTU: Yes. TCEQ funds the Lake and River Cleanup Program and Texas Recycles Day -- those are two programs that I mentioned. And we partner with the Texas Forest Service on the Arbor Day poster judging contest which we'll be judging on March 3 right after our skeet shoot.

MR. WILLIAMSON: Do we do some stuff with the GLO?

MS. CANTU: We partner with the GLO. There's no funding but we help with their Adopt-A-Beach Program and they help by giving publicity to our programs as well. So it's a partnership.

MR. WILLIAMSON: So in addition to the recognition our department employees get, we want to point out that the effort to address this problem is statewide and agency-wide and there are many other state employees doing what they can to contribute.

MS. CANTU: Yes.

MR. WILLIAMSON: And we want to recognize our colleagues and peers in the other state agencies for what they do.

MS. CANTU: Great. Thank you.

MR. WILLIAMSON: Members, anything for this lady?

MR. JOHNSON: I have one observation. People that know me think that I'm reluctant to speak on behalf of others -- which I am -- I'm not reluctant to speak on behalf of myself.

MR. WILLIAMSON: We know that too.

(General laughter.)

MR. JOHNSON: I do believe that I speak for a huge number of people who love this state and love to drive this state and love to have their recreation in this state, and expressing thanks to Keep Texas Beautiful for all the hard work that you do and the results that that hard work has produced.

MS. CANTU: Thank you very much.

MR. NICHOLS: I would almost echo the comments of Commissioner Johnson. We want you to know how proud we are of what you do. It really is great. I see people smile and things better all over the state because of the work you do, and we just want you to know that we really are supportive.

MS. CANTU: Well, we couldn't do it alone, and we sure appreciate the funding from the Texas Department of Transportation. More than that, we really appreciate the partnership. It's been a wonderful win-win situation since the late '60s, and again, we can't do it alone. We have great partners at TxDOT, we love working with you, the Adopt-A-Highway coordinators at the district level, certainly the wonderful folks in the Travel Division, and it's really a great opportunity for our affiliates to work with the local TxDOT reps as well. So I will now introduce --

MR. HOUGHTON: I have a question. How many people are involved overall? I mean, how many people touch Keep Texas Beautiful? Have you ever gauged the number, put a number to it?

MS. CANTU: Hundreds and hundreds of thousands because of our grassroots efforts. I will tell you that our affiliates in 339 communities represent about 16 million Texans, so those communities represent a majority of the state. But there's hundreds and hundreds of thousands of people that are involved with our program on an annual basis. And we get numbers from our affiliates so it's hard for us sometimes to get all of the numbers in one place.

MR. HOUGHTON: I've got one last question.

MS. CANTU: Yes.

MR. HOUGHTON: Can you point out Munday on the map? I'm from west Texas but I'm having a devil of a time finding it.

MR. WILLIAMSON: It's just down the road from Knox City, just north of Aspermont.

MS. CANTU: Do you think that's central Texas?

MR. HOUGHTON: I think that's more central than west.

MR. WILLIAMSON: Although I have some trepidation about whether or not 1,000-plus is the actual population. The last time I went through Munday, it looked like there were around 650 to 700, so I guess it's growing.

MS. CANTU: It's growing.

MR. HOUGHTON: Was that on your way to far west Texas and El Paso the last time you went through Munday?

MR. WILLIAMSON: You know, Munday, I think -- and people from Munday who are here can correct me -- but I think that is near the headwaters of a major tributary of the Brazos River, I believe. I believe there's a spring in the area that ends up being the headwaters of one of the major tributaries of the Brazos. It's a great place; there are a lot of fun people in Munday, Texas. All the sore heads are in Knox City.

(General laughter.)

MS. ANDRADE: I have one comment to make also. Stacy, I just want to thank you for the work that you do. As I travel throughout Texas, I really appreciate the work that you do, and your enthusiasm is great. The state of Texas is lucky to have you. Thank you for your hard work.

MS. CANTU: Thank you so much.

MR. WILLIAMSON: And Mike Behrens just kicked me and reminded me that the most important aspect of Munday is it's only about 40 miles from the birthplace of Governor Perry, Paint Creek. That's the other thing that's important about it.

MS. CANTU: I'll add that to my story.

MR. HOUGHTON: And I guess we'll have Arbor Day in El Paso soon?

MS. CANTU: The state ceremony is in April.

MR. HOUGHTON: We're still looking for a tree.

(General laughter.)

MS. CANTU: I haven't heard the announcement on where the state program is; that's why I was looking back to see if we had any information on that.

MR. WILLIAMSON: You think that the lady behind you thinks we're trying to drag it out where she can't have any time? Okay, I think we're through.

MS. CANTU: This is Joanne Weik.

MR. WILLIAMSON: Wait a minute. We've got to give you a hand.

(Applause.)

MS. WEIK: You can see why we're all so proud to have Stacy as our executive director; she really keeps us going.

I'm Joanne Weik, as she said. I come here from Brazoria County, so not out in west Texas.

But you know, the wonderful thing about our volunteers is they figure out how to have an Arbor Day when you have no trees, they do something to substitute. And when you have no lakes or rivers to clean up, they figure out a way to still do some water cleanup. They're very innovative across the state.

As Stacy said, I'm the president for 2004-2005 and it is such an honor to serve this organization and to work with you guys as a partner.

I would want to recognize a few people that are here. One of our newest volunteers with us, John Howard, he's on our Fund Development and Government Partnership Committee. John, thank you for coming.

And our staff, the backbone of this organization that keeps us going. I'm going to ask you to stand, and if you'll do that quickly, I won't have to argue with you. We have Cecile Carson, Katie Sternberg, Stacey Langhout, Kim Carlson, Jami Gigliotti, and Michelle Newkirk. Thank you so much for all that you do.

(Applause.)

MS. WEIK: I'd also like to take this opportunity to invite you to two events coming up with Keep Texas Beautiful. One is March 3, it's our skeet shoot. It's an opportunity to have guns and legislators in the same place -- they're unloaded, though.

MR. JOHNSON: What's unloaded, the guns or the legislators?

(General laughter.)

MS. WEIK: Our honored guest this year is U.S. Congressman Don Young. He's the chairman of the Transportation and Infrastructure Committee. We're very excited about getting him onboard to join us. Again, March 3 at one o'clock at Texas Disposal Systems, and Stacy will leave you some information or send you some information on details if you could join us for the skeet shoot or even for the dinner. We'll be there from about 1:00 to 6:00 and would love to have you out there at any time during the day that you could make it.

We also have our annual conference, our 38th Annual Conference scheduled in Houston this year, June 27 through 30. There's four days of opportunities for you to join us and again, Stacy will get you some details on that, and if your schedule allows you to be there, we'd love to have you there and see what we do and the excitement that these volunteers bring.

I had one of my major managers attend a conference with me one time, kind of begrudgingly, doing his duty, but by the time he got back, he said the hair on the back of his neck was standing up from all the excitement. So there's a lot of energy there and a lot to be learned.

We were honored this year to nominate TxDOT for the awards from Keep America Beautiful, and we're so pleased that you have received those. Again, the Department of Transportation won the Keep America Beautiful/U.S. State Department of Transportation Partnership Award, and then the special award for the Great American Cleanup.

On behalf of the directors and staff and the thousands of volunteers, I would like to present these awards to you. We do have some plaques, and if we can present those to you now?

MR. WILLIAMSON: Let's go down, members.

(Pause for presentation of plaques and photographs.)

MR. BEHRENS: We'll now go to agenda item number 3, and I'll call Kathy back up here and have her present the recommendation on increasing the subscription to Texas Highways Magazine.

MS. MURPHY: This minute order covers a subscription increase for Texas Highways Magazine. The last increase was in 1996. The domestic rate would move from $17.50 per year to $19.95, single issue cover price $3.50 to $3.95, and the international rate $25.50 to $29.95.

MR. WILLIAMSON: Discussion, members?

MR. NICHOLS: Go ahead.

MR. JOHNSON: Just out of curiosity, how much additional revenue will this raise?

MS. MURPHY: With the assistance of the Finance Department, we have calculated that with revenue, assuming no change in subscribers, this would mean a plus of $189,000. If we had a 2 percent decrease in subscriptions, it would still mean $114,000 in revenue, and with a 5 percent decrease in subscribers, we will see still a $78,900 increase.

Now, one thing I want to mention which is typical of a magazine when they do deal with a subscription increase is to give everyone an opportunity to renew at the old rate. So we will be doing that over the course of the next six months, and that should actually lift response for us and help cash flow.

MR. JOHNSON: Thank you. I think the Texas Highways Magazine is absolutely a sensational piece and it shows that a lot of hard work goes into it and the product is terrific.

MS. MURPHY: Thank you. It's a labor of love.

MR. JOHNSON: The ability to keep the same cost since '96 I think is a credit also.

