Can NCDOT enter into a 'design-build-finance' road construction contract where the contractor accepts payment stretched over years after the road is finished, as a way to speed up construction?

Plain-English summary

NCDOT Secretary Eugene Conti asked the AG to bless the legal structure for an aggressive plan to finish the Charlotte I-485 outer loop. The plan packaged three projects (the I-485 loop, an I-485 interchange, and an I-85 widening) at an estimated total of $540 million, funded by a mix of GARVEE bonds and Highway Trust Fund revenues.

The clever part was the payment schedule. The roads themselves were to be built within roughly five years (by 2015). But for two of the three contracts, NCDOT proposed to keep paying the contractor for several years after substantial completion. The I-485 Loop would pay out 89% during construction and 11% post-completion. The I-485 Interchange would pay 87% during construction and 13% post-completion. The contractor (or its lenders) would carry the cost of that delayed payment as effectively a private financing of public infrastructure. NCDOT estimated this approach would accelerate Charlotte's beltway by five years and save $50 to $100 million.

The State Treasurer's Office raised a concern: if NCDOT is effectively borrowing money by stretching out payments past completion, that might be state debt that bumps against North Carolina's debt affordability ceiling and threatens the AAA bond rating.

The AG sided with NCDOT. The reasoning had three legs:

1. N.C.G.S. § 136-18(39) explicitly authorizes financing-style agreements with private entities. The statute, enacted in 2006 and amended several times, gives NCDOT power "to enter into partnership agreements with the North Carolina Turnpike Authority, private entities, and authorized political subdivisions to finance, by tolls, contracts, and other financing methods authorized by law, the cost of acquiring, constructing, equipping, maintaining, and operating transportation infrastructure."

2. No other state law prohibits delayed-payment contracts. The AG canvassed the contracting statutes and could not find a bar.

3. The structure is a contract, not a debt by NCDOT. Contractors were expected to finance the carrying cost themselves (through internal capital, joint ventures, or third-party lenders). NCDOT was not borrowing money from a lender or issuing new debt to the contractor. There was no line-item interest payment. So even though the Treasurer's Office worried about debt classification, the AG read the structure as outside the debt-affordability framework.

The AG was careful to add caveats. The opinion is based on the draft Request for Proposals reviewed at the time. If the final contract added new substantive provisions (e.g., payment assignments, financing guarantees, or direct interest payments), the analysis might change. The opinion is signed by Grayson G. Kelley, Chief Deputy Attorney General.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The General Assembly has revisited NCDOT's public-private and financing authorities many times since 2010. Anyone evaluating a current design-build-finance proposal in 2026 needs to look at the present text of § 136-18(39) and related statutes, not the 2010 version. The State Treasurer's debt-affordability framework has also evolved.

Common questions

Q: Is a design-build-finance contract the same as a public-private partnership (P3)?
A: It is one form. P3 is a broad term covering many risk-sharing structures. Design-build-finance specifically has the contractor designing, building, and carrying some financing risk. In some P3 deals the private partner also operates and maintains the asset (DBFOM). The AG's 2010 opinion analyzed only the design-build-finance variant.

Q: Why was the State Treasurer concerned?
A: The Treasurer's Office is responsible for managing the state's debt and maintaining its credit ratings. Stretching contract payments past completion can look like the state borrowing money from the contractor. The Treasurer worried that the bond rating agencies would treat the deferred contract payments as debt against the state's debt-affordability ceiling.

Q: Did the rating agencies agree with the AG's analysis?
A: The opinion does not say. The AG was answering a legal question, not a credit-rating question. A subsequent rating decision would have been made by the agencies based on their own classifications.

Q: What is a GARVEE bond?
A: A Grant Anticipation Revenue Vehicle bond. States issue them backed by expected future federal highway grants, to fund construction earlier than the grants would arrive.

Q: What kind of contractor could bid on a DBF contract?
A: One with deep enough capital or financing relationships to carry several years of receivables. The opinion notes prospective contractors had to demonstrate financial capability, either through internal resources, joint ventures, or third-party financial support.

Q: Could a private contractor sue the state if a future legislature cuts off the deferred payments?
A: The opinion does not address that risk. The contract itself, signed under the authority of § 136-18(39), would create contractual rights. Whether the state could unilaterally walk away from those rights without breaching the contract would depend on the contract's terms and general contract law principles, beyond the scope of this opinion.

Background and statutory framework

NCDOT's general contracting authority sits in N.C.G.S. § 136-28.1: public advertising, low-bid awards, rule-bound process. The legislature has expanded that core authority in pieces:

• § 136-18(12): flexibility to comply with federal-aid requirements.
• § 136-18(38) (enacted by Session Law 2004-168): permits NCDOT to receive advance funding from local governments and non-profits, with seven-year repayment.
• § 136-18(39) (enacted by Session Law 2006-30): permits broader partnership and financing agreements with private entities, the NC Turnpike Authority, and political subdivisions. Subsequent amendments (Session Laws 2007-439, 2008-164, 2009-266) expanded the provision to cover all transportation infrastructure and added legislative reporting requirements.

