A key to fast tracking infrastructure
With public-sector budgets more constrained than ever, and a growing belief in the U.S. that traditional procurement alone will not be sufficient to address growing infrastructure needs, one optional project delivery method via public-private partnerships (P3) is explained here by P3 specialists and authors of a new report* Samara Barend and Karl Reichelt.
Infrastructure projects delivered decades faster than expected and often for a fraction of the estimated costs. It’s not a scenario usually associated with major projects. But there are increasing numbers of huge and complex programs which defy the familiar and well-worn headlines.
To take just a couple of U.S. examples – the Port of Miami Tunnel was delivered at least 20 years faster than anticipated and at 50% less than the original estimate thereby saving around $350 million. Meanwhile, in Florida the Interstate 595 highway was completed 15 years sooner than expected and at almost half of the original owner’s cost estimate saving $500 million.
Their success is credited to the use of a performance-based infrastructure model which has public-private partnerships (P3) at its core.
Different and better
The performance-based infrastructure model combines private sector expertise and funding to deliver public agency objectives.
Key features include the following:
/ Bringing construction forward Spreading the cost of infrastructure investment over the lifetime of the asset.
/ On-time and on-budget delivery Payments are aligned to the delivery of project objectives.
/ Ensuring that assets are properly maintained Well-designed P3s help maintain infrastructure by transferring maintenance obligations for a facility to the private partner. Conversely, P3s require the public sector to invest in the full lifecycle of a project.
/ Cost savings through quality The P3 contract is focused on construction quality, as it is responsible for those costs many years down the road.
/ Strong customer-service orientation Private-sector infrastructure providers sometimes rely on user fees from customers for revenue and thus have a strong incentive to provide superior customer service.
/ Enabling the public sector to focus on outcomes and core business Properly structured P3s enable governments to focus on outcomes rather than inputs.
Case study: PORT OF MIAMI TUNNEL, FLORIDA, U.S.
This project entailed a 35-year P3 contract between the Florida Department of Transportation (FDOT) and the Miami Access Tunnel consortium to design, build, finance, maintain and operate three miles of tunnel and upgrade a linked causeway and feeder roads. FDOT agreed to share the project’s significant geotechnical risk with the private consortium, providing $160M to cover technical challenges after the private consortium put forward the first $10M. The preliminary cost estimate prepared by the state’s technical advisor was nearly $1.2B.
The winning consortium prevailed with a bid of $657M. The expected annual availability payment was $69M and the winning private bid was a $31M annual availability payment. This project included the use of innovative financing mechanisms, such as federal TIFIA funding. Construction work started in 2010 and the tunnel opened in 2014. AECOM is currently engaged in the design of the intelligent transportation systems and tunnel control systems on behalf of the design-build joint venture led by Bouygues.
*Exploring this realm of private finance is a new publication entitled ‘Public -private partnerships: fast tracking infrastructure with innovation’ by Karl Reichelt and Samara Barend. To download click here