MR. NICHOLS: I was going to say that we get compliments all over the state on the quality of that magazine. My mother subscribed to it for years before I ever got on the commission even, so it was at our house all the time.

Only in the last few years did we start selling advertisements.

MS. MURPHY: That's right.

MR. NICHOLS: And I was going to ask you, I think before we did that the magazine was losing a few hundred thousand a year.

MS. MURPHY: That's right. Advertising has definitely helped us address the issue. Fiscal year '03, after expenses, we realized that with advertising comes expenses. The pub rep firm, commissions, added paper, production costs, pre-press, but net in fiscal '03 in revenue, $239,000, in '04, $296,000. And '04 was really a low year for us; we were coming out of a struggling economy, but '05 already we're seeing a 60 percent increase in advertising.

MR. NICHOLS: Sixty percent?

MS. MURPHY: Sixty percent in advertising, and I think that speaks to the way that we handled this which was to limit the kind of advertisers we would allow in the magazine. So we have people who are involved in unique Texas products but primarily travel destinations, convention and visitor bureaus, chambers and so forth. So it's kind of a love fest.

MR. NICHOLS: So I know a number of years ago, especially during the legislative process, we used to have elected officials ask us if we were having to subsidize the magazine, and now basically the magazine is self-sufficient. Or very close to it?

MS. MURPHY: It's very close to it. Two years ago we were in the black; last year we had a bit of a slip because, frankly, subscriptions and product revenue were down, but it was down across all magazines and across all markets regardless of the industry. We've seen an increase in advertising.

One of the problems with magazine publishing is that you always have these issues with paper and postage and added increases. We've had four paper increases in two years and we'll see another one in '05, so while we try to balance the issue of promoting and bringing on new subscribers, we're also doing everything we can to keep costs down.

In October '04 we adjusted the trim size of the magazine which I'm sure no one even noticed, but we adjusted the trim size, brought the cover weight down, and eliminated poly bags, and over 12 months that's going to save us $153,000.

So while we continue to work on adding revenues with advertising and things like that and with the subscription increase because that's important, we're also always looking at costs.

MR. NICHOLS: Thank you very much. So we can truthfully say we've made substantial improvements and still have a quality magazine.

MS. MURPHY: Without question.

MR. NICHOLS: So you are doing a good job. Thanks.

MR. JOHNSON: I have a request. As I advance in years, please don't reduce the font size.

(General laughter.)

MS. MURPHY: I'll let the art director know that; he's younger than both of us.

MS. ANDRADE: Kathy, I have a question. So in 2003 you said there was a surplus of $6,000. What caused that? Was it increased subscription?

MS. MURPHY: Well, there's no question that advertising revenue really helped in that, and we also had the steady income related to product. In fiscal '04 we saw a drop in that generally overall. We belong to an association called the International Regional Magazine Association which is about 43 magazines, and last year was a tough year across the board. People were traveling less in general and just a tighter pockets.

But we've already seen in the first few months of this year an increase, a significant increase.

MS. ANDRADE: I think it's a great magazine. Last year I used it as a gift, bought a subscription for someone. I got so many compliments that I'm going to use it more, and I encourage my fellow commissioners to do the same.

MS. MURPHY: Excellent.

MR. HOUGHTON: Is that a challenge?

MS. ANDRADE: Absolutely.

MR. HOUGHTON: I'll take it, absolutely.

How many magazines do we sell?

MS. MURPHY: Our distribution is about 250,000, but we just finished a major readership study by an independent firm, and I'm glad you brought this up. Our pass-along readership is 1.3 which means that the magazine reaches almost a half million people each month.

And from this readership study what we learned is that the average reader takes 3.6 leisure trips per year; 65 percent of them travel to a destination because of something they read in the magazine or an advertisement they saw; 63 percent of them responded that Texas Highways is the major resource in planning trips.

I mention this because the Travel Division enabling legislation is about promoting Texas and the magazine is just one way we do that, but its return on investment is very serious in terms of -- our readership is incredibly responsive and we see that all the time when we write about something and someone calls and says: Oh, my lord, the phone hasn't stopped ringing -- which is not an unusual event.

MR. WILLIAMSON: I wasn't going to say anything because I knew the other commissioners would, as Mr. Johnson said earlier, see all the pitches, but you used some terminology in your explanations that I just want to take a moment to step out and compliment you for using.

It is pleasing to this small business person's ears to hear state employees talk about the importance of rate of return and cash flow. So often, I think the public that we represent or that we work for suspects that state government doesn't understand those concepts, and I can't speak for the other agencies, but I know in our agency we try to run ourselves as a business.

Whether it's our magazine, our Keep Texas Beautiful, our toll program, our regular highway program, things like cash flow and rate of return and what our investment of tax dollars means to the taxpaying public are important concepts for us, and I appreciate you weaving those terms into your presentation.

MS. MURPHY: Thank you.

MR. WILLIAMSON: I thank you for your report. I suppose you'd like a motion, Michael?

MR. BEHRENS: Yes, sir.

MR. HOUGHTON: So moved.

MR. JOHNSON: Second.

MR. WILLIAMSON: I have a motion and a second. All those in favor of the motion will signify by saying aye.

(A chorus of ayes.)

MR. WILLIAMSON: All opposed, no.

(No response.)

MR. WILLIAMSON: Motion carries. Thank you.

MS. MURPHY: Thank you.

MR. WILLIAMSON: We have some people in the audience, Mike, that need to exit probably. Why don't we take three minutes and let them exit and then we'll resume, if it's okay.

MR. BEHRENS: And if I could make just one comment, I failed to mention that Kathy is the editor of the Texas Highways Magazine.

MS. MURPHY: Actually, Mike, I'm the publisher, I'm the paper-pusher.

MR. WILLIAMSON: Well, we want to recognize you for being the publisher.

Let's take three and let our guests exit.

(Whereupon, a brief recess was taken.)

MR. WILLIAMSON: Back on the record, and Mike, back to you.

MR. BEHRENS: Thank you, Chairman. We'll go to agenda item 4 which will be a discussion item, and it will be led by Amadeo Saenz and the item will deal with the procurement of professional services. Amadeo?

MR. SAENZ: Good morning, commissioners. For the record, my name is Amadeo Saenz, Jr. I am assistant executive director for Engineering Operations for the Texas Department of Transportation.

Several years ago, members of the commission made the department staff aware of the need to identify opportunities to reduce costs of planning, building and maintaining our state highway infrastructure. In response to your instructions, we have amended our construction contracts to reward contractors who finish projects ahead of schedule and at the same time penalize contractors who finish projects behind schedule.

We're in the process of approving comprehensive development agreements which will lower the overall cost of our project development. We're in the process of reviewing and approving several pass-through toll proposals which will allow local and regional governments to develop improvements to the transportation system much faster and cheaper than we could possibly do because of our funding limitations.

MR. WILLIAMSON: And Amadeo, I don't want to break your train of thought, but the whole purpose of this discussion item is not only to inform commission members about certain aspects of our relationship with the private engineering world, it's also to inform those who might be interested of the steps we've taken to alter our behavior such that we design and build assets faster.

Frequently, I think, because of our words and actions, we fixate the state on our toll program, at the expense of pointing out the things we're doing outside of the toll program to reduce costs and speed the process up.

What I heard you say is several years ago these commission members said we need to start doing things faster and cheaper, and so the first thing we did -- at, I might opine, great discomfort to the contracting industry, not the engineering industry but the contractors that we deal with -- is we slowly but steadily began to implement rewards for doing things faster and punishments for doing things slower -- not something the construction industry was comfortable with, much like some of the things we suggest that the engineering world might not be comfortable with today.

MR. SAENZ: That's correct.

MR. WILLIAMSON: We began to pursue comprehensive development agreements which combine engineering and construction into one process which makes a lot of people uncomfortable but reduces the time it takes to get a project to completion.

And we're now moving to our pass-through toll program which in effect surrenders a lot of decision-making to regions, counties and even cities -- decision-making and one might say power that this department used to retain to itself.

So our interest in the engineering world is just the next step in a long series of steps we've been taking to reduce costs and improve project delivery.

Please continue.

MR. SAENZ: Thank you.

Late last year, the Chair made the department staff aware that Governor Perry intended to propose an inspector general program for our agency, along with other state agencies of state government. As we understand it, the governor intends the inspector general program to focus in two subject areas: fraud and inefficient contracting practices.

In December, you, the Texas Transportation Commission, adopted your 2005 legislative agenda pursuant to the requirements of Transportation Code 201.0545. One of the positions advanced in the agenda concerned the process you, the members of the commission, believe we, the employees of the department, should follow to obtain the services of private consulting firms to assist the department in the preparation of planning and design work.

On February 8, 2005, Commissioners Nichols and Andrade, along with other witnesses, appeared before the House Transportation Committee to discuss the commission's legislative agenda. During the committee meeting, several statements were made by witnesses prompting you to ask us for an explanation. Also during the committee meeting, several House members asked questions which could not be completely answered at the time.

