I-4 – The ultimate project
The I-4 Ultimate Project represents Florida’s recent success in procuring the largest greenfield availability payment P3 to close to-date in the United States. By Yukiko Kojima, partner, and Patrick Harder, chair, Infrastructure Practice Group, Nossaman LLP.
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The I-4 Ultimate Project reached commercial and financial close on September 4 2014, representing yet another success story for the Florida Department of Transportation (FDOT) and the State of Florida. The I-4 procurement showcased innovations as well as effective use of established methods and processes, further burnishing Florida’s reputation as a leader in the US public-private partnership (P3) market for procuring and delivering large-scale, complex infrastructure projects using the availability payment P3 model.
The I-4 Ultimate Project is the third such project that FDOT has successfully closed, following the Port of Miami Tunnel Project and the I-595 Project, both of which reached substantial completion on time and on budget earlier this year.
Some noteworthy features of the I-4 Ultimate Project and procurement include:
* A collaborative and rigorous approach to RFP development that incorporated extensive industry input, including multiple rounds of comment and confidential one-on-one meetings with shortlisted proposers, resulting in high-quality proposals, value for money for FDOT and an efficient closing process;
* Use of innovative mechanisms such as Project Technical Enhancements (PTEs) as well as an affordability limit that resulted in strong competition on technical quality, scope enhancements and innovation, while also achieving FDOT’s financial affordability objectives; and
* Successful closing of a US$949m loan under the Transportation Infrastructure Finance and Innovation Act (TIFIA) programme using the new streamlined TIFIA term sheet process and the benefits of early and effective engagement with the US Department of Transportation (USDOT).
Rigorous RFP development process
FDOT’s collaborative and rigorous approach to request for proposals (RFP) development was integral to its ability to produce a final RFP and contract requirements that resulted in value for money for FDOT, permitted shortlisted proposers to submit quality proposals and allowed the parties to achieve commercial and financial close in just over four months following selection of the best value proposer.
Shortlisted proposers were afforded the opportunity to comment on multiple drafts of the RFP, as well as the final RFP and addenda, and had the benefit of multiple rounds of confidential one-on-one meetings with FDOT, at which the proposers set the agenda and discussions ranged from commercial and financial issues to technical issues. In addition, shortlisted proposers participated in multiple confidential one-on-one meetings and calls with FDOT to discuss alternative technical and financial concepts for potential incorporation into their proposals.
The resulting RFP provided clarity in scope and requirements that facilitated submissions of high quality proposals by the shortlisted proposers and a risk allocation that produced value for money for FDOT. The well-developed RFP also allowed for efficiencies in reaching commercial and financial close following selection of the best value proposer, as few changes were required following selection except to tailor the contract to the winning proposer’s proposal and structure.
Innovative mechanisms and affordability limit
FDOT continues to take the lead in the US availability payment P3 market, introducing innovations in the procurement of the I-4 Ultimate Project that resulted in strong competition on technical quality and innovation while ensuring price discipline.
* Project technical enhancements– On the I-4 Ultimate Project, FDOT introduced the concept of project technical enhancements (PTEs), which incentivised proposers to provide additional value in their technical proposals that aligned with FDOT’s objectives and priorities for the project. Proposers were awarded additional points for including specific technical features in their proposals that enhances the overall project.
More specifically, PTEs were evaluated based on the degree to which they provide value to FDOT by: (1) improving upon the level of service compared with the preliminary design mandated in the RFP; (2) including additional movements not required in the preliminary design; (3) improving the capacity of the general use lanes; (4) providing a betterment to an existing requirement in the preliminary design not otherwise captured in the foregoing; (5) furthering FDOT’s goal of building a signature corridor providing aesthetic features that exceed the requirements of the RFP; (6) including additional or enhanced pedestrian and/or bicycle safety features; and (7) including permanent or temporary improvements outside of the project limits that increase throughput on alternative corridors and result in increased mobility in the area of the project during the construction period.
I-4 Mobility Partners, the winning consortium led by Skanska Infrastructure Development and John Laing Investments, included numerous PTEs in its proposal, which provided significant value to FDOT and were incorporated into the concession agreement prior to execution. Such PTEs include:
Direct connection ramps from I-4 Express Lanes to an adjacent highway that will increase usage of the express lanes, thereby increasing revenue and offering access enhancements for FDOT’s and Central Florida Expressway Authority’s customers;
Additional auxiliary lanes at various sections of the I-4, thereby increasing capacity and reducing congestion; and
An additional pedestrian bridge across a major thoroughfare intersecting the project, which will improve pedestrian safety and traffic operations by moving pedestrians off the existing crosswalk and allowing cyclists to safely cross.
The innovative use of PTEs on the I-4 Ultimate Project provided significant value to FDOT from a technical perspective. This will likely lead to its incorporation on future projects where technical quality is of particular importance to the public owner.
