Home Stretch for Toronto’s Finch West LRT Procurement

Humber College students and Toronto West residents will soon be able to access Canada’s largest subway system in five years.  The CA$1 billion Finch West LRT project is slated to open in 2022.  The new dedicated light rail transit line will run 11 kilometres along the surface of Finch Avenue from Humber College’s north campus to the new Finch West subway station on the Toronto-York Spadina Subway Extension that opened yesterday.  There will be 16 surface stops and 2 below-grade termini at Humber College and the subway station.  The Finch West LRT project includes a maintenance and storage facility for the light rail vehicles.

Infrastructure Ontario and Metrolinx issued a Request for Proposals to three shortlisted bidders on February 20, 2016 to design, build, finance and maintain the Finch West LRT project:

  • Humber Valley Transit Partners, including SNC-Lavalin, Graham, ACI;
  • Mosaic Transit Group, including ACS, Aecon, and CRH; and
  • FACT Partners, including EllisDon, Bechtel, and Herzog Transit.

Following an extension of the proposal due date, the procurement was stalled to allow time for the resolution of a dispute between Metrolinx and Bombardier over repeated delays in the supply of a light rail vehicle prototype and subsequent vehicles for Toronto-area lines.  Procurement restarted in May 2017 after Metrolinx announced that it had entered into a new supply contract with Alstom as the alternative supplier of the vehicles.

All three teams have submitted their proposals by the new deadline on December 13, 2017.  The preferred proponent is expected to be identified in Spring 2018.

New York MTA Approves $1.8B Design-Build Contract for the Long Island Railroad Expansion Project

The New York Metropolitan Transportation Authority’s (NYMTA) board has approved a $1.8 billion expansion project for another important milestone in Governor Andrew M. Cuomo’s, comprehensive, interconnected plan to improve transit and transportation throughout the New York metropolitan region.

The project includes signal system and bridge state-of-good-repair elements, but the central element is the addition of a 9.8-mile third track between Floral Park and Hicksville, NY on a segment of the LIRR mainline that handles more than 250 trains per weekday.

The project also includes removal of seven at-grade rail crossings, where there were more than 100 vehicle strikes in 2015. The work was procured as a design-build contract and awarded to a Dragados USA-lead joint venture called 3rd Track Constructors (3TC).

“This modernization initiative will provide faster commuting with a more reliable network, and will allow us to keep the railroad in a state of good repair,” said MTA Chairman Joseph Lhota. “All too often, major delays on the LIRR are tied to incidents along this corridor. With this investment, Long Islanders and New York City residents alike will be able to avoid the crippling and cascading delays that affect the entire network.”

Governor Cuomo announced the project in January of 2016 and a two-step procurement process was approved by the MTA Board in November of 2016. Four bidders were pre-qualified; MTA convened a series of one-on-one meetings with the bidders. Three of the bidders submitted design-build proposals, which were reviewed by technical committees, including staff from the LIRR, MTA and NY Department of Transportation. The Final Selection Committee, comprised of railroad, transportation, and construction industry experts, reviewed the technical and price proposals during the summer before pricing negotiations this fall.

Beginning in January 2018, the contractors will work to complete design, surveying, mobilization, utility relocations, and other early construction activities. Major construction is expected to begin in late 2018 with project completion in 2022.

Design-build is not new to MTA.  MTA has successfully used design-build in other recent projects such as the new Gov. Mario M. Cuomo Bridge, and LIRR’s Ellison Avenue Bridge and Post Avenue Bridge replacements.

 

P3 Lawyer Appointed Federal Railroad Administration Chief Counsel

President Trump recently appointed former Seyfarth Shaw LLP (“Seyfarth”) attorney Juan D. Reyes, III as Chief Counsel of the Federal Railroad Administration (“FRA”).  Mr. Reyes was previously a partner in the real estate department of the New York City office of Seyfarth and he led the firm’s P3 practice.  Proponents of P3s may be pleased to have a Chief Counsel that understands the potential benefits of P3s.

The appointment of Mr. Reyes marks a continuation from the Obama Administration of appointing counsel with P3 experience.  President Obama’s first FRA Chief Counsel, Karen Hedlund, a partner at Nossaman LLP prior to her appointment, also had considerable expertise with P3s.  Prior to the Obama administration, the FRA Chief Counsel position was more often staffed with an attorney focused on the FRA’s safety mission.  The appointment of Mr. Reyes may indicate that the current administration will pursue an infrastructure legislative package that includes P3s as part of that effort.