The Chair then directed us, the staff, to prepare a brief summary of the private sector contracting process to clarify some of the statements made during the legislative hearing and to be prepared to answer any questions that you may have concerning this issue.

TxDOT employees have been using the private sector consultant firms to assist the department in the preparation of project planning and design work for more than a quarter of a century.

The slide on the overhead there basically shows that starting in 1980 we paid out about $9 million for consultant services, and through the years this has increased, and our estimate for engineering consultant services -- this is basically just for design consultant services for this year, is $227 million.

MR. WILLIAMSON: Hang on a minute. I think all of us want to absorb this as you go.

MR. NICHOLS: Yes. In the latest LAR request we had for outside professional services, how much per year or how much for the biennium was in that legislative appropriation request?

MR. SAENZ: James is here, but I think we had close to $400 million per year, so close to $800 million. That includes all consultant services. These numbers here that I'm showing you are strictly what we're using to pay for planning and design of highway projects.

MR. NICHOLS: But the total consulting, all the professional services together over the next two years is about $850,000?

MR. SAENZ: $850 million.

MR. NICHOLS: $850 million. Okay.

MR. WILLIAMSON: Thank you.

MR. SAENZ: Moving forward, if I add a couple more things to the previous slide -- and I've physically added our letting dollars which shows how much we let to construction each year, as well as the number of FTEs that the department has had through the years -- we can start to see a few other things.

In 1980 the amount of taxpayer money invested for constructing and maintaining our state highways was about $1.1 billion. We had over 15,000 employees, FTEs that were working for the department.

As you can see, through the years our letting volumes have increased and our estimate for 2005 is about $4.7 billion.

At the beginning of 1996, the departments FTE cap was capped by the appropriations. TxDOT was only able to --

MR. WILLIAMSON: Wait. When was this?

MR. SAENZ: 1996. Beginning in 1996, the department's FTEs were capped by our appropriations.

MR. WILLIAMSON: So at what level?

MR. SAENZ: They were capped at the levels that are shown there, so in '96 and '97 we were stepping down, and if you look after '97 we have been pretty much capped at about 14,700 employees since 1999 till today.

MR. WILLIAMSON: I want to be sure I understand these figures. In 1995 we had -- that's an actual count -- 16,621 employees.

MR. SAENZ: Yes, sir, or full-time equivalents. But for the sake of this, this is employees.

MR. WILLIAMSON: In the '95 session, the appropriations bill reduced the number.

MR. SAENZ: And we were capped at 15,091 for '96 and 14,641 for '97.

MR. HOUGHTON: Is that a self-imposed cap?

MR. SAENZ: No, sir. That was from the legislature; that was in our appropriations bill.

MR. HOUGHTON: I understand, but did we ask for that cap?

MR. SAENZ: I think we were asked to reduce at the time and we said we can come to these numbers, and then since then they've been basically stepped down and those numbers have remained and have not increased.

MR. WILLIAMSON: So from '95 to '96, we effectively lost 1,500 employees?

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: How many of those were engineers or support persons in the engineering function?

MR. SAENZ: I would have to go back and research that.

MR. WILLIAMSON: I tell you what, I suspect that we're going to talk about this again in March, so I hope there's someone on your staff taking notes because that's a question I want answered in March: How many of the 1,500 that were reduced from '95 to '96, as a result of the legislature's direction, were engineers or employees in support of the engineering function? I want to know the answer to that question.

MR. SAENZ: We will get that for you, sir.

MR. JOHNSON: Amadeo, one further question, the numbers that you presented, are those the actual employees, full-time equivalents, or are those the caps that have been in our appropriations bill?

MR. SAENZ: The FTE number that is there are the full-time equivalents that we had. Those were actually full-time equivalents because we did not have a cap. From 1980 to 1995, I'm showing the full-time equivalents that the department had.

MR. JOHNSON: What about from '95 on or whenever the cap was put in effect?

MR. SAENZ: From '95 on I'm showing what is in our cap.

MR. JOHNSON: But in actuality we have never -- never is probably an inappropriate word -- we have seldom reached the maximum FTE count.

MR. SAENZ: Through those years there have been several retirement incentives and as our employees retire, because it takes some time to get employees back onboard with the department, we have never been able to reach our caps that have been put in our appropriations bill. That's correct.

MR. WILLIAMSON: And in '95 to '96 the same year we lost 1,600 employees, our payout to professional engineers doubled, almost doubled.

MR. SAENZ: Yes, sir. Right. 1995-1996 that was around the time we were also implementing a new federal bill, so there was additional funding. Our lettings also increased if you look at '95 and '96, so we had to come up with additional resources to get the work product out, so we were beginning to use consultants to help us put out that work product.

MR. WILLIAMSON: Okay, continue.

MR. SAENZ: This slide here basically indicates our use of consultants, how it has tracked with our letting volumes through the years. As the slide indicates, there's a rough correlation between the increase in letting volumes versus the increase in pay-outs to the design-related services. Both have increased as our transportation program has grown.

MR. WILLIAMSON: Wait a second; let us absorb this.

MR. SAENZ: If you notice, the blue line, of course, is our letting volumes per year. If you notice like 1984 to 1985 there was a big spike. Our commission back then identified and we had a pretty extensive rehabilitation program, so we wound up increasing our lettings to get that work out and improve our highway system. And you can see also between '84, '85 and '86 that we also had the spike; we started using consultants at that time to help us.

Once we got the program going, our lettings began to drop and you can see the same correlation that as our lettings dropped, the use of consultants kind of goes back down.

MR. WILLIAMSON: Well, not exactly, but that's okay. It dropped some.

MR. NICHOLS: But in 1997 the very year after the caps were set on the FTEs, the legislature also passed a law that required us to out-source at least 35 percent, taper up over a period of years to at least 35 percent.

MR. SAENZ: That's correct. In 1997 the legislature passed a law that required us to out-source beginning in the year 2000 -- well, I take that back -- in 1998 we were required to consult a certain amount. In 1998-99 biennium I think it was $207 million, and then beginning in the year 2000 we were --

MR. WILLIAMSON: Wait. They prescribed a dollar amount?

MR. SAENZ: Yes. It was prescribed by rider. The '97 session included a rider that prescribed that we had to contract with outside consultant sources in the amount of $207 million, I believe, in the biennium.

MR. WILLIAMSON: So in '95 we got 16,000-and-something employees, the legislature directs we reduce that to 15,000, and then two years later directs us to spend a hard dollar amount with private engineers.

MR. SAENZ: That's correct. And then beginning in the year 2000, we were supposed to increase our expenditures by 1 percent until we reached 35 percent of what we call our plan-design-manage strategy.

MR. WILLIAMSON: Okay.

MR. SAENZ: One thing to look at is by the year 2000 we were already very heavily into the use of consultants because from 1995 forward, our forces had been basically capped, and because we had new federal bills and a lot of additional money, our letting volumes were increasing. So therefore, we were using consultants more, and we were already using consultants up to about 50 percent.

MR. WILLIAMSON: What you meant to say is we had a lot of additional money for construction.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: But from what you presented here, we didn't have additional money for employees because we were capped at the number of employees we could hire.

MR. SAENZ: Correct, so we used the consultant industry to help us meet that.

MR. WILLIAMSON: So we had additional money for construction and private sector engineer contracts, but we didn't have additional money for employees.

MR. SAENZ: We were capped on the number of employees that we could have.

MR. NICHOLS: So in effect, it was illegal for us to hire more employees, but illegal for us not to out-source more engineering.

MR. WILLIAMSON: We know you're a professional engineer, and we understand this is a sticky business for those of you who have civil engineering certificates, and we don't wish to put you or any civil engineer in the department in an uncomfortable position. So when we ask questions, use good judgment, don't jeopardize your own good standing in your profession.

MR. HOUGHTON: What's the percentage of consulting work now outside?

MR. SAENZ: Right now we are a little bit over 60 -- we're about 62 percent, and it's 62 percent of our plan-design budget. As the prior slide, our estimate is that this year just for design consultant contracts we're going to spend over $227 million.

MR. JOHNSON: Amadeo, I'm curious about, it looks like from my angle, 2001, 2002, 2003, during that period there was a decline in the dollar volume of professional service expenditures.

MR. SAENZ: If you recall, sir, that was the year I came to Austin, so I'm not going to take the blame for it, but that was the time that we were going through some cash flow problems, and we had to reduce our construction work as well as our design work so that we could make sure we stayed within our cash flow requirements.

MR. JOHNSON: I'd forgotten.

MR. WILLIAMSON: I came in right about that time, that was the 2001 session. Was that the two years following -- I don't remember the chairman at the time, but one of the chairmen had been on the department pretty steadily about having any cash in the bank at all, and so finally the department, in response to -- it might have been Mr. Junell on the House side -- in response to the aggressive leadership of the chairman of Finance and chairman of Appropriations, maybe we let more contracts than we could pay for?

