Header graphic for print

Infra Insight Blog

Law & Policy

Regents’ Approval Authorizes UC Merced 2020 Project to Move Forward

Posted in PPPs

UC Merced campus

The Regents of the University of California (the “Regents”) approved the commercial terms of the P3 agreement for the UC Merced 2020 Project (the “Project”) on Thursday, November 19, 2015 at the Regents meeting held in San Francisco, contingent on a not to exceed limit on financial proposals.

The Regents’ approval authorizes the university to move forward with the Request for Proposals (RFP) phase of the Project with the three proposing teams that were shortlisted in January.  The equity members for these teams are:

  • E3 2020:  Balfour Beatty Investments, Inc., Star America E3 2020, LLC.
  • EP2 Developers:  Plenary Group (Canada) Ltd.
  • Merced Campus Collaborative: Lend Lease (US) Investments, Inc., Macquarie Capital Group Ltd., and ACC OP Development LLC.

According to Daniel Feitelberg, Vice Chancellor for Planning and Budget at UC Merced, the final RFP will likely be released “at the turn of the new year.”

The Project consists of the comprehensive development, design, construction, financing, operations, and maintenance of a broad mix of academic, residential, student life, and recreational facilities at the University of California, Merced campus.  The planned campus expansion, which will add approximately 919,000 assignable square feet to campus facilities, is intended to support projected enrollment growth from nearly 6,700 current students to 10,000 students within five to seven years.

The Project is expected to have a significant economic impact on both the San Joaquin Valley and the state of California.  It is anticipated that the Project will create 10,800 new construction jobs regionally (12,600 statewide) and inject $1.9 billion into the regional economy ($2.4 billion statewide).

The current schedule calls for proposals to be submitted in the spring of 2016, followed by the selection of the winning proposal and Regents’ approval of the external financing for the Project.  Execution of the Project agreement would take place soon after, allowing for construction to begin in late 2016.

Delivery of the first set of facilities is scheduled for 2018, and the Project is expected to be substantially complete in 2020.

Los Angeles World Airports Announces DBFOM Procurements for $5 Billion Landside Access Modernization Program

Posted in News

Los Angeles World Airports (LAWA) staff today briefed its Board of Airport Commissioners on its plans to deliver and finance the estimated $5 billion Landside Access Modernization Program (LAMP) at Los Angeles International Airport (LAX).  LAMP includes several elements, including an elevated 2.25-mile automated people mover (APM), a consolidated rent-a-car facility (ConRAC), parking garages, pedestrian bridges to airport terminals and roadway improvements.  The APM will have several stops between LAX’s Central Terminal Area and the new ConRAC, including a stop at a station connecting to LA Metro’s regional transit system.

As part of the briefing, LAWA announced its decision to deliver the APM and ConRAC through Design-Build-Finance-Operate-Maintain (DBFOM) contracts.  Sean Burton, President of the Board of Airport Commissioners, stated that “This approach, unique to U.S. airports, will create an exceptional guest experience, and cement LAX’s competitiveness in the global aviation marketplace.”  The Board will determine the delivery methods for other elements of LAMP at a later date.

LAWA will hold an Industry Forum and related outreach activities on February 4, 2016.  Los Angeles Mayor Eric Garcetti is scheduled to host the forum.  LAWA expects to release the Request for Qualifications (RFQ) for the APM DBFOM contract by the second quarter of 2016, followed by the RFQ for the ConRAC DBFOM contract.

LAWA’s press release regarding LAMP can be found here.  A copy of LAWA staff’s presentation to the Board regarding LAMP can be found here.

For further information regarding LAMP, see www.connectinglax.com.

Three Signs that the U.S. is Growing More Comfortable with Innovative Project Finance and Public-Private Partnerships

Posted in PPPs

Some recent events, taken together, provide evidence that policy-makers in the United States are growing more comfortable with public-private partnerships as a vehicle for project delivery, in particular with respect to the nation’s decaying infrastructure and bridging the resultant financing challenges.

Following President Obama’s “Build America Investment Initiative” early this summer, the U.S. Department of Transportation established the Build America Transportation Investment Center (or “BATIC”) that would, among other things, enable non-federal but still public project sponsors the opportunity to “utilize federal transportation expertise, apply for federal transportation credit programs and explore ways to access private capital in public private partnerships.”  If it survives the conference committee, the recently-passed House transportation bill, the “Surface Transportation Reauthorization and Reform Act of 2015,” would create another new entity, the National Surface Transportation and Innovative Finance Bureau.  The Bureau would focus on establishing and employing public-private partnerships (or other “innovative financing”) to deliver the projects themselves.  That there are two new entities focused on project delivery with express mention of private participation in the project is news.