Mr. Reyes will assist the FRA in upgrading its passenger and freight rail systems, which includes the Northeast Corridor and high speed rail in California and Texas.  Further, he “will also play a critical role in reviewing and advising on Elon Musk’s proposed ‘hyperloop.’”

Mr. Reyes will oversee FRA’s legal department of 50 attorneys.

LAWA Receives Technical Proposals from Three Teams for APM Project

Los Angeles World Airports (LAWA) announced last Thursday that it has received three Technical Proposals in response to its Request for Proposals for the Automated People Mover (APM) project.

Part of LAWA’s $5.5 billion Landside Access Modernization Program (LAMP), the APM system will be approximately 2.25 miles long and feature an elevated dual lane guideway, six passenger stations, and an off-line maintenance and storage facility.  Three stations will be located within the central terminal area at LAX, and three stations will be located at two new intermodal transportation facilities and a new consolidated rental car center.  The stations within the central terminal area will provide fast and easy connections to the airline terminals via pedestrian bridges equipped with moving walkways.

LAWA’s APM project is the first APM system in the United States to be procured through an availability payment public-private partnership (P3) delivery model.  The selected proposer will design, build, and partially finance the APM system, and will then operate and maintain the APM system over a 25-year term.

LAWA received Technical Proposals from the following shortlisted proposer teams (listed in alphabetical order):

  • Gateway Connectors
  • LAX Connecting Alliance
  • LINXS

Financial Proposals for the project are due on December 20, 2017.  LAWA will review the Technical and Financial Proposals over the next two months, and expects to make a selection decision in January 2018.

LAWA’s official press release can be found here.  For more information, please visit the project website at http://www.connectinglax.com.

Proposed House Ways and Means Committee Tax Bill Would Eliminate All PABs

Last week the House Republican leadership unveiled its much anticipated US tax reform bill.  The bill proposes the most sweeping changes to the tax code in 30 years—since the 1986 Tax Act, which by the way imposed many of the restrictions on private activity bonds that we operate under today.  Among its many provisions would be the outright elimination of tax exempt private activity bonds for a host of public works type projects.

PABs have been the cornerstone of the financing of billions and billions of dollars of new public infrastructure—much of the focus has been on the $6.5 billion of PABs for qualified transportation projects issued since 2005 helping in large part to spark the use of P3’s for highway and transit projects across the country.  The use of PABs has helped “leverage” almost $30 billion of new transportation infrastructure investment, including attracting nearly $4.5 billion of private equity.  But it isn’t just PABs for transportation projects that would be eliminated—ALL exempt facilities, including seaports, airports, water and wastewater projects that incorporate private equity (and transfer risk to the private sector) would be eliminated.  And according to the Joint Committee on Taxation, the elimination of PABs would only produce $38.9 billion of “savings” that would be used to offset the cost of, among other things, the major reduction of the corporate tax rate.

One of the primary policies behind the tax proposal is to stimulate private investment to grow our economy.  But without the 21st century infrastructure that can result (and has resulted) from the use of this delivery and financing technique, how is corporate America supposed to get its workers to their jobs and its goods to market?  Amazon understands this:  among its criteria for selecting a metropolitan area to locate its new headquarters building and make a $5 billion investment and employ 50,000 worker is proximity to mass transit, no more than 2 miles from a major highway and no more than 45 minutes from an international airport.

And without PABs the burden to finance new infrastructure projects would fall squarely on state and local governments.  According to a report released today, Fitch Ratings has expressed a concern over the fiscal strain on state and local finances that could result from adoption of the current tax proposal, including “…lowering interest in and feasibility of public-private partnerships, which have increasingly been used to procure transportation projects.”  Fitch also noted that the proposed halt to PABs “would raise airport financing costs and possibly cause a reduction in private participation in water projects.”

It’s too early to try to predict how much, if any, of the House tax proposal will survive and in what form.  Many industry groups and state and local government organizations have already written letters to House Ways and Means Committee Chair Kevin Brady and Ranking Member Richard Neal expressing their concerns about the current proposal, including the provision that would outright eliminate this valuable financing technique.

 

PPP Canada Phased Out Pending Launch of Canada Infrastructure Bank

The Canadian government is taking a new approach to P3s.  By the end of 2017, PPP Canada will have ceased operations, and the Canada Infrastructure Bank (the “CIB”) will be launched.

Year end is nearly upon us.  What has PPP Canada accomplished, and what is expected from the new CIB?