MR. SAENZ: Just looking at that '99 to 2000 --

MR. WILLIAMSON: I remember what it was. We had good weather and we knew that we should reserve for bad weather -- for good weather but you couldn't make the argument, and so the chairman forced you into putting more engineers on contract and letting more construction contracts, and all of a sudden it didn't rain for two years.

MR. SAENZ: And the contractors did their work and did it very fast, and resulted in a cash flow problem.

MR. WILLIAMSON: That's what it was. Okay, continue, Amadeo.

MR. SAENZ: This slide here, what I've tried to do here is basically show that during the years how the projects that we've let to construction, how much work was done by consultants and how much work was done by in-house staff. The slide indicates that the projects done by out-sourcing versus in-house staff since 1980. The blue line is the value of the total letting amount, the green line represents the value of projects let to contract that were designed in-house, and the red line represents the value of contract work that was performed by design consultants. If you add the green and the red, it should equal to the blue.

Given the current staffing levels -- I looked at the recent past history -- from 1997 forward, the department has been able to produce approximately the average of about $2 billion worth of projects annually, and has utilized the private consultant industry to take care of the remainder of the design so we can meet the letting volumes that we had identified that we wanted to go to contract with.

So it's safe to say that the employees of the department and the taxpayers of the state of Texas are dependent on private sector consultants to get our work accomplished.

MR. WILLIAMSON: Or another way of saying it is because of the cap on the FTEs, if for some reason we were to wave our wand -- which we wouldn't -- but just say we're not going to do any more private sector consulting, the current construction program of $4.7 billion would have to be reduced by 50 percent because that's all we could generate since the legislature caps us on the number of employees we have.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: So a less than kind way of putting it is in order to build roads, we have to contract, no matter what.

MR. SAENZ: That's correct, based on the number of people we have right now, yes.

MR. WILLIAMSON: You may be going to address this in a moment, I don't know, but I think the obvious question that jumps in my head is is it cheaper to contract, is it cheaper to do it in-house. Do we know? Is there a diversion of opinion? Are there studies in that regard?

MR. SAENZ: There have been some studies, and of course different people did different studies and the studies do not really agree.

What we've looked at is because of the demand on our transportation system and the need to be able to let these projects, we have tried to make sure that we do as much as we can with our own resources as efficient as we can, and then anything that we need above and beyond that, we use the additional tools that are available to us which is to go to the consultant industry.

But there have been some studies done in the past and the studies basically did not really agree as to whether consultant engineering was cheaper whether it was done in-house or whether it was done by consultants.

MR. HOUGHTON: Depends on who's doing the study. Right?

MR. SAENZ: That's correct.

MR. WILLIAMSON: My second request for next -- for March, I'd like a summary of the studies that we're aware of.

MR. SAENZ: We will get that to you.

MR. WILLIAMSON: I don't care if it's for our employees or for the private world or neutral, it doesn't matter to me, I just want the information.

MR. SAENZ: We will get that to you.

MR. WILLIAMSON: Let's contact the -- who's the trade association that speaks primarily for the engineers?

MR. SAENZ: The Consultant Engineering Council.

MR. WILLIAMSON: The CEC?

MR. SAENZ: CEC, yes, sir.

MR. WILLIAMSON: Let's contact them and see if they have studies that they would provide the public. I guess architecture and surveying. All of those are represented by some trade association.

MR. SAENZ: We will try to contact trade associations and the industry to try to get as many studies as we can, as well as studies that we have done in the past.

MR. WILLIAMSON: Let's compile those and maybe even summarize them, Mark, because we don't want to sit up here on the podium and read everyone of them, but let's try to summarize as to what their conclusions were and what the basis for the research was.

Okay, proceed, Amadeo.

MR. SAENZ: The employees of the department have developed a well understood process for selecting private sector consultants.

MR. WILLIAMSON: Wait. Go back to that slide, I have one more question. So am I to infer the last three years it would appear that the private sector is providing somewhere between 50 and 60 percent of our work?

MR. SAENZ: They're providing about 60 percent, yes, that's true.

MR. WILLIAMSON: Okay, thank you.

MR. SAENZ: I'd like to go ahead and review the process by which TxDOT currently undertakes the selection of an engineering firm. We have been working throughout the years with industry to develop and maintain a list of pre-certified firms. Now, these are firms that can perform professional services for TxDOT in the various work categories that have been identified based on their qualifications.

The process begins with the department issuing a notice of intent, or what we call an NOI -- and I probably will bore you with a lot of acronyms before I'm done -- to contract with a professional service provider. The NOI gives a project description. It provides the general scope of the requested services and the evaluation criteria that will be used to evaluate these requests.

MR. WILLIAMSON: You don't pre-certify a firm, do you, you pre-certify the individual who is a part of that firm?

MR. SAENZ: We pre-certify individuals and we also pre-certify firms. The firms are pre-certified by the individual; this individual worked for this firm so this firm is pre-certified.

MR. NICHOLS: How many firms do we have that are pre-certified?

MR. SAENZ: Right now we have over 900 firms that are pre-certified in our database.

MR. WILLIAMSON: And are some of those firms one-woman firms?

MR. SAENZ: The person that is certified and we have certified that person and that's the only person we have certified for that firm, so it could conceivably be a one-woman firm.

MR. NICHOLS: But a firm could also be a large firm.

MR. SAENZ: Yes, sir, because we could have seven, eight, ten, twelve, fifteen, twenty people that are certified and they all work for the same firm.

MR. NICHOLS: Was it like 930, give or take, right in there? So when somebody has gone to the trouble to come to us, go through the process to get pre-certified, that's something that has to be updated, I think, every year or so or something like that, then that means they have expressed a desire to do business with the department.

MR. SAENZ: That's correct.

THE WITNESS: Be it a big firm, little firm, we want to do business with TxDOT.

MS. ANDRADE: Excuse me. I have a question, Amadeo. Since you're going to get us information for the March meeting, out of the 930 firms that have been pre-certified, can you tell us how many of them are small business or women-owned?

MR. SAENZ: Yes, ma'am, we can do that.

MR. WILLIAMSON: I'd even be interested to know, if it's possible, do any of them qualify as minority-owned.

MR. SAENZ: We can get that; we have that in the database.

MR. WILLIAMSON: Since we have to run a DBE/HUB program, surely we know what that information is.

MR. SAENZ: Yes, sir. And we also track that in our firm because all our consultant contracts have a DBE requirement. Usually about 30 percent is what we require.

MR. WILLIAMSON: So basically at all times you're aware of the individuals in the firms that are certified to do certain kinds of work for us, you decide or someone decides -- you'll tell us about that in a moment, I suppose -- that we want to hire somebody, contract with somebody, so you issue the notice of intent. Does that go in the newspaper? Does that go in a letter?

MR. SAENZ: It goes in a local paper; it is also on our internet site. It goes on Texas Marketplace, and it also goes on the Texas Register.

MR. WILLIAMSON: So the world who would be interested in this work knows about it.

MR. SAENZ: That's correct.

MR. WILLIAMSON: Who issues the notice of intent? Do we do that here?

MR. SAENZ: The notice of intent is issued out of our office here in Austin, but the request is initiated either at a district or a division. It is initiated based on a request that they would like to procure the service of an engineering firm to do certain type of work. It is approved by either Mr. Marek, myself or Mr. Behrens, depending on the value of the cost of the engineering service. And once that is done, then the district develops the notice of intent.

And the notice of intent, as I mentioned, includes: the general description of the work that's going to be done, the services that we want, the general scope. It includes the evaluation criteria that will be used to evaluate these consultant firms. Evaluation criteria includes: project understanding, the approach of the project, the manager's experience, the team's experience, their experience with similar type work.

MR. WILLIAMSON: What team?

MR. SAENZ: Most of the time when a consultant replies to a notice of intent, they put together a team that is going to perform this work for us.

One of the requirements, as I mentioned earlier, would be that it requires a 30 percent DBE goal. If a consultant firm is not a DBE, they will bring in firms as part of their team to satisfy the DBE goal.

Most of the time a lot of firms, whether they're big or small, will team up together to, what I would say, capitalize on the expertise of the different firms to put together the best proposal.

MR. NICHOLS: So you can't get there by contracting directly with the DBE or the HUB. So instead of getting there directly, by contracting directly with these minority- or women-owned businesses, are we getting there by issuing contracts to them, or are we issuing contracts to firms that aren't qualified but who subcontract out a portion of their work to them to meet the quota.

MR. SAENZ: We're really doing it both ways. There are some DBE firms that team up and they come in as the prime consultant.

MR. NICHOLS: So if we've got 20 percent -- what is the goal, 20 percent?

MR. SAENZ: Thirty percent. Thirty percent is what we put in our proposals.