Second, the conference process of the House transportation bill with the DRIVE Act, the Senate’s transportation bill, is being led by U.S. Senator Deb Fischer (R-Neb.).  Senator Fischer is chair of the Commerce Subcommittee on Surface Transportation and participated in passing the DRIVE Act within the Senate this past July and, following her appointment as chair, highlighted the value of the long-term scope of the bill, as well as its effort to “enhance project flexibility for states,” including her home state of Nebraska.  This comes as Nebraska has recently started to examine alternative project financing.  Of note in this process is that both bills fund only three of the authorized six years.  The existing BATIC and the planned “Bureau” likely are envisioned, as a policy matter, to tap private capital for the public infrastructure contemplated for at least part of the unfunded final three years.

Third, the U.S. Internal Revenue Service recently promulgated regulations, which, among other things, gives new rules regarding use of tax-exempt financing.  Under the new regulations, clarification on the limitations of “private use” in the context of mixed-use developments affords the public issuer the ability to finance its contribution to a public-private partnership with tax-exempt bonds.  See 80 FR 65637, preamble, Section IV (The “Final Regulations” are in response to “recognition of the development of various financing and management structures for government … facilities that involve the participation of private businesses, to provide flexibility to accommodate public-private partnerships, and to remove barriers to tax-exempt financing of the government’s … portion of the benefit of property used in joint ventures….”).

What we have is the President and both houses of Congress actively promoting transportation financing innovation and education.  At the same time the IRS is issuing tax-exempt finance-favoring regulations.  While much will be clearer when the conference committee’s work is over, the signals coming out of Washington seem to favor innovative financing and broader use of public-private partnerships.

Arizona Department of Transportation Receives Three Proposals for South Mountain Freeway P3 Project

Posted in PPPs

A crucial highway improvement for the growing Phoenix region reached an important milestone November 2 when the Arizona Department of Transportation received proposals from all three short-listed teams vying to develop the Loop 202 South Mountain Freeway Project.  The three multidiscipline teams are identified in our March 2015 blog.

This $1.9 billion megaproject includes the design, construction and 30-year maintenance of the last section of the Loop 202 Freeway – a route which will stretch 22 miles from the Maricopa Freeway segment of I-10 to the Papago Freeway segment of I-10 in the southwestern quadrant of the Phoenix Metropolitan Area.  It is the single largest highway project ever undertaken by ADOT.  To view a 3D fly-through video animation of the project, click here.

The project has been a critical part of the Maricopa Association of Governments Regional Freeway Program since 1985, when Maricopa County voters approved Proposition 300 – a measure which included its funding.  The freeway is also part of the Regional Transportation Plan funding passed by the county’s voters in 2004 through Proposition 400.

The South Mountain freeway will break new ground as the first highway project procured under Arizona’s P3 statute, and ADOT’s first design-build-maintain project.  ADOT will fund the project capital costs with a combination of available federal funds, regional sales tax revenues and tax-exempt bonds.

ADOT and the proposers adhered closely to the schedule the transportation agency issued at the beginning of the RFP stage of the procurement.  The schedule included several rounds of one-on-one meetings, including meetings to consider alternative technical concepts and plans to avoid right-of-way takes.

Right-of-way acquisition cost and delay risks present the most significant potential pitfalls for the project.  ADOT crafted innovative procedures to offer price evaluation credits for avoiding planned parcel acquisitions and relocations.  The procedures will likely serve as a national template to help project owners with similar needs manage and reduce right-of-way acquisitions.

In a further innovation, ADOT harnessed competition to obtain advance pricing of potential price changes if notice to proceed with construction of the center portion of the project is advanced or delayed outside a benchmark issuance date.  If the agency issues the center portion notice to proceed sooner than expected, it will receive price reductions for the time savings based on the daily price reduction offered by the winning proposer.  If the notice to proceed is issued later than expected, ADOT will raise the price by the daily price increase offered.

This approach will help both parties avoid potential disputes over price adjustments for early or late notice to proceed for the center portion.  The daily amounts proposed will be factored into the construction bid price to determine price scores, motivating proposers to carefully calculate their proposed adjustments.