* Alternative technical concepts– Many of the winning proposer’s PTEs were also alternative technical concepts (ATCs), including those described above.
The I-4 Ultimate Project incorporated a robust ATC process during procurement that allowed proposers to incorporate into their base proposals pre-approved technical concepts that were non-compliant with baseline requirements.
While the ATC process has been used on numerous US projects using an alternative delivery method such as P3 or design-build, FDOT provided proposers with clear guidance from the outset regarding the importance of PTEs and ATCs on the I-4 Ultimate Project and afforded proposers numerous rounds of confidential one-on-one meetings to propose and refine ATCs to encourage innovation, whilst ensuring that any ATCs ultimately incorporated into proposals would further FDOT’s technical objectives for the project.
* Affordability limit– In addition to mechanisms intended to drive technical quality and innovation, FDOT incorporated an affordability limit into the I-4 Ultimate Project. If a proposer’s financial proposal exceeded the specified affordability limit for any given year or in total, the proposal was not eligible for consideration. FDOT also reserved the right, in its sole discretion, to accept a financial proposal that was over the affordability limit if, and only if, all financial proposals were over the affordability limit.
Of the four financial proposals received by FDOT, two were over the affordability limit and two were under it. The successful proposer had not only the highest number of points for the PTEs, but also had the lowest financial proposal.
One possible interpretation of the result is that the inclusion of an affordability limit essentially focused the competition on technical quality and innovation over price. It also illustrates the delicate task of establishing an affordability limit that achieves the owner’s fiscal objectives yet retains maximum competitive tension.
The tight bid spread between the first and second-ranked proposers may also be attributable more generally to the competitive tension resulting from having four strong shortlisted teams and providing a well-defined scope that allowed the proposers to price the risks appropriately.
Ultimately, inclusion of the affordability limit resulted in FDOT obtaining a winning proposal that met both its price and technical objectives.
* Alternative financial concepts– FDOT also introduced another innovation in the procurement process: alternative financial concepts (AFCs).
Structured in a similar manner as ATCs, shortlisted proposers were afforded the opportunity to submit for pre-approval, on a confidential basis, financial concepts that deviated from the RFP requirements. The process was intended to allow shortlisted proposers to incorporate financial innovation and creativity into their proposals.
Although no AFCs were ultimately approved and incorporated into proposals on this project, FDOT once again took a leading role in exploring ways in which it could improve the procurement process and outcome, and use of AFCs may well become a common feature of future P3 procurements.
Management of TIFIA loan process
Financing for the I-4 Ultimate Project included a US$949m loan from USDOT under the TIFIA credit assistance programme: a short-term tranche of US$131m and a long-term tranche of US$818m. The TIFIA loan was successfully closed within the 180-day proposal validity period and in just over four months following selection of the best value proposer, which achievement is notable for two reasons:
* FDOT’s early and effective engagement with USDOT from early in the procurement process fostered a positive and productive relationship with USDOT that helped facilitate a relatively smooth negotiation and closing process; and
* The I-4 Ultimate Project was the first project to implement the new streamlined TIFIA procedure, for which proposer teams were provided with a uniform baseline term sheet upon which to base their assumptions regarding TIFIA loan terms and conditions in their proposals.
FDOT engaged USDOT early in the procurement process and maintained continuous and productive communications with USDOT throughout the RFP development and closing phases. FDOT’s finance team, in particular, was exceptional in developing a positive working relationship with the TIFIA Joint Program Office, which administers the TIFIA credit programme on behalf of the Secretary of USDOT.
This relationship facilitated timely and co-operative resolution of the various issues that arose throughout the procurement. Although the best value proposer was responsible for negotiating and finalising the terms of the TIFIA loan with USDOT, FDOT remained engaged throughout, providing invaluable assistance to I-4 Mobility Partners in reaching final agreement with USDOT.
The I-4 Ultimate Project was also the first project to implement the new streamlined TIFIA process, which involved the development of a baseline term sheet upon which shortlisted proposers based their assumptions for the terms of the TIFIA loan in their proposals. FDOT facilitated the feedback of comments from shortlisted proposers to USDOT on the proposed baseline term sheet during the RFP development process, thus reducing the likelihood of unanticipated issues arising post-award that could have undermined the ability to reach financial close in a timely manner.
The RFP also contained provisions to deal with circumstances of material or adverse changes being made to the baseline TIFIA term sheet following selection of the best value proposer, although those circumstances did not arise on the project.
While the streamlined process was not entirely issue-free, it facilitated a smoother process on the back end to allow the parties to close the TIFIA loan in a timely manner.
Some of the features that benefited the I-4 procurement may well have applicability to future procurements of availability payment P3 projects. Building upon FDOT’s experience on the I-4 Ultimate Project, there will be ample opportunity for further innovations that benefit public and private participants and help nurture a robust and efficient P3 market in the United States.