MR. NICHOLS: So if we have a 30 percent goal, you're saying that in the contracts we issue dollar-wise maybe 30 percent of them go directly to minority- and women-owned groups?

MR. SAENZ: Yes, sir.

MR. NICHOLS: Directly.

MR. SAENZ: We pay through the prime, and then the prime --

MR. NICHOLS: Through the prime.

MR. SAENZ: Through the prime, yes, sir.

MR. NICHOLS: So it's not a contract that goes to the minority firm, it's a contract that goes to the prime, then they subcontract out.

MR. SAENZ: That's correct.

MR. WILLIAMSON: Like our construction contracts, we require them to keep track of that so we can certify that we're meeting our goals under the Appropriations Act and the appropriate federal law.

MR. SAENZ: That's correct.

MS. ANDRADE: Amadeo, we do not have primes that are minorities?

MR. SAENZ: Well, we have contracts with primes because DBEs and minorities can submit as primes and we have some -- I can't tell you exactly how many, but we have some that have --

MR. WILLIAMSON: That would be a third subject area.

MR. HOUGHTON: That would be a good number to know.

MS. ANDRADE: That would be a good number. Would you furnish that?

MR. WILLIAMSON: Let's add that as a third subject area question for next month, Mark.

MR. NICHOLS: And I would suggest you do it in dollar amounts as prime contracts to minorities as well as the physical number of contracts. It's not just how many contracts, dollar-wise and how many contracts.

MR. WILLIAMSON: How many separate contracts would you think that we've executed with the private sector in the last six years, say: 50, 100, 97?

MR. SAENZ: In the last six years we've probably executed about 1,500.

MR. WILLIAMSON: Well, if the number is 1,500, then here's what we want for March: we want to know, to the extent we can identify without being intrusive in people's lives, how many of those contracts were minority- or women-owned firms and the dollar volume of those contracts, minority-owned or female-owned.

MR. NICHOLS: And that's for the prime contracts.

MR. WILLIAMSON: Right, for the prime contractors.

MR. HOUGHTON: Do we have a matrix of the 900 firms? Do we know what the makeup is, the demographics of the 900 firms? I mean, that may be a lot of work, but do we know what the demographics of those 900 firms are?

MR. WILLIAMSON: Little Tommy Bohuslav.

MR. SAENZ: We probably know if they're minority- or women-owned; I don't think we have it by physical location.

MR. HOUGHTON: Well, when I talk about demographics, there's 900 firms that are certified with us, what DBEs, women-owned, how many of those firms are entrepreneurial, small.

MR. SAENZ: We will research the database and be able to get it.

I want to make sure I go back and clarify one thing, and that is our state DBE goal for consultant contracts is 20 percent. Normally in our requests for proposals, we go with 30 percent, and most consultants that submit will basically use 30 percent in most of their contracts. The 20 percent is a state requirement, state goal.

MR. NICHOLS: For DBEs and HUBs?

MR. SAENZ: Yes, sir, that's a state goal, but most of the time our NOIs will require a 30 percent and most, if not all our consultants bring in the 30 percent.

MR. HOUGHTON: What happens if you move it to 50 percent?

MR. WILLIAMSON: I guess the reason we use 30 is because --

MR. HOUGHTON: Arbitrary number. Where did that come from?

MR. WILLIAMSON: Well, my guess is we want to be sure that the members of the legislature and the members of congress that are interested in that goal.

MR. SAENZ: Thomas works with the BOP office and he can tell us how the goals are set.

MR. BOHUSLAV: My name is Thomas Bohuslav and I'm director of the Construction Division which is where we have the BOP office, Business Opportunity Program.

In regard to our goal, it's based on the nearest study that was performed a while back by the GSD at the time, it's now TBPC, and the statewide goals were based on those studies, and it was adopted by GSD, and of course, the other entities are required to use it or show why they can establish some other goal. So it is based on a state study.

Now, we have two programs in the department, we have the DBE program and the HUB program, and if we use federal funds, we use the DBE program, if we have state funds, it's the HUB program, but we still use that same goal that was established here for the state.

In regard to the ethnicity and the gender, only if a firm is registered as a DBE or HUB will we know what category they may be in in that regard. So there may be a firm that is a minority firm that is not registered as a DBE or HUB and we wouldn't know that would be the case. So we can answer the question if they're registered as a DBE or HUB, but if they're not registered as such, then we would not know.

MR. HOUGHTON: That becomes problematic.

MR. ANDRADE: Right now you're saying that the goal is 30 percent and you're saying that we do meet it. Okay.

MR. BEHRENS: Amadeo, didn't we have our commitment on engineering last year was like 31.9 percent? That was what we used as far as DBEs and HUBs.

MR. SAENZ: Right.

MR. WILLIAMSON: So maybe a different way of saying it is our hard goal is 20 percent and our stretch goal is 31.9, and every two years we amend our stretch goal to stretch a little bit further, and hopefully we're raising that 20 percent up as we do.

Continue.

MR. SAENZ: As I was talking about, the NOI gives the project description, the general scope of the requested service, and the evaluation criteria that will be used.

The evaluation criteria includes the project understanding and approach, the project manager's experience with similar projects, similar project experience of the different task leaders that the firms will identify to do those major work items, and other criteria that may be specific to the project.

For example, if it's a planning project that involves a lot of public information or public involvement, we may require that this firm have a strong public involvement member on their team. So those would be specific at the district or the division, the office that is wanting to solicit those firms to do work would put in there. But all of that is spelled out in our notice of intent.

MR. WILLIAMSON: And one more time, generally speaking, the folks who choose to reach out to contract are normally district engineers or division directors here in Austin, depending what the work product to be designed is.

MR. SAENZ: Each district is headed by a district engineer, we have division directors, they are the final say-so that they need a consultant. They make the request, it's approved by administration.

MR. WILLIAMSON: That's not the question I'm asking. I need to have this clear in my mind. Maribel can decide she needs a private sector engineer in Fort Worth for a project in the Fort Worth District.

MR. SAENZ: Yes, that's correct.

MR. WILLIAMSON: Or the Bridge Division in Austin can decide they need to secure someone for division work that may or may not be of benefit to Maribel but that's their decision.

MR. SAENZ: That's correct.

MR. WILLIAMSON: And we know both of them flow up to a higher power for approval based on dollar amounts, but the point I want to get straight in my head is either David Casteel in San Antonio or a division director in Austin can decide to reach out to the private sector.

MR. SAENZ: That's correct.

One more thing, only pre-certified firms can respond to the notice of intent. Only the firms that are within our database are the firms that can respond.

The firm then responds through what's called a letter of interest, or an LOI, and notifies the department that they are interested in doing this work.

The next step is the department's consultant selection team. The district engineer in this case or the division director would put in place a consultant selection team. This team is made up of district people, it's made up of division personnel. They determine a short list of providers based on the qualifications for the type of project design work that was indicated in the NOI.

Once a short list is determined, then those providers will then be required to either submit a proposal or be required to come forward to do an interview as the process continues.

MR. WILLIAMSON: So if Bill Hale in Dallas wanted a study, his committee would be made up of employees of the district.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: If the Bridge Division director wanted a study of bridges, those employees would be made up of division employees in Austin.

MR. SAENZ: That's correct.

The selection then is based on the results of the interview or the proposal, whichever process was used. The majority of our time, interviews is kind of the standard that the districts and divisions are using.

MR. WILLIAMSON: So you've got this short list of say three firms.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: And they all three are notified that the way you're going to be ranked is we're going to interview you and rank you based on your responses. That's an oral interview?

MR. SAENZ: That's an oral interview.

MR. WILLIAMSON: It's not a written interview?

MR. SAENZ: Some districts have some written questions. We leave the interview process to the district. There is some set criteria that they follow, and I'll review that in a few seconds. But some districts do require a written response to their questions so that they can document; other districts just conduct the interviews and then based on the responses, they make their selection.

MR. WILLIAMSON: And so if you decided to select or rank based on proposal as opposed to interview, would you say submit your proposal to us for review on how you would address the scope of work we've given you?

MR. SAENZ: Yes.

MR. WILLIAMSON: As opposed to the interview where I would walk through the door and you would ask me, among other questions, what would my proposal be or not.

MR. SAENZ: The evaluation criteria at the stage of the interview is basically the understanding of the scope of services --

MR. WILLIAMSON: You hired the wrong engineering firm to put your document together for you.

MR. SAENZ: I tried to type it myself.

MR. WILLIAMSON: That's their point.

(General laughter.)

MR. SAENZ:  -- understanding of the scope of services so there would maybe be some questions about their understanding of the scope of services; the experience of the project manager and they would probably there make a presentation on similar experience that this project manager has had based on this scope that they're trying to compete for; the experience of the team specific to the scope; their ability to meet the proposed contract schedule; and of course, response to other interview questions that the district may have put certain specific requirements to that particular project.