Proposal evaluations, involving scores of technical experts, are underway.  A best value determination and proposer rankings are expected by mid-January 2016.

For inquiries about the project and the procurement process, contact projects@azdot.gov.

S&P Says Infrastructure Costs Go Well Beyond the Initial Investment

Posted in PPPs

In a number of recent conversations regarding using Public-Private Partnerships (P3s) to deliver large infrastructure projects under an availability payment structure, I’ve heard a lot of angst by public owners over the cost of private finance and that AP’s may be viewed as “debt” by the rating agencies.  It’s true the rating agencies have indicated that AP’s can be considered debt for purposes of assessing an agency’s debt capacity but that’s only one aspect of the delivery method to consider.

S&P has issued several reports/FAQs regarding P3’s in the last couple of months, including the conditions under which the rating agency would factor in the annual AP when looking at a public agency’s debt profile.  But what caught my eye is their most recent report “U.S. State Debt Levels may be More Sustainable Than the Condition of the Nation’s Infrastructure”.   States have typically used tax exempt debt when there’s the need to advance construction of a major infrastructure project.  After noting the modest and sustainable pace at which U.S. states have issued debt since the financial crisis in 2008, S&P looks at the bigger picture—the infrastructure costs relating to long-term O&M that go well beyond the initial capital investment—these costs CANNOT be funded with tax exempt debt and except for major maintenance are not eligible for federal grant funding.  To highlight the issue S&P cites an analysis by the Congressional Budget Office (CBO) suggesting that more than half (50% to 55% from 2000 through 2007) of total public spending on transportation and water infrastructure has been for O&M. These estimates may even be understated because they exclude spending on public power, equipment, or buildings. According to S&P, “relying solely on traditional forms of tax-secured debt to finance the nation’s infrastructure needs, therefore, would likely result in negative credit pressure for numerous states. Furthermore, by overlooking the O&M costs, the estimate presented above almost certainly understates the fiscal pressures that would arise from an exclusively debt-financed approach.”

In conclusion S&P opines that the states can’t solve their infrastructure gap with debt financing alone.  “We anticipate that both because of what it would do to their direct debt levels and because of the O&M implications of funding the nation’s infrastructure needs with tax-supported debt alone, states will increasingly consider alternative financing strategies. P3s are one such avenue.”

AASHTO Launches BATIC Institute to Support Innovative Financing Solutions

Posted in News

BATIC InstituteLast month, the United States Department of Transportation (USDOT) formally unveiled its Build America Transportation Investment Center (BATIC).  BATIC’s mission is to:

  • Expand the use of federal transportation credit programs;
  • Innovate new approaches to project development processes and funding challenges and institutionalize technology and best practice across credit programs and modal teams; and
  • Deliver streamlined technical and financial assistance to accelerate project delivery

BATIC is intended to serve as a “single point of contact” for project sponsors to obtain federal expertise and to address procedural, permitting and financial barriers to increase infrastructure investment and development.

Following on the heels of BATIC’s unveiling, the American Association of State Highway and Transportation Officials (AASHTO) recently announced the launching of its BATIC Institute.  The BATIC Institute is an education and training component of BATIC, aimed at assisting state departments of transportation and other agencies on how to better utilize innovate solutions to finance transportation projects, including bonding, federal credit assistance, and public-private partnerships.  The BATIC Institute will offer a specialized website and a program of in-person and online training.  The first webinar offered by the BATIC Institute will be on November 4, featuring the Pennsylvania Department of Transportation’s Rapid Bridge Replacement Project.  Click here to register for the webinar.

More Managed Lanes For California

Posted in Tollroads/ Turnpikes/ Managed Lanes

California has long been a transportation innovator, whether battery powered cars, high speed rail or the home of the first managed lanes facility in the United States—the SR91 Express Lanes.  The SR91 Express Lanes opened in 1995; the 10 mile project with two managed lanes in each direction connecting Orange County and Riverside County was originally developed as a P3 toll concession and acquired in 2003 by the Orange County Transportation Authority (and also featured the first fully electronic toll collection system in the world).  Additional managed lanes projects have been developed in the State, but only on a limited, project by project basis.

Last week Governor Brown signed AB 194, authorizing the California Department of Transportation and regional transportation agencies, including the Santa Clara Valley Transportation Authority, to develop, finance, operate and maintain HOT lanes, with no limit as to number of projects or time frame.  Projects must receive the approval of the California Transportation Commission, which is to develop eligibility criteria that include at a minimum a showing of improved corridor performance and that a complete funding plan has been prepared.  Toll revenue can be used to pay principal and interest on bonds to finance the toll facility, and cover maintenance, operation and rehab costs and other transportation improvements in the corridor pursuant to an expenditure plan to be developed in consultation with Caltrans.  Regional transportation agencies have express authority to issue toll revenue bonds or notes to finance any toll facility authorized under the new law.

We are aware of active planning in Riverside, San Bernardino and Orange County to develop new managed lanes projects, including the $1.2 billion I-405 Improvement Project being procured by the Orange County Transportation Authority.

The text of AB 194 can be found here.

P3 Projects Use Less Contingency Per Infrastructure Ontario Report

Posted in PPPs

This is the second of two posts about the recent Infrastructure Ontario 2015 Track Record Report.

As mentioned in the earlier post about Infrastructure Ontario’s 2015 Track Record Report, 98% of the infrastructure projects procured through the agency’s Alternative Financing and Procurement (AFP) program have been delivered on budget.

The report considers a project “on budget” if its final project cost (awarded contract amount plus utilized post contract contingency) was less than or equal to the awarded contract amount plus the budgeted post contract contingency set at financial close.  Whether a project has been delivered on budget therefore depends on the degree of post contract contingency utilization.

The purpose of post contract contingencies is to mitigate the risks associated with construction.  The intent is to include sufficient funding within the project budget to account for non-discretionary changes and to manage risks that are retained by the Province during the project.  Post contract contingencies are not intended to address client-initiated changes to scope (discretionary changes).

Forty-four of the 45 projects delivered using Infrastructure Ontario’s AFP model were found to be delivered on budget.  This means the post contract contingencies for these 44 projects were not fully utilized by substantial completion, which is indicative of Infrastructure Ontario’s ability to manage changes during construction while still achieving the original project scope.

The majority of the AFP projects analyzed in the report (30 of 45 projects) utilized less than 50% of the budgeted post contract contingency.  One project exceeded the allocation by 0.2%, while another utilized 99.5%.  Both of these projects were procured using the Build Finance model, wherein design risk is retained by the Province.

Source: Infrastructure Ontario's 2015 Track Record Report

Source: Infrastructure Ontario’s 2015 Track Record Report

When the utilization of post contract contingency was broken down by AFP procurement model, it was found that Build Finance projects had the highest rate of utilization.  The report noted that this was unsurprising since the Build Finance delivery model is the most similar to a traditional project delivery model.

AFP procurement models that include a design component (Design Build Finance and Design Build Finance Maintain, which transfer the risk of design-related changes to the project company) saw reduced post contract contingency usage.

Source: Infrastructure Ontario's 2015 Track Record Report

Source: Infrastructure Ontario’s 2015 Track Record Report

The report noted that the low utilization of post contract contingency budgets on AFP projects could be credited to upfront due diligence, project management controls exerted by Infrastructure Ontario, and the risk transferred to the bidders.

A full copy of the 2015 Track Record Report, including a more detailed discussion of post contract contingencies can be found here.

The first post regarding the Infrastructure Ontario 2015 Track Record Report can be found here.

Report Finds Ontario P3s Exceed Industry Standards for On-Budget and On-Time Performance

Posted in PPPs
Brookfield Infrastructure Partnerships Quinte rendering of Quinte Consolidated Courthouse

Brookfield Infrastructure Partnerships Quinte rendering of Quinte Consolidated Courthouse

This is the first of two posts about the recent Infrastructure Ontario 2015 Track Record Report.

As the public-private partnership (P3) market in the United States continues to grow, U.S. agencies that are considering the use of P3s to deliver their infrastructure projects have often expressed a desire for more research related to this innovative delivery model.  Last week, Infrastructure Ontario, the agency tasked with delivering the Province of Ontario’s largest and most complex infrastructure projects, released its 2015 Track Record Report.

