The project is being built through a public-private partnership (PPP or P3) that includes the design, build, finance, operation and maintenance of the POMT. It is a 35-year concession agreement, which includes 55 months for design and construction. The firm selected also is responsible for operating and maintaining the tunnel once construction is complete.
A PPP is a contractual agreement between a public agency, in this case FDOT, and a private sector organization with the qualifications to carry out the specific duties..
A concession agreement is the contract entered into by FDOT and the organization selected in a competitive bidding process to design, build, finance, operate, and maintain the POMT project over a defined term.
The Port of Miami Tunnel is a highly complex project. The PPP structure transfers most risk for construction cost overruns, schedule delays and the long-term cost of operations and maintenance to the private sector organization. It also guarantees FDOT a fixed long-term cost structure. Additionally, if the selected organization under-performs, FDOT will be able to reduce payments. Such a financial incentive will ensure that the organization builds a quality product and operates and maintains the project in first-class condition.
This approach is also ideal when the public agency does not have full funding in place to construct the project. The PPP allows private financing of a portion of the project costs to deliver the project earlier.
Hard construction costs are estimated at $607 million. MAT will be paid $100 million in milestone payments during construction and will self-finance the rest, partly through a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan from the U.S. Department of Transportation. Upon final acceptance, an additional milestone payment of $350 million will be paid to MAT.
The winning proposer formed a company only for the purpose of entering into this agreement with FDOT. The two finance investors in the company are Meridiam Infrastructure Finance (made up of nine banks) with 90 percent equity and Bouygues Travaux Publics with 10 percent equity. The company brought in key subcontractors for the design, construction, and operations of the project, some of whom are affiliated with the equity investors
Operations and maintenance are estimated at $200 million over 30 years and will be paid for by state funds set aside for this project.
The company will regain its investment from payments by FDOT. In addition to the $100 million in construction milestone payments, the company will receive a $350 million payment when it achieves final acceptance of the construction works. The company will use this $350 million final milestone payment to repay debt and equity. FDOT will also make what are known as availability payments to the company during the maintenance and operations portion of the contract. These payments will begin once the tunnel opens to the public and will continue for the remainder of the 35-year agreement. If the tunnel is unavailable for use, or if the company underperforms, it will not receive a full payment.
FDOT will make the milestone and availability payments from state funds, as well as local funds contributed by Miami-Dade County and the city of Miami. The county’s contribution includes about $357.5 million in 2009 dollars. The city’s contribution totals $50 million in 2010 dollars. The county and city also donated $45 million and $5 million of right of way, respectively.
Milestone payments and availability (based on the availability of the tunnel to traffic) payments are the only payments from FDOT to the company. The milestone payments total a maximum of $450 million over the construction period, including a $350 million payment when construction is complete.. Once the tunnel is open to traffic, the company is eligible to begin receiving availability payments with an annual maximum amount of $32.5 million in 2009 dollars plus an adjustment for inflation.
The 35-year term, including both the construction and operating period, began on Oct. 15, 2009, and ends on Oct. 15, 2044.
Recent new construction of U.S. transportation projects financed though PPPs includes: SH-121, SH-130 segments 5 & 6, and IH 635 in Texas; the Dulles Greenway and I-495 High Occupancy/Toll (HOT) lanes in Virginia; and SR-91 Express lanes in California.
PPPs were also used to provide up-front payments to the public owners and finance significant reconstruction and maintenance of a number of existing facilities in the United States, such as the Chicago Skyway, the Indiana Toll Road and the Pocahontas Parkway in Virginia.
The I-595 Corridor Improvements in Broward County, Florida, and the Port of Miami Tunnel are the first transportation PPP projects in the United States based on availability payments.
Unlike some of the PPPs mentioned above, the tunnel is fully funded within the contract life and does not rely on tolls as a funding or revenue source. Additionally, under the contract, the company cannot impose tolls to recover its cost.