Also we look at past performance scores of references from other TxDOT work or other work that the entity has done. For example, we look at some specific questions with respect to type of work that we'll maybe be asking them to design. For example, if we're trying to design an interchange, multilevel interchange, we will ask questions about their experience or how they would do a project like the design of a multilevel interchange.

All that goes into the interview process, and based on the responses of the teams, the consultant selection team then will score them and rank them one, two, three, four, five, depending on the number.

MR. NICHOLS: Can I ask a couple of questions?

MR. WILLIAMSON: Sure.

MR. NICHOLS: In that list, as I understand it, they build kind of a matrix of these different kind of things that when they're interviewing they're evaluating and they're doing a ranking in each one, and then they have a weighting of each of those categories and then they add all that up to a score.

MR. SAENZ: That's correct.

MR. NICHOLS: And then whoever ends up with the highest score is the firm selected, and there's usually several people on the team so each one may have their own thing and then they combine them. But that's that particular contract team in a particular district.

But that same project and same firms -- let's say you had three firms short-listed -- with the very identical project with the same three firms, if a different contract team in a different district was making that evaluation for theirs, they may change the weighting of how much they would weight each of those factors.

MR. SAENZ: That's correct.

MR. NICHOLS: And so when you add them all up, that team might end up selecting a totally different firm than the other team would for the same project.

MR. SAENZ: Right. Every project is basically --

MR. NICHOLS: So it's not necessarily which one was the best, it was the subjective weighting of the particular team and their interpretation of the interview.

MR. SAENZ: That's correct.

MR. NICHOLS: Okay. There are some things that you can measure, like years of experience, certain certifications, things like that, so that's things you really can add up. And you have some things that are of a subjective nature, our person's opinion of how they felt the firm may have understood it, or the contract team or something.

But let me kind of back up one step. Just before we short-list, after we've had our notice of interest with 900 firms, particularly a lot of small firms -- we might have a small off-system bridge or several bridges that may need to be built -- we might have -- I'm not saying we do, I'm just speculating because I really don't know the number -- but let's say we advertise that and it's in a particular area of the state and we might have 20 or 25 firms that have expressed an interest in that, who are pre-certified, all of which may have very good experience in that type of work, all of which could probably do a very good job and would like to do that work.

When we short list, whoever scores the highest on the qualifications and certifications and stuff -- I call it the number of plaques on the wall -- if the small firm that could do a really good job doesn't have as many plaques as the big firm, then they don't even get on the short list so they get a chance to interview and show their stuff.

MR. SAENZ: That sometimes is correct. Now, sometimes on some of our contracts when we know that it is a small project or a project that may require some local knowledge of the area -- say for example in drainage -- you can put that criteria, but that criteria would have been spelled out in our notice of intent that we were going to be evaluating on local knowledge for this project.

And a lot of times what teams do is they go and they team up with a consultant from the area that has the local knowledge so that they can meet that component.

MR. HOUGHTON: And do they team up because they have to meet the DBE, the 30 percent, instead of teaming up because there's local knowledge, or a combination of both?

MR. SAENZ: I would say it's probably a combination of both.

MR. HOUGHTON: So we've got a lot of subjectivity here in the scoring.

MR. SAENZ: That's correct.

MR. NICHOLS: Would it be reasonable to assume that often on the short-listing, particularly on small jobs like off-system bridges or things like that, that there might be some very good firms that are well qualified but they never even get a chance because they just don't score as much as a big firm?

MR. SAENZ: I would probably venture to say yes in as many contracts as we do.

MR. NICHOLS: Okay, thanks.

MR. WILLIAMSON: Well, that triggers a question in my mind then. In all of this pre-certification, notice of intent, short list, interview, subjectivity give and take, do you ever talk with these firms about what they're going to charge the taxpayer for their product?

MR. SAENZ: No, sir.

MR. WILLIAMSON: Why not?

MR. SAENZ: Under present law we cannot discuss a fee amount until we select a consultant, and then at that point we discuss the -- negotiate a contract and discuss the fee amount for them doing that work.

MR. WILLIAMSON: So at this moment in time in this process you're describing to us, you are forbidden by law to discuss what it's going to cost the taxpayer for this product.

MR. SAENZ: That's correct.

MR. WILLIAMSON: Let me ask you something. Do civil engineers who have certificate numbers that work for the state, do they qualify for their certificate any differently than civil engineers that work for the private sector?

MR. SAENZ: No, sir. Now you've got to pass two examinations; at the time that I was registered, they were optional and then we submitted our experience. We had to work for a number of years, four years, and then we submit our experience and that experience is reported and evaluated, and then you're licensed.

MR. WILLIAMSON: So whether a civil engineer, an employee of our department, designs a bridge, or a civil engineer, the employee of a private sector firm in my hometown Fort Worth, designs a bridge, they both live with the same professional standards and have the same professional liabilities.

MR. SAENZ: That's correct.

MR. WILLIAMSON: Well, then are we permitted to talk to our own employees about what their salary is before we let them design a bridge?

MR. SAENZ: We control our own employees' salaries.

MR. WILLIAMSON: So if we have an employee that we pay $60,000 a year to design bridges, we know what it's going to cost us, we know what the taxpayer is going to pay for that bridge. But we're not allowed to know that when that very same employee walks out of our door and goes to work for -- and we're going to try to avoid naming firms in this colloquy because we don't want anybody to think we're picking on them; we'll pick on some of our friends in the free press -- when this guy walks out the door and goes to work for Hartsell Design Firm, we are no longer permitted to ask what it's going to cost for his service.

MR. SAENZ: Not until after I have gone through an evaluation and it's been determined that he is selected as the top-ranked firm. Then at that point I can start negotiating a fee.

MR. WILLIAMSON: Interesting.

MR. JOHNSON: Amadeo, a point of curiosity. You referred to top-ranked firm. Do the finalists know the order in which they were ranked?

MR. SAENZ: Once the consultant selection team goes through and evaluates and ranks the firms, and of course then they go back to the district engineer who approves that, then that is forwarded up to our Austin office for final disposition. Then they go back and the firms are then notified of how they were ranked, and we start negotiating with the top-ranked firm.

MR. HOUGHTON: We're getting ready to issue a pass-through toll, and you and I have had discussion on pass-through tolls that the private sector, depending upon if they want to, they can use their credit facilities to build assets for transportation. They can also procure engineering services, can they not?

MR. SAENZ: Yes.

MR. HOUGHTON: And they're going to build a state highway for us, pass-through toll, they're going to use their debt structure, their debt facility, and they can negotiate the engineering contract.

MR. SAENZ: There are several things here. This is a public entity --

MR. HOUGHTON: It's a private entity wants to build.

MR. SAENZ:  -- it's a private entity that is using their own money. The only caveat is because we're going to have to reimburse them, and we're probably going to reimburse them with state and federal dollars, they will have to follow the process on the selection.

MR. HOUGHTON: On the procurement?

MR. SAENZ: On the procurement.

MR. HOUGHTON: The engineering procurement?

MR. SAENZ: Right. Now, if it is a private entity that is doing this, they want to build a facility for themselves, then they do not have to follow the process, unless it's a public project.

MR. WILLIAMSON: A public project is defined by what: publicly owned or available to the public?

MR. SAENZ: I think it's available to the public.

MR. WILLIAMSON: So you're saying when Jerry Jones builds the new Cowboys stadium in Arlington, Texas, he's going to have to follow this same process in securing engineers?

MR. JOHNSON: I would say whether it's funded by public money or not.

MR. BOHUSLAV: Thomas Bohuslav, director of the Construction Division.

The rules, the regulations tied to a public project -- and I don't want to step outside my bounds here, but I know if it's tied to a public project, I can't say whether or not the Jerry Jones stadium is going to be a public project or not.

MR. WILLIAMSON: I see that we have one of the best transportation lawyers in the state present with us. Perhaps Mr. Jackson can help us understand this.

MR. HOUGHTON: Well, I'll go back. We're working with Cintra/Zachry, we're not negotiating anything regarding their engineering contracts.

MR. WILLIAMSON: My question, Bob, if you may permit me, let's assume Cowboy stadium, Arlington, Texas and the ownership of that stadium will be the Dallas Cowboys, Inc. Obviously it's going to be open to the public, people are going to buy tickets and go in and attend the events -- and maybe you don't know the answer, and if you don't, we'll talk about it in March -- but do you happen to know the answer? Will Mr. Jones have to follow the same process Amadeo is outlining in building the Cowboy stadium and the securing of engineering services?

MR. JACKSON: No, sir.

MR. WILLIAMSON: You're so good. You knew that question right off the bat. Thank you.

MR. JOHNSON: I think that what follows is why.

MR. JACKSON: The Professional Services and Procurement Act applies to governmental entities. It's not focused on the nature of the project, it's focused on who's procuring the engineer.