The AG opinion is a clean read of the statutory text under standard statutory-construction principles: "Where the language is clear and unambiguous, courts will apply the plain meaning of the words, with no need to resort to judicial construction." (Quoting Wiggs v. Edgecombe County, 361 N.C. 318, 322 (2007).) The opinion declined to layer policy concerns on top of the plain text.

This opinion was particularly consequential because NCDOT was pushing the structure as a model for other large infrastructure projects in the state. The AG's blessing was an important predicate for the procurement to move forward.

Citations

• N.C.G.S. § 136-18(39) (financing agreements with private entities)
• N.C.G.S. § 136-18(38) (advance funding from local governments)
• N.C.G.S. § 136-18(12) (federal-aid contracting)
• N.C.G.S. § 136-28.1 (general highway contracting)
• Session Laws 2004-168, 2006-30, 2007-439, 2008-164, 2009-266
• Burgess v. Your House of Raleigh, 326 N.C. 205 (1990)
• Wiggs v. Edgecombe County, 361 N.C. 318 (2007)

Source

• Landing page: https://ncdoj.gov/legal-services/archived-opinions/

Original opinion text

January 12, 2010

Eugene A. Conti, Jr.
Secretary
North Carolina Department of Transportation
1501 Mail Service Center
Raleigh, North Carolina 27699-1501

Re: Advisory Opinion, Design, Build, Finance Agreements for the Construction of Transportation Infrastructure; NCGS § 136-18(39)

Dear Secretary Conti:

You have requested our opinion as to legal issues which may be implicated by the North Carolina Department of Transportation's (NCDOT) proposal for completion of the Charlotte Outer Loop (I-485) on an expedited basis. You have provided us with a variety of information outlining the basic structure of the proposal, including relevant sections of a draft Request for Proposals.

Based on the information reviewed, we understand that the proposal contemplates three separate design/build agreements with contractors or contractor groups: (1) the construction of the I-485 interchange (R-2123CE); (2) the necessary widening of I-85 (I-3803B); and, (3) construction of the last five miles of the I-485 Loop (R-2248E). The total estimated cost of $540 million for the three projects is projected to be funded through a combination of Grant Anticipation Revenue Vehicles (GARVEE bonds) and State Highway Trust Fund revenues. The projects are required to be completed within approximately five years, however, on two of the projects payments to contractors will be extended over a ten-year period. We have been advised that structuring the contracts in this manner will accelerate completion of the Charlotte Outer Loop by five years and may save between $50 million and $100 million.

It is our understanding that the "delayed-payment" component of two of the proposed agreements will be modeled from a "Design-Build-Finance" contract previously used by the State of Florida Department of Transportation. As described, NCDOT has established an estimated contract price for each of the three projects in accordance with normal contracting procedures. Revenues projected to become available from the Highway Trust Fund and the sale of GARVEE bonds have been calculated over a ten-year period. The I-85 widening project will require completion by 2015 and will be completely funded over the five-year period through a combination of Highway Trust Fund revenues and GARVEE bonds. The other two contracts (I-485 Loop and I-485 Interchange) will require project completion by 2015, with periodic payments extending through 2020. The I-485 Loop project will be structured to pay out 89% of the contract value during the actual performance period and 11% post-performance. The I-485 Interchange project will be structured to pay out 87% of the contract value during the performance period and 13% post-performance.

The Request for Proposals for the I-485 Loop and Interchange projects will inform prospective contractors of the maximum amount of funds available on a periodic basis throughout the ten-year contract term. Prospective contractors will be required to demonstrate their financial capability to meet the contract terms and conditions, including the delayed payment schedules, either through existing internal resources, joint-venture arrangements, or third-party financial support. NCDOT will neither provide financing nor guarantee debt. Although some contractors may include the cost of borrowing money in their bids (as is the case in most traditional construction contracts awarded by NCDOT), there will not be a line item interest component in the Request for Proposals and NCDOT will not make any direct interest payments.

As we understand your inquiry, the specific question posed is whether NCDOT is vested with legal authority to execute a contract, as described in the draft Request for Proposals, which includes a delayed payment schedule under which contractors will receive payments for a period of time extending beyond completion and acceptance of the project. The State Treasurer's Office has questioned whether the proposal to extend contract payments over a period of time exceeding the actual period of performance constitutes "financing" by NCDOT. They suggest that if NCDOT enters into a contract which involves "borrowing," debt may be incurred and thereby implicate the State's "debt affordability ceiling" and AAA bond rating. The Treasurer's Office has therefore cautioned NCDOT about moving forward with the delayed-payment proposal and suggested that other options may be available for expedited completion of the I-485 project.