PPP Canada’s Contributions

PPP Canada was established by the Harper government in 2008.  At that time, certain provinces were already very experienced in the delivery of large and complex public infrastructure projects using P3 delivery models (including British Columbia, Alberta and Ontario).  The specific mandate of PPP Canada was to improve the delivery of public infrastructure by achieving better value, timeliness and accountability to taxpayers through P3s.  PPP Canada managed, and provided project funding through, the $1.2 billion CAD P3 Canada Fund and focused on leveraging greater value for money from federal investments in provincial, territorial, municipal and First Nations infrastructure.

Looking back at its accomplishments, PPP Canada reports that it has invested an aggregate of over $1.3 billion CAD in 25 infrastructure projects in Canada.  Nine of these projects are in operations and the balance are currently under construction.  These projects span Canada, reaching as far north as Iqaluit, Nunavut and Whati, Northwest Territories, stretching east out to Saint John, New Brunswick, west out to Vancouver Island, and including projects at many locations in between.  The projects that PPP Canada enabled also cover a wide variety of asset classes including roads and bridges, water/waste water facilities, bus storage and transit facilities, an LRT project, an organics biofuel facility, an airport improvement project, a hydroelectric development and a housing renewal project.

PPP Canada played a critical role in developing tools to assess projects for P3 delivery and in assisting a variety of agencies with P3 project development and procurement.  PPP Canada had a significant impact on the Canadian P3 market and contributed to the expansion and diversification of that market.

The Future: Canada Infrastructure Bank

Where does the CIB begin as the new federal agency managing federal funds for infrastructure projects that involve private sector investments?  Is the CIB’s scope and mandate different from PPP Canada’s?

The focus and approach that the CIB will take is not yet clear, which has caused some concern in the industry; overall market participants are anxious to receive more details.  There are some hints on what we might expect from the CIB in the Canada Infrastructure Bank Act (the “CIB Act”).  The CIB Act, which establishes the CIB, received royal assent on June 22, 2017.

CIB’s Purpose and Powers

The CIB Act provides that the CIB’s purpose is to invest in, and to attract investments from private sector investors and institutional investors in, revenue-generating infrastructure projects that will be in the public interest.

The CIB has a broad range of powers to carry out its purpose.  The following powers specified in the CIB Act are of particular interest:  (a) structuring proposals and negotiating agreements with the proponents of infrastructure projects and with investors in infrastructure projects; (b) investing in infrastructure projects, including by way of equity investments, loans or acquiring derivatives; (c) extending credit or providing liquidity;  and (d) receiving unsolicited proposals for infrastructure projects that come from private sector investors or from institutional investors. Further, the CIB Act provides that the CIB may provide loan guarantees for infrastructure projects provided that the Minister of Finance approves the loan guarantee.

Funding the CIB

The CIB will be funded with up to $35 billion CAD.  While not specified in the CIB Act, the CIB website indicates that: (a) $5 billion CAD will be for public transit systems, $5 billion CAD will be for trade and transportation corridors, $5 billion CAD will be for green infrastructure projects; and (b) the remaining $20 billion CAD in capital will be available for investments that will result in the CIB holding assets in the form of equity or debt.

Concluding Observations

In assessing the CIB’s powers and mandate (as we understand them so far) against the backdrop of PPP Canada’s purpose and activities over the past several years, we can see that:

  1. The CIB has a much larger pot of capital to use to advance infrastructure projects in Canada.
  2. The CIB will focus on revenue generating projects. This is an interesting variance from PPP Canada; most P3s in Canada to date have been availability payment deals for infrastructure with no or limited revenue generating potential relative to project capital cost. Canadian taxpayers are not accustomed to user-pay infrastructure beyond utilities, water/waste water, some toll roads and modest transit fares.   It is not clear to what extent the CIB will provide federal support to non-revenue generating deals.
  3. The CIB will seek to attract institutional investors. This was not a particular objective of PPP Canada.
  4. PPP Canada generally focused on granting funds, making loans and providing P3 delivery expertise to public agencies to enable infrastructure projects. The CIB has much more flexibility.  Based on the CIB Act and the CIB’s website, it appears that the CIB may be (a) a procuring authority; (b) a source of expertise, a source for credit enhancement and/or a source of public funds for projects being procured by other public agencies in Canada; and/or (c) an investor in P3 SPVs alongside private sector and institutional investors.  This flexibility has been identified as a source of concern in the market.  The CIB will need to be alert to the potential conflicts created by these options.