MR. NICHOLS: When you say governmental entity, who's procuring. In other words, when we did State Highway 130, we did a comprehensive development agreement in which we got groups of proposers who teamed contractors with engineering firms into three different consortiums to make that proposal. That's a state project. But the contracting companies that employed the engineering firms, or they teamed up, whatever, they're not required on that same state highway to follow that process.

MR. JACKSON: Right. And also our CDA statute specifically overrides the Professional Services and Procurement Act.

MR. NICHOLS: So the contractor who hires an engineer on our state highway, if we use that process, does not have to follow that law.

MR. JACKSON: Correct.

MR. NICHOLS: But we do.

MR. HOUGHTON: Which we're getting ready to do today on another state highway in north Texas. Correct?

MR. JACKSON: Correct.

MR. WILLIAMSON: Thank you, Bob.

Amadeo, we kind of zipped through something. I didn't really mean to get to talking about the money so fast, but I want to go back to this proposal interview business.

You said most of our DEs and division directors use the interview process to select and rank their firms.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: Specifically in the last six years, how many times have we used the proposal process that you know of?

MR. SAENZ: Mr. Marek says it's less than 5 percent of the time; I would venture to say it's less than that.

MR. WILLIAMSON: Why don't we use the proposal process as opposed to the interview process? Let me rephrase that. Did we use the proposal process ever?

MR. SAENZ: Our process has evolved through the years and for many years we used -- when we first got started, that was the mechanism, we would get full proposals from the consultant industry. Before we set up the process that we have today of the notice of intent and the letter of interest, we used to get full proposals.

MR. WILLIAMSON: That was back like in 1980?

MR. SAENZ: That was back in about late '80s, early '90s.

MR. WILLIAMSON: So we originally got full proposals or robust proposals from those responding to the notice of intent.

MR. SAENZ: Prior to that, basically we would put out a request for proposals and all the firms would submit proposals, and those proposals varied from a half-inch to three-quarters of an inch to two or three inches.

MR. WILLIAMSON: So were the proposals focused on qualifications, or as my colleague Nichols says, plaques on the wall, or were they focused on what the bridge is going to look like?

MR. SAENZ: They would focus on the team, the qualifications of the team, their interpretation of their past experience. They would also identify, if they knew what the project was they were bidding, they would put a summary of what they thought the project was going to look like.

MR. WILLIAMSON: So in the case of the bridge, they might say we need a pontoon bridge here, and one firm might say we need a concrete bridge here, and one firm might say we need a steel girder bridge here?

MR. SAENZ: I don't think that it would go into the detail. They would basically concentrate on our past experience in the designing of this type of facility and not necessarily go into the detail of what exactly they were going to design. But each one of the proposals was different.

MR. WILLIAMSON: So when did we start transitioning away from proposals and towards interviewing?

MR. SAENZ: I guess in the early '90s when we started working together, just like we have a joint TxDOT/Association of General Contractors committee that we meet quarterly, we started putting together this same type of a group with the Consultant Engineering Council. And at that time we started looking for ways to improve our consultant selection process and tried to make it more efficient because in the early times there was no control on the size of the proposals.

We would get proposals that were all sizes; we would get 40 or 50 or 60 teams that would propose for an individual project, and it was taking too long to basically go from the request for proposals to the selection of the team. So we started working together and put in place a process that has evolved to what we have today for improving or shortening the selection time.

MR. NICHOLS: Let me ask a question at that point. You referred to the committee. I know that I think quarterly TxDOT staff meets with like contracting association members and they try to resolve issues or ways to improve things, and obviously we have a committee with TxDOT and the outside consulting firms to help work processes through more efficient or whatever.

The committee -- I don't want people's names or firms' names -- but how do we go about selecting people to represent the engineering community to be on that committee that helped establish the process?

MR. SAENZ: We were working early on with the Consultant Engineering Council, the CEC, and they would name different members from their side to the committee, TxDOT would put in place some of our staff to the committee, and that subgroup would then work together and come up with the process.

MR. NICHOLS: So we don't go to the Texas Society of Professional Engineers and ask them to recommend somebody for the committee, and we don't go out necessarily to the 930 firms and try to pick what we think is a representative sample that would represent all that group, large, small, medium, we go to the CEC and they recommend who is on that committee?

MR. SAENZ: Yes, sir. We have a very similar group like we do with our contractors.

MR. NICHOLS: I'm just trying to understand who decides who's representing the engineers, and you're saying it's the CEC that makes a recommendation of who is going to be on that committee?

MR. SAENZ: Right.

MR. NICHOLS: To help establish the process. So we don't go out and pick them and the Texas Society of Professional Engineers does not go out, the CEC picks them.

MR. SAENZ: Yes, sir.

MR. HOUGHTON: We're not precluded by any statute that we have to do it that way through the CEC, are we?

MR. SAENZ: No, sir. It was something that we used the model that through the years with the Association of General Contractors worked out pretty well to identify big issues and stuff, and as we were getting into the use of the consultants in our business, we wanted to try to start to foster and improve the processes that we have in place to become more efficient.

And that was basically the whole gist at the beginning, that you're able to become more efficient and try to get that part of the operation to become -- work more similar, more smoothly as our contracting industry works with us.

MR. WILLIAMSON: And this isn't meant as a criticism towards staff, Amadeo, but I think I have to observe it. What it sounds to me like what you said in a very professional way was we and the private world needed to find a way to cut down the time it takes to prepare and look at these proposals. We were spending too much time. They were spending too much time preparing them, we were spending too much time looking at them.

The legislature is starting to cap, lock down on us on the number of employees we've got, we've got a big maintenance program, our highway system is getting older every year, we've got to spend more of our money on hiring maintenance and oversight employees, less of our money on engineers and engineer technicians because we have a hard number of people we can hire anyway.

The consulting engineering community was spending too much time preparing 50 big proposals and we were having to review them all, so all of us looked for a way to do this faster, and this is what we came to.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: And again, at this point, whether it's proposal or interview, we're still prohibited by law from asking the question what's this going to cost.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: Can we ask the question what is the product that you're going to design going to cost?

MR. SAENZ: If we have enough details in the scope of service, we can ask the consultant to put together their best proposal of what they think the facility will look like and their best estimate of what it will cost. We can ask that.

MR. WILLIAMSON: So if we were to direct you to go back to the proposal process, and if we were to direct you to include a scope of work and a basic description of the final product and a cost estimate, that would not be illegal.

MR. SAENZ: No, sir.

MR. WILLIAMSON: It's just illegal to ask Mike how much he's going to charge us when he's working for Hartsell Engineering. It's not illegal to ask him when he's a public employee working for TxDOT, but when he's working for Tony, we can't ask him what he's going to charge us.

MR. SAENZ: Yes.

MR. WILLIAMSON: But you're going to tell us here in a moment when we can ask it?

MR. SAENZ: Yes, sir.

MR. NICHOLS: I think you said price, you were referring to the estimated construction price.

MR. SAENZ: Estimated construction.

MR. WILLIAMSON: Right, not the design price because I've had Amadeo say it eleven times now, and I'll ask you four more.

MR. JOHNSON: Amadeo, is our statutory inability to discuss price at this point of the process with the engineering design service, is that consistent with all the other state agencies? Do they basically go through the same methodology and have the same requirements that TxDOT has?

MR. SAENZ: Yes. When they're hiring professional engineering services, they have to follow the same process.

MR. WILLIAMSON: But Jerry Jones doesn't have to follow it.

MR. SAENZ: No, if he's doing it himself.

MR. WILLIAMSON: Have we got somebody from Southwestern Bell here? Could I borrow you a minute? Would you mind?

MR. NICHOLS: Uh-oh.

(General laughter.)

MR. WILLIAMSON: I'm just kind of curious. Now, we've been arguing back and forth, you and me, about when we're going to make you hire an engineer and certify when you put something in people's right of way, and hopefully later on in this meeting we're going to get that resolved.

MR. GARZA: Yes, sir.

MR. WILLIAMSON: But I'm curious. When you go to lay that line in the people's right of way, do you follow the same procedure in securing a consulting engineer to design that line as we're following in building the highway you're going to lay in?

MR. GARZA: I'm Bob Garza with SBC External Affairs.

Would you ask me the question again? I'm sorry.

MR. WILLIAMSON: When you're getting ready to lay that line in the right of way owned by the people, do you go through the same process of securing an engineer to design that telephone line as the people went through in designing the highway in the first place? Or do you just go select the engineer you wish to use, or do you know?

MR. GARZA: At this point, the engineers we use are internal employees and we don't go through a selection process as they are throughout the state.

MR. WILLIAMSON: If you were going to use an outside engineer, are you required by law to follow this process?

MR. GARZA: You know, I'm not sure. I don't know that I can answer that.

MR. WILLIAMSON: We have someone back there who thinks he knows. Could you come up here and tell us? We're curious. We're uninformed commissioners and we're trying to inform ourselves about the facts.

