The state is poised to approve a 35-year deal with the U.S. unit of a Spanish hospitality company to rebuild and manage two travel plazas on Interstate 95 even as questions emerge about its track record and experience.
The Board of Public Works meets next Wednesday to vote on the agreement with Miami-based Areas USA, which projects the state could garner up to $488 million over the life of the contract to replace what the state called the "functionally obsolete" Maryland House in Harford County and Chesapeake House in Cecil County.
The agreement covering two of the nation's busiest service centers is a leap for both sides and may be challenged in court by a losing bidder. It's also drawn objections from some Maryland legislators.
Areas has no track record building and operating service plazas in the United States, and a project it recently began to modernize or replace eight rest areas on Florida's Turnpike is behind schedule and may face penalties of $40,000 a month. The $56 million it has proposed to spend to rebuild the two travel plazas was well below the proposals of the two losing bidders, whose objections already have been rejected by the state.
Maryland has undertaken only one other public-private partnership of this magnitude: a lease with Ports America Chesapeake to manage the Port of Baltimore's Seagirt Marine Terminal, a deal that is expected to generate $1.3 billion over 50 years.
The agreement with Areas was endorsed by a Maryland Transportation Authority evaluation team and recommended by a policy analyst for the Department of Legislative Services, who called it "a good value to the state."
Florida officials used similar language in 2009 when Florida Turnpike signed a 30-year contract with Areas to manage the food, fuel and retail operations at eight plazas, calling it "the best public-private sector partnership" they had ever undertaken. The company promised to invest about $100 million in the modernization effort and return a minimum of $180 million in gross receipts to the turnpike.
But in a letter dated Feb. 1 to Xavier Rabell, CEO of Areas USA, a turnpike official expressed concern that construction appeared to be slipping behind schedule.
"Turnpike staff has noticed this trend since construction commenced," wrote Mark Beall, the turnpike's director of business development and concessions management. "...in taking a pragmatic observation of the work progress to date, we are concerned that this may continue throughout the remainder of the construction period."
Beall reminded Rabell that the rental fee would increase by $40,000 for each month construction slipped past a Dec. 31 deadline.
Turnpike spokeswoman Christa Deason said Wednesday that under the terms of the deal, Areas "is not late until Dec. 31, but it didn't appear that they were going to hit the 31st."
In a telephone interview, Rabell called the letter "no big deal," given the complexity of a project that spans centers over 300 miles and requires permitting and inspections by multiple jurisdictions.
"We have 11 months and we are readjusting our schedule," Rabell said. "In all projects you have some challenges. We have time to make this up and we have no doubt — no doubt — that we will do it."
Harold Bartlett, the transportation authority's executive secretary, said that after he heard about the letter, he visited the eight Florida plazas and came away satisfied that the construction timetable will be met.
Areas' parent company operates in 70 airports and 160 service plazas worldwide, Bartlett said, and Areas USA has chosen a local architect and contractors for the Maryland job.
"It's almost like all the stars are aligned for us," Bartlett said.
Yet the two losing bidders for the Maryland project called Areas' proposal naive and unrealistic.
"Build two plazas for $56 million? That's impossible," said Stefano Pascucci, executive vice president of Airport Plazas, which submitted a joint bid with Tishman Construction Corp. that called for spending $80 million for new buildings and half the return to the state that Areas suggested is possible.
Michael Jones, vice president of Bethesda-based HMSHost, said his company proposed investing $75 million in the plazas and guaranteed a return of $66.5 million, while Areas guaranteed nothing.
"We did the due diligence. We have plazas in Delaware, Pennsylvania, New York, New Jersey and Ohio and we're building 23 in Ontario," Jones said. "We've run Maryland and Chesapeake House for a number of years. We have all that knowledge. Corners are being cut somewhere."
HMSHost has not ruled out challenging the state's pending decision in court, Jones said.
Five lawmakers from Montgomery County, the home of HMSHost, and the county executive have written to Gov. Martin O'Malley, asking him to review the transportation authority's decision before approving the contract.
"Given that we, as a state, are focusing on jobs, jobs, jobs, it would seem that the recommendation of an award to Areas over a respected Maryland company — following a biased procurement process — flies in the face of this mantra," wrote state Sen. Roger Manno.
Maryland officials have embraced public-private partnerships as a way to improve infrastructure and create jobs without spending tax dollars. Lt. Gov. Anthony G. Brown chaired a commission that last month submitted recommendations to the O'Malley administration and the General Assembly on ways to improve the process of creating such partnerships.
The Areas announcement on Jan. 23 came two weeks after Brown's report was released. Bills to establish state policy on public-private partnerships were filed Feb. 3.
State officials first discussed replacing the 48-year-old Maryland House and 36-year-old Chesapeake House in 2006. But a 700-page request for proposals in 2010 drew interest from just one bidder: HMSHost, which has operated the plazas for two decades.
The request was withdrawn by transportation officials in late 2010 and replaced last June with a 50-page document. Three companies submitted bids by the November deadline.
Beverley Swaim-Staley, secretary of the Maryland Department of Transportation, acknowledged a "learning curve" in implementing partnerships with the private sector and insisted that state law was followed in choosing Areas.
"I know [HMSHost] is a Maryland company. We'd love to do business with them and if they had submitted the best bid, we would have loved to have awarded them the contract," she said.
Jones and Pascucci said their proposals took into account the bid's three goals: to create new or like-new facilities; to ensure a "positive customer experience"; and to provide "a fair rate of return to the state."
But after submitting bids that included an indoor play area, local produce markets and restaurants such as Five Guys Burgers and Fries, it became clear to both companies that only one goal mattered to the state: the highest rent.
"If I had known that, I could have made a more economical bid and said, 'Here's four cement walls, I can make you even more money,' " said Pascucci. "There were no rules to Maryland's game."