We must all wait and see how the CIB will engage public agencies and market participants. The CIB will need to weave through several challenging issues, including (a) determining how to handle unsolicited proposals to ensure fair opportunities to market participants and best value for tax payers (each typically derived from competitive processes); (b) identifying criteria for selection of projects for funding; (c) deciding how involved the CIB should be in infrastructure procurements (acting as a procuring agency or an advisor?); and (d) determining the position that the CIB should take on projects that involve private investor and institutional investor investments.

News arising from the CCPPP conference in Toronto this week indicates that the CIB chair, Janice Fukakusa, intends that the CIB (a) will complement existing models as opposed to competing with or replacing approaches that are already working in Canada; and (b) will provide federal support in whatever form is best suited for a given project.[1]  This sounds like a wise approach.

Canada has a strong and stable P3 market and several provincial and municipal agencies with a track record of successful projects.  With careful planning, the CIB has the opportunity to become a reliable option for funds and expertise to enable infrastructure projects throughout Canada and to have a positive impact the Canadian P3 market.

 

[1] See P3 Bulletin, “Canada Infra Bank CEO due ‘shortly’”, November 7, 2017.

Past, Present, Future at P3 Bulletin’s Hub South Conference

The United States has the largest emerging public-private partnership (P3) market in the world for infrastructure projects. Due to decreased tax revenue and shrinking budgets, many state and local governments in the southern United States have embraced alternative methods of project delivery. Public entities in the southern United States boast some of the most extensive P3 experience in the U.S. and it dates back to before the turn of the century with the Pocahontas Parkway in Virginia, Texas, and Florida pioneering several complex P3s.

Public officials and industry partners convened for the third annual P3 Bulletin Hub South Conference at the Conrad Miami last month to celebrate the past, learn about present deal flow, and think about future developments.

Celebrating the Past

Florida is home to the nation’s first, second, and largest availability payment transactions in the U.S. transportation sector. The Florida Department of Transportation reported that the P3 model used in the I-595 Corridor Improvement Project enabled construction to finish on time and on budget. City of Miami commissioner and mayoral candidate Francis Suarez highlighted how the Port of Miami Tunnel has removed 80% of the truck traffic in downtown Miami, alleviating some of the 125 hours a year that Miami citizens spend in their cars. In a similar manner, the I-4 Ultimate Project is expected to relieve traffic congestion by increasing highway occupancy rates across the Orange and Seminole Counties.

Present Deal Flow

The Georgia Department of Transportation is advancing its Major Mobility Investment Program of 11 major projects that will ease congestion along key passenger and freight corridors. More than half of these will be procured as P3s, following the success of the public agency’s first P3 procurement, the Northwest Corridor Project.
The outlook for P3 deal flow in other regions ravaged by recent hurricanes is not as optimistic, but crises precede opportunities for growth and innovation. Puerto Rico plans to utilize P3s and unsolicited proposals to harness renewable energy, fiber optic cable, and undergrounding technologies to get its island back onto a sustainable grid. Affordable housing in Houston and Miami remain a top priority.

Future Developments

Multiple public officials emphasized the significant role that unsolicited proposals will play in the future. When private companies are not viewed as adversaries, new technologies such as autonomous vehicles and urban gondolas can bring innovation to public infrastructure. Decreased headways and the jaw-dropping views will be just a bonus.

Although plenty of atmospheric conditions have negatively impacted the southern United States in recent months, P3s will increasingly play an important role again as the region recovers. The P3 history in this region demonstrates that its governmental agencies have a good understanding of the value of private investment in public infrastructure.

UC Merced Celebrates One-Year Anniversary of Groundbreaking for 2020 Project

This week, the Regents of the University of California and the University of California, Merced are celebrating the one-year anniversary of groundbreaking for the $1.3 billion, 1.2 million GSF UC Merced 2020 Project (the “Project”).

The Project involves the design, construction, financing, operation, and maintenance of a broad mix of academic, residential, student life, and recreational facilities at the University of California’s Merced campus, including the simultaneous construction of 13 new buildings, and is expected to nearly double the physical capacity of the campus. As the first higher education project in the United States to be undertaken using the P3 availability payment model, the successful completion of the first year of construction marks an important milestone for the Project and for the U.S. social infrastructure P3 market more generally.

First buildings complete by fall 2018

The first year of construction has proceeded smoothly, with the first phase of the Project expected to be delivered on schedule in fall 2018. Included in the first delivery are 700 new student beds, a 600-seat multipurpose dining facility, new classrooms, and 940 new parking spaces.  Developed by Plenary Properties Merced, the construction team, led by Webcor Construction LP, has begun assembling the steel components of the new dining facility’s distinctive sloped roof, and is working on a second bridge connecting the campus expansion to the existing campus.  The team has also begun work on the campus’ tallest building to date, a six-story mixed-used student residential facility in the heart of the campus.

