MDOT ~Public-Private Partnerships (P3’s)Metro Region – Freeway Lighting P3

P3 Definition• FHWA defines Public-Private Partnerships (P3’s) as contractual agreements

formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation project.

P3 Advantages• Ability to shift specific risks to the private sector

• Ability to use private funds to advance projects

• Schedule and Price certainty over the term

• Ability to refocus our resources and efforts

• Innovation

P3 – Project Screening• Initial Screening Items and Project Evaluation

• Potential that private partner could provide value

• Market Interest

• Financial Feasibility

• Project Scope

• Risk Allocation

P3 Procurements – Steps

• Request for Letters of Interest (RFLOI)

• Request for Qualifications (RFQ)

• Shortlist (typically 3-5 teams)

• Site Visits and One-on-One Meetings

• Request For Proposals (RFP)

• ITP, Project Agreement, Schedules, etc

• One-on-One Meetings

• Commercial Close

• Financial Close

P3 – Unique Procurement• Multiple Specialty Areas

• Financial• KPMG provides these services for us through the Governor’s Office

• Legal• It is recommended that legal counsel be procured to help develop the contract language.

• Engineering• Depending on the project, a multitude of specialty areas will need to review contract language

• Contract Services• Plan to have conversations with contract services, both professional services and construction

contracts.

• FHWA• FHWA will need to be involved throughout the process (finance, legal and engineering)

• Insurance • Plan to discuss required insurances and minimum requirements at length

Freeway Lighting P3 - Schedule

• Request for Letters of Interest – posted July 25, 2013

• MDOT received 12 responses on August 12, 2013

• Request for Qualifications developed – posted March 6, 2014

• Received 9 proposals

• MDOT short-listed 4 firms – announced short-list May 16, 2014• Short-listed firms – DTE Energy, Freeway Lighting Partners,

Citelum, Energy Systems Group

Freeway Lighting P3 - Schedule

• Developed Request For Proposals (RFP) –

• Multiple meetings held with the bidders

• Final Version of the RFP – posted February 27, 2015

• Technical Submittals and Bids – due on March 27, 2015• Announcement of Preferred Proposer – May 26, 2015• Commercial and Financial Close – August 24, 2015

Freeway Lighting P3 – Key Terms• Project Company will Design, Build, Finance, Operate & Maintain

• 14,870 freeway lights • Consisting of all freeway lights within limited access Right of Way

• 15 year term

• Energy Savings Payment• Project Company will be incentivized to provide energy efficient equipment

• Lane Rentals are included in the Contract

• Non-Compliance points assessed if not in compliance with Contract• Example – 10 days to correct a non-operating light

• Example – 7 days to correct a group of non-operating lights

• First point is $450 per occurrence

• If not remedied, increased to $1,000

So Why a P3 Contract Structure?

• Significant upfront capital costs required to improve the existing system

• Energy costs can be significantly reduced if re-lamped to something more efficient• Estimated $21M in Construction Costs to convert lamps to LED• Use of energy savings can help reduce the overall payment

• Allows shift of MDOT staff functions to focus on other electrical infrastructure

• Shift the Risk• New technologies are always being developed

• Allows use of emerging tech more quickly

• Shifts risk of failure onto the project company

• Allows the possibility of energy savings to offset some of the contract cost

• Theft Prevention

Freeway Lighting P3 – Risk Sharing• Theft

• Project Company – first $150,000

• 50/50 share up to $250,000

• Department – any costs over $250,000

• Damage to Infrastructure

• Vehicle damage – Department responsible for costs associated with damage caused by errant vehicles

• Department will then pursue reclamation from insurance company

$77.26 $46.03

$21.86

Capital Improvement Costs O&M Costs Power Costs

Freeway Lighting P3 – Cost & Payment Structure• Project Company will Design, Build, Finance, Operate & Maintain

• Payment Structure• Milestone 1 - $6,000,000, paid once lights are operating at 90%

• Milestone 2 - $6,000,000, paid upon Substantial Completion – 100% operational

• After Substantial Completion – Operate & Maintain• Quarterly Service Payments (est =$2.1 w/o power)

• Plan to use a mix of Federal and State funds • Total Cost of P3 contract = $145M (includes energy)

• Lights operating between 70-80% (current scenario)• Expected costs = $140M

• Based on average costs expended over the last 8 years

• Lights operating at 100%, using High Pressure Sodium lights• Estimated costs = $183M

Freeway Lighting P3 – Technical Requirements• Technical Requirements – Schedule 16

• Development of the Project Management Plan (PMP)

• Design Requirements

• Non-Tunnels – AASHTO Roadway Lighting Design Guide / IES RP-8

• Tunnels – AASHTO Roadway Lighting Design Guide (Chp 5) / IES RP-22

• Non-Lighting Elements – need to adhere to MDOT Standards, AASHTO, etc

• Must develop a Maintenance Management Information System (MMIS)

• Traffic Management Plan

Freeway Lighting P3 – Non-Compliance Points • These are all defined within Schedule 3 – Payment Mechanism

• $450 per occurrence

• If the root cause of the problem is substantially the same

• Deduction is increased to $1000, indexed

• Mitigation Period – timeframe is dependent on the type of failure

• Remedy Period – timeframe is dependent on the type of failure

Freeway Lighting P3 – Handback Criteria• Handback Criteria for specific elements – Exhibit C of Schedule 16

• A complete condition survey and inspection must be completed within 1 year of handback

• Required to supply a 60 day supply of parts and materials – quantity based upon a 60 day typical period for repairs as documented in the MMIS

• Handback requirements are variable dependent on the component

• Luminaires (including ballast/driver) – 5 years

• Posts/Standards – before term require inspections, during term – 10 years & inspection

• High