MS. LEU: I'm Lori Leu, counsel for SBC on right of way issues.

We are not under any obligation to follow that consultant process or any other. We assign our contractors based on their proposals and what works best.

MR. WILLIAMSON: Are you allowed to ask them about what they're going to charge?

MS. LEU: Yes, we are. That's an important part.

MR. WILLIAMSON: Are you still rate-regulated in Texas on what you can charge me for your services?

MS. LEU: Yes.

MR. WILLIAMSON: Okay, that's interesting. Thank you. Sorry to catch you off guard. You performed well.

So let me see if I understand this, Amadeo -- this will be time number twelve. We can't ask the guy or the gal that's going to design the bridge that's going to be built on the right of way owned by the people what he or she is going to charge us for designing the bridge, but Southwestern Bell who is going to lay a fiber optic line in conjunction with that bridge gets to pick whatever engineer they want to pick that's in their judgment best for their private operation and they're not subject to the same provisions; they get to find out what their engineer is going to charge them.

MR. SAENZ: That is my understanding.

MR. WILLIAMSON: And in fact, it could be the same -- let's pick on Ben a while -- it could be the same Ben Weir Engineering Firm employee or team or designs the bridge for which we can't ask the question what's this going to cost, the people, who also designs the fiber optic chase and security wire that goes through the bridge in laying the telephone line.

MR. SAENZ: That's correct.

MR. WILLIAMSON: Probably the same answer would hold true for TXU if it were a 980-volt electric line laid through our bridge at the same time.

MR. SAENZ: Yes.

MR. WILLIAMSON: I wonder how the private sector world -- you know what we need to do? We need to change what you wanted to do, we need to bring the private sector world under the same procurement provisions as the State of Texas is under. Don't you think?

(General laughter.)

MR. WILLIAMSON: Continue.

MR. SAENZ: After the selection of the provider is complete, and only after that is complete, the department begins to negotiate with the top-ranked provider. If we cannot negotiate a fair and proper fee with the top-ranked provider, then we can terminate negotiations and we let them know we are terminating negotiations, and then we can go to the second-ranked provider.

MR. HOUGHTON: How many times has that happened?

MR. SAENZ: Very few times.

MR. HOUGHTON: Why? You were successful in negotiations.

MR. SAENZ: I guess we've been successful in negotiations.

If we cannot do it with the second-ranked provider, then we can terminate negotiations with the second and go to the third.

MR. WILLIAMSON: And I don't want to gloss that over, and again, I don't want you to take offense, Amadeo, but seriously, you pick three people in this contract and you start negotiating with your first pick, on a percentage basis, how often do you pass and go to the second one?

MR. SAENZ: I would think probably less than 1 percent based on the data that we've looked at.

MR. WILLIAMSON: When you get ready to negotiate with that person, do you have a minimum amount of money you're permitted to tell that person you can pay for that scope of work you've agreed on? In other words, do you sit down and say, Okay, Ben, the Ben Weir design firm has been picked as the best for this job, and I'm telling you right off the bat all I can pay is $4 million, so how much do you propose to charge me per hour for an engineer, an engineering tech, a cad operator, a secretary, and my overhead?

MR. SAENZ: What our people normally do -- and I'm going to work around this, I'm going to try to respond -- what our people normally do, they've identified what scope of work they want to accomplish on this project, and they have what they think is a fair fee or a fair and proper fee for this scope of work.

MR. WILLIAMSON: Our people.

MR. SAENZ: Our people. They meet with the consultant, top-ranked consultant, and they ask them: Okay, here's our scope that we think it is, bring me your fee structure. And they also -- because we want to make sure that we capture all innovations -- ask them if you think there's something else, tell us what your fees are going to be and tell us what your scope is based on.

MR. WILLIAMSON: Do they also tell you how many hours it's going to take?

MR. SAENZ: Yes, sir. They will tell us how many hours it's going to take for particular work items. For example, they will say that if this is a curb and gutter job that requires a storm sewer, they'll say the storm sewer design will require, we think, 150 hours for a design engineer and 50 hours for a design technician, and such and so forth.

So they will break down their scope, they will break down their fee estimate based on work items and hours.

MR. WILLIAMSON: So during the -- we've selected you as the preferred provider process, during that process you just discuss the work to be performed, what's going to be designed and the amount per hour for each individual within their firm or the team they're bringing in that's allowable to be charged, the number of hours it's going to take to produce the product. And is there anything else?

MR. SAENZ: We normally will agree on the hours and the type of person that will be doing the work, and then they will give us the name of the people and the fee structure, and of course, they also have an audit that has what they are paying their people, and a lot of times we will use those fee amounts that come out of the audit.

The audit will also provide us an overhead rate, a company overhead rate, a firm overhead rate.

MR. WILLIAMSON: And why is that important?

MR. SAENZ: The overhead rate is then applied -- once we determine the number of hours and we agree on the fee amount, those numbers are multiplied and then the overhead is then a multiplier to that amount of work.

MR. NICHOLS: Let me ask, on the hours billed, the direct hours, the person paid a certain amount of retirement benefits, medical, health, all those kind of things that go into the direct cost per hour, and then we add a percent profit to that, that's what they call the fee.

MR. SAENZ: Yes.

MR. NICHOLS: So we add however many hours of real cost it is direct billing that person worked, then they get a percent profit on that.

MR. SAENZ: Before we do that, we get direct hours, we then get the overhead.

MR. NICHOLS: That was the second thing I was going to ask. So then you also have the overhead, whatever their overhead is, and I know we negotiate a level in there and it has to meet certain audit requirements, but as I understand it, most of the overhead factors are like 150 percent, 160 percent.

MR. SAENZ: They vary from 150 to 180 to 175.

MR. NICHOLS: That we normally put in and negotiate?

MR. SAENZ: Yes.

MR. NICHOLS: I mean, I recall when I talked with our auditor that he said if you do a bell-shaped curve, you've got some on the low end that are about 125 percent overhead, on the other end of the curve some that have overhead as high as 225 percent, the medium being in kind of the 150 to 160 percent range or something like that. But the more overhead you've got, you get a profit on your overhead.

MR. SAENZ: Yes.

MR. NICHOLS: So you get a profit on the hours you bill and a profit on the overhead too.

MR. SAENZ: Yes.

MR. NICHOLS: So if you had an incentive -- I know when I had my business and most people that run businesses, small independent businesses, you get a certain amount of money and the more overhead you have, the less profit that you make. But in this case, the more overhead you have, the more profit you make.

MR. WILLIAMSON: So the goal is to be selected as the number one, and then to be able to persuade the team -- I'm taking Robert's question from a different angle -- to be picked as the number one and to persuade our team that you're the best at what you do and that the hours you offer to do the job in are acceptable. And then and only then do you really begin to find out how much it's going to cost for Mike Behrens, the private sector employee of Ben Weir, Inc., and how much Ben Weir, Inc.'s, overhead is, and then how much profit is going to be allowed on that salary and overhead.

MR. SAENZ: Yes.

MR. WILLIAMSON: Only then are you allowed to know that.

MR. NICHOLS: It's almost a disincentive to try to lower your overhead because if you lower your overhead, you don't really make as much money.

MR. SAENZ: Yes. My understanding is that the profit is calculated after the first multiplier, so yes.

MR. NICHOLS: I'm sure we'll probably have testimony on that.

MR. WILLIAMSON: And when you say we audit, if I understand the way this world works, cities audit professional firms, counties audit them, we're all sort -- school districts, I presume audit.

MR. SAENZ: Yes.

MR. WILLIAMSON: School districts are subject to this also. Right?

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: So the way the school, Weatherford Independent School District recently built a new high school, they went through the same process to get their architect, their engineer? They went through the same process, I suppose, because it wasn't a CDA school, I don't think, it wasn't a toll school.

So what happens is you get picked top, you've convinced the consultant team that you've got the best qualifications and your scope of work is appropriate, and then you negotiate what you're going to get paid, and you're guaranteed not only recovery of your overhead but a profit on all of that.

MR. SAENZ: Yes.

MR. WILLIAMSON: As long as it falls within the amount of money you've told your team up front they can pay.

MR. SAENZ: Right. Our team had a number that they were working with. When they submitted the original request, they had an estimate. As they refined their scope, they may have refined that estimate. And so they have a number that they're going to compare the finished product.

A lot of times, as they sit down with the consultants to negotiate, they identify that maybe our original scope maybe was not as thorough or complete as it should have been, and we modify the scope and we kind of reach a higher number.

MR. HOUGHTON: But that number has got to be driven off of, obviously, experience from past design work. I mean, there's got to be a benchmark down here.

So we go right back to what Robert and Ric are talking about is the profit margin from previous types of similar projects. They'll say that's what it was, we'll bring that number forward.

And in the private sector, though, if I'm going to go -- I hate to say bid -- procure that in the private sector, I can negotia