Governance structure is critical component

According to the University, what has been instrumental in the Project’s progress is the campus’ internal governing structure to manage the Project. “We worked very hard to establish a comprehensive governance structure that taps into expertise across the University,” said University spokesperson Richard Cummings.  “It is enabling us to monitor the University’s obligations under the Agreement and to timely respond to questions that have arisen during the construction process.”

In addition, a campus-led Project management team is closely monitoring progress on a daily basis. The team is comprised of campus staff in construction and space planning, and is advised by consulting subject matter experts housed together on the construction site.

Economic benefits

The Project is generating significant economic benefits in Merced and surrounding regions. Approximately 400 construction workers are on site in Merced each day, and the Project is anticipated to create 2,500 construction jobs annually in the San Joaquin Valley during the four-year construction period.  Based on a third-party analysis by Oakland-based Economic & Planning Systems, development of the Project is estimated to inject $1.9 billion into the economy of Merced County and $2.4 billion statewide.  By 2022, it is anticipated that ongoing operations of the Project will increase spending by more than $200 million per year in the state.

“UC Merced is a big partner in our economy with its 2020 Project,” said Merced City Manager Steve Carrigan in a quote to the Merced-Sun Star. “That is a lot of construction jobs in four years and a lot more jobs for faculty and staff.”

Looking ahead

The Project is scheduled to be delivered in three phases and will enable the campus to expand enrollment to 10,000 students. The first set of deliveries occurs in the fall of 2018; the second set of deliveries in the fall of 2019; and the remainder of the Project in 2020.  Every building will achieve at least LEED Gold certification.  Following overall substantial completion of the Project, the developer’s lead facilities management firm, Johnson Controls, Inc., will operate and maintain the assets to contractually specified standards for the remainder of the 39-year contract term.

Click here for more information about the UC Merced 2020 Project.

A special thank you to Richard Cummings, Director of Strategic Communications at UC Merced, for his valuable contributions to this post.

 

 

UC Merced and LA Mayor Win Big at P3 Awards

The UC Merced 2020 Project was a big winner at P3 Bulletin’s annual P3 Awards ceremony held in Washington D.C. last month, claiming the Gold Award for Best Social Infrastructure Project, along with the Silver Award in the Government Agency of the Year category. The award comes approximately one year after the historic groundbreaking on the project, which is currently under construction.

The project consists of the comprehensive development, design, construction, financing, operations, and maintenance of academic, administrative, research, recreational, student residence, and student services buildings. The campus expansion is intended to support projected enrollment growth from 6,200 current students to 10,000 students by the 2020-2021 academic year. The project is the first higher education availability payment P3 project to be awarded in the United States. (Stay tuned to the Infra Insight blog for a project update, coming soon).

This year’s awards also saw the Best Individual Contribution Prize celebrating work done at the municipal level in the U.S., with the award going to LA Mayor Eric Garcetti. Mayor Garcetti was instrumental in the recently re-opened Angels Flight® project, and serves as the Chairman of the LA Metro Board of Directors.

Sonoma-Marin Area Rail Transit District Begins Revenue Passenger Service

The Sonoma-Marin Area Rail Transit (“SMART”) District kicked off passenger rail revenue service in Sonoma and Marin counties last week. The 43-mile rail line includes ten stations from the Sonoma County Airport to Downtown San Rafael.

The new service operates across former Northwestern Pacific Railway Co. (“NWP”) rail line. Acquisition of the rail line dates back to 1969 when the California Legislature directed the Golden Gate Bridge, Highway, and Transportation District to develop a transportation facilities plan. In its plan, the district recommended the preservation of right-of-way for rail service on the rail lines of the NWP.

Various public agencies acquired portions of the NWP corridor through the 1980s and 1990s when the California Legislature created the Northwestern Pacific Railroad Authority (“NWPRA”) to hold title to the right-of-way. The California Legislature then created the SMART District in 2002 to develop passenger rail service across the line and to dissolve the NWPRA. SMART only has authorization to operate passenger service. Freight rail is managed by another creature of the legislature, the North Coast Railroad Authority which outsources freight rail service to a short line operator.

SMART seeks to expand rail service to Larkspur, California. The expansion would extend the rail line 2.2 miles. The Larkspur extension is currently in the design phase.

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