For the past three years, Infrastructure Ontario has commissioned an independent, third‑party consultant to review and report on infrastructure projects delivered through the agency’s Alternative Financing and Procurement (AFP) program.   AFP is the public-private partnership (P3) model frequently used in Ontario to deliver social infrastructure such as health care and justice facilities, as well as transit and transportation projects.  The annual Track Record reports review AFP projects that reached substantial completion in the prior fiscal year and provide an objective analysis of their on-budget and on-time performance.  But this year’s report added a new metric.  In addition to AFP projects, this year’s report expanded the scope to include seven projects completed in the last two fiscal years under Infrastructure Ontario’s traditional Direct Delivery model.  The inclusion of Direct Delivery projects in the report provides a unique opportunity to compare the performance of AFP projects to projects procured under the agency’s traditional model.

This year’s report, completed by cost consulting firm Hanscomb, found Infrastructure Ontario’s on-budget and on-time performance to exceed the generally accepted industry standards for AFP and Direct Delivery projects.

Source: Infrastructure Ontario's 2015 Track Record Report

Source: Infrastructure Ontario’s 2015 Track Record Report

In the report, Hanscomb analyzed 45 AFP projects that reached substantial completion before March 31, 2015 and found that 44 of them were delivered on budget.  A project is “on budget” if its final project cost (awarded contract amount plus utilized post contract contingency) is less than or equal to the awarded contract amount plus the budgeted post contract contingency set at financial close.

The 98% on-budget rate is consistent with the previous year’s reported 97% on-budget rate (36 out of 37 projects) and remains well above industry standard benchmarks.

For comparison, 71% of the projects (5 of 7 projects) procured using the Direct Delivery model during the past two years were found to have been delivered on budget.

The report also found that 73% of AFP projects (33 of 45 projects) were delivered on time or within one month of substantial completion, with eight of those projects having been delivered early.  It was noted that for 12 of the 14 AFP projects that experienced schedule delays (more than five business days over schedule), the private sector retained full or shared responsibility for the delay.

As for Direct delivery procurements, 86% (6 of 7 projects) were delivered on time or within one month of substantial completion.

In addition to the cost and schedule analyses, the report also provided an interesting look at post contract contingency utilization, which will be discussed in a future blog post.

A full copy of the 2015 Track Record Report can be found here.

The second post on the Infrastructure Ontario 2015 Track Record Report can be found here.

New Harbor Bridge Set to Launch

Posted in Bridges

On September 28, 2015, the Texas Department of Transportation and Flatiron/Dragados, LLC  (Developer) entered into a comprehensive development agreement (Agreement) for the Harbor Bridge Replacement Project in Corpus Christi (the Project).  The new Corpus Christi Harbor Bridge will allow larger ships to deliver their cargo to the Port of Corpus Christi, serving as an economic catalyst for the region and the State of Texas.  The current bridge was built in the late 1950s. Plans for a replacement bridge to improve safety have been in the works for more than a decade.  The proposed $800 million design-build-finance-maintain project includes construction of a new cable stayed bridge, demolition of the existing Harbor Bridge and the reconstruction of portions of US 181, I-37 and the Crosstown Expressway.  The design proposed by the Developer includes a mainspan of 1655 feet, which, when completed, will be the longest concrete cable-stayed span in North America.  In addition to designing and constructing the new bridge, the Agreement also requires the Developer to maintain the facility for 25 years.

An RFP was issued to shortlisted teams in October 2014 and a Flatiron/Dragados consortium was chosen as the preferred bidder in April 2015.  Flatiron/Dragados LLC was one of four proposers that submitted a Proposal for the Project.  Flatiron/Dragados LLC is a limited liability company consisting of Flatiron Constructors, Inc. and Dragados USA, Inc.  The major non-equity and other team members of the Flatiron/Dragados LLC team include:

Figg Bridge Engineers, Inc.
Iridium Concesiones de Infraestructuras, S.A. (acting through ACS Infrastructure Development, Inc.)
DBI Services, LLC
Austin Bridge & Road, LP
AZTEC Engineering Group, Inc.
Beton Consulting Engineers, LLC
Blanton & Associates, Inc.
The Boundary Layer Wind Tunnel Laboratory (as represented by The University of Western Ontario)
D.H. Griffin of Texas, Inc.
IEA, Inc
Kellogg, Brown & Root Services, Inc.
KCI Technologies, Inc.
M2L Associates Inc.
PaveTex Engineering and Testing, Inc.
Pinnacle Consulting Management Group, Inc.
Professional Service Industries, Inc.
Randy Burkett Lighting Design, Inc.
RJ Rivera Associates, Inc.
Ware & Associates, Inc

The parties anticipate construction to begin in 2016.