NCDOT's general contracting authority and procedures for construction and repair of highways is codified as NCGS § 136-28.1. This provision requires standard public advertising and low bid award in accordance with regulations promulgated by NCDOT. The General Assembly has also authorized NCDOT to award contracts through other procedures when necessary to comply with federal-aid requirements. See, e.g., NCGS § 136-18(12). Additional flexibility was provided in 2004 by Session Law 2004-168, which allowed NCDOT to enter into agreements with local governments and non-profit corporations to receive non-state funding in order to advance the construction schedules of highway projects in the Transportation Improvement Program. This legislation specifically authorized NCDOT to, in effect, borrow money from local governments and non-profit corporations on the condition that all funds advanced be reimbursed within seven years. NCGS § 136-18(38).

In 2006, the General Assembly enacted Session Law 2006-30 (now codified as NCGS § 136-18(39)), entitled "An Act to Authorize the Department of Transportation to Enter Into Certain Highway Financing Agreements, To Require Agreements Involving Department Funds to be Approved by the Board of Transportation, and to Provide that Replacement Inspection Stickers For Use on Replaced Windshields Are Not Subject to the Inspection Sticker Fee". This amendment further expanded NCDOT's contracting authority by allowing the Department, with Board of Transportation approval, to enter into agreements with private entities, political subdivisions and the North Carolina Turnpike Authority to finance by tolls and other financing methods authorized by law, the cost of acquiring, constructing, equipping, maintaining, and operating highways, roads, streets and bridges. Subsequent amendments to NCGS § 136-18(39) clarified that NCDOT's authority to enter into financing agreements included contracts for the construction of all transportation infrastructure, as well as properties adjoining rail lines, and added legislative reporting requirements. See Session Law 2007-439; Session Law 2008-164, s.1; Session Law 2009-266, s.6.

The present version of NCGS § 136-18(39) vests NCDOT with the power:

To enter into partnership agreements with the North Carolina Turnpike Authority, private entities, and authorized political subdivisions to finance, by tolls, contracts, and other financing methods authorized by law, the cost of acquiring, constructing, equipping, maintaining, and operating transportation infrastructure in this State, and to plan, design, develop, acquire, construct, equip, maintain, and operate transportation infrastructure in this State. An agreement entered into under this subdivision requires the concurrence of the Board of Transportation. The Department shall report to the Chairs of the Joint Legislative Transportation Oversight Committee, the Chairs of the House of Representatives Appropriations Subcommittee on Transportation, and the Chairs of the Senate Appropriations Committee on the Department of Transportation, at the same time it notifies the Board of Transportation of any proposed agreement under this subdivision. Any contracts for construction of highways, roads, streets, and bridges which are awarded pursuant to an agreement entered into under this section shall comply with the competitive bidding requirements of Article 2 of this Chapter.

NCGS § 136-18(39). Under this provision, NCDOT is authorized to enter into agreements with private entities to finance the cost of constructing transportation infrastructure through any financing method authorized by law. The primary objective of statutory interpretation is to ascertain and effectuate the intent of the legislature. Burgess v. Your House of Raleigh, 326 N.C. 205, 209 (1990). Where the language is clear and unambiguous, courts "will apply the plain meaning of the words, with no need to resort to judicial construction." Wiggs v. Edgecombe County, 361 N.C. 318, 322 (2007). In our view, the plain language of NCGS § 136-18(39) vests NCDOT with the authority to contract with private entities for the construction of the I-485 projects under contract terms which may involve financing. As such, assuming the extended payment schedule described in the draft Request for Proposals constitutes "financing," we believe the General Assembly has authorized NCDOT to expedite construction in this manner. Furthermore, we have been unable to identify any provision of North Carolina law that would prohibit the contracting proposal described by NCDOT. Nor are we aware of any case law restricting delayed payments by a state entity to a contractor.

We are aware, however, that interested contractors, bonding companies and financial institutions have suggested to NCDOT that the Request for Proposals can be modified in ways which they contend will result in additional cost savings. Some of these recommendations involve authorization to assign payments and financing guarantees by NCDOT. We understand that the first draft Request for Proposals will allow prospective contractors to submit these types of suggestions and that NCDOT will consider whether the second draft Request for Proposals should be modified. Our opinion that NCDOT has legal authority to move forward as proposed with the expedited completion of I-485 is based solely on the draft Request for Proposals provided to us prior to the issuance of this opinion. Should future drafts, or the final contract, include new substantive provisions, reconsideration of this opinion may be required.

We will of course, be pleased to continue to work with you and your staff as you move forward with this project. Please contact us if you have further questions or concerns.

Very truly yours,

Grayson G. Kelley
Chief Deputy Attorney General