Public-Private Partnerships and the Proposed Indianapolis Justice Center

Interesting article in yesterday’s Indy Star about the $1.75B justice complex being proposed for Marion County: Weighing the scales: $1.75B justice center could be a bargain or a boondoggle.

The article in the Indy Star is less about the justice center itself (which nearly everyone seems to agree is needed) than about the procurement method being selected to build and operate it — so-called performance-based infrastructure. This is a form of public-private partnership (often called P3) that will be familiar to Monroe County residents, because it is being used for construction and operation of I-69 Section 5 (I have written about P3 used for Section 5 here). It has already been used as well for the Ohio River Bridges project near Louisville (and note that this method is NOT what was used with the Indiana Toll Road).

Per the studies cited in this article, the results of performance-based infrastructure (PBI) have been mixed. However, the most interesting aspect to me from a public policy perspective is how dependent these cost-benefit analyses (comparing the performance-based infrastructure procurement method against the traditional method, where the government bids out the construction, bonds for the funding, and then operates the facilities) are on the assessment of risk. Depending on how much risk you build into your cost-benefit model, the savings from performance-based infrastructure can be made to appear much larger or much smaller. This is because one of the primary benefits from PBI is that the contractor absorbs cost and schedule overruns (along with other risks), not the government. However, how much actual risk is avoided can often (always?) be a matter of disagreement and dispute.

This also leads to another question: how do you fairly assess the success of such a project after the fact? Once the project is completed, the risk that was avoided is obviously no longer a factor. But did the government still get the benefit of avoiding a risk of an event that wound up not happening anyway? Did you get the benefit of having car insurance last year even though you didn’t have any accidents or making any claims?

In any case, the article is worth reading. We will undoubtedly be seeing more, not less, of these P3/PBI deals, as local and state governments continue to try to build and operate infrastructure with flat or diminishing tax revenues.

Winning I-69 Proposal Available from Indiana Finance Authority

On Friday, I wrote about the winning and losing proposals for I-69 Section 5 (the section from Bloomington to Martinsville, IN):

Today, the Indiana Finance Authority released the winning proposal (well, most of it — some parts are redacted) on its Web site. The proposal is in a number of separate files. To find it, go to the Indiana Finance Authority I-69 Web site and scroll down to “Selected Proposer”.

Right off the bat, based on a very quick read, I would think that the parts of the proposal most interesting to the public include:

  • Executive Summary
  • Financial Proposal Volume I
    • The section labeled “Type and Purpose of Each Funding Source and Facility” details the sources of funding used for the project as well as the overall costs of building and financing. I’ve included a screen shot below.
    • The equity member (prime contractor), Isolux Infrastructure, is committing $44.75M of its own investment to build the highway. They also plan to raise $253.51M through private activity bonds (PABs). Commitment of PAB funding by the underwriters is provided in this volume as well.
    • The “Uses” column on the right outlines how the funds would be spent. The first three items (Construction Costs, Construction Oversight Costs, and Operations & Maintenance Costs during Construction) add up to the $325M in construction costs that has been quoted in press releases.
  • Technical Proposal Volume 1
    • This section details the team’s approach to construction, design, operations and maintenance of the highway. A lot of this volume is very high-level and not particularly specific. Most of the pages consist of required letters of authority, certifications and representations, references (the contents of which have been redacted!), responsible proposer forms, etc. However, there are a couple of factors of note in the volume:
    • Page 7 includes a high-level Gantt chart (which I screen-shot below) outlining the design and construction schedule, indicating a construction start in mid-late 2014 and a finish by the end of 2016 (Volume 2 of the technical proposal, page 20, refers to a deadline of October 31, 2016 as the”Baseline Substantial Completion” deadline).
    • Rehabilitation of the pavement is scheduled for years 15 and 30.
  • Technical Proposal Volume 2
    • Volume 2 contains a wealth of information about the proposed approach to all aspects of design and construction, including pavement, bridge structures, bicycle and pedestrian access, drainage, lighting, traffic signals, etc., as well as communications and public outreach — far too much to summarize here.  There are just a couple of elements I quickly wanted to call out.
    • Page 43 provides a more detailed schedule of key completion milestones:
    • Page 47 indicates that the proposal design specifies that the construction will be asphalt, rather than concrete. Both were acceptable in the Request for Proposals; sections 1-4 are being constructed using concrete. Per this proposal, bridge structures, retaining walls, and noise walls will be constructed using concrete. As mentioned above, rehabilitation of the asphalt pavement is scheduled for years 15 and 30. Assuming that the asphalt pavement has a 15-year useful life, the rehabilitation at year 30 will mean that the pavement will have 10 years left of useful life when contract is completed (year 35).
    • Screenshot 2014-02-23 12.07.07

Undoubtedly there is much more to comment on in the thousands of pages of this proposal; however, I wanted to get a couple of quick highlights out to the public as soon as possible.

I-69 Section 5 RFP Hits the Streets

The Request for Proposals (RFP) for the design, construction, operations, maintenance, and financing (Design-Build-Operate-Maintain-Finance), in the official procurement jargon, just hit the streets a few days ago. Procurement documents, including all of the technical standards for construction, can be found here: I-69 Section 5.

The Final Environmental Impact Statement (FEIS) and Record of Decision (ROD) for Section 5, which provides all of the background, maps, interchange details, costs, assessed alternatives, etc., can be found here: I-69 Section 5 FEIS and ROD.

In particular, the RFP states that:

the successful Proposer (the “Developer”) shall develop, design, construct, finance, operate, and maintain the I-69 Section 5 project. The I-69 Section 5 project consists of upgrading approximately 21 miles of existing State Route 37, a four-lane median divided highway, between Bloomington, IN and Martinsville, IN to an interstate highway (the “Project”).

The Final Request for Proposals was issued 2013-10-15. Proposals are due 2014-01-21. INDOT anticipates making an award on or round 2014-02-19.

As a reminder, Section 5 goes from State Road 37 in Bloomington, IN and extends north approximately 21 miles to SR 39 in Martinsville, IN:

I-69 Section 5 Map
I-69 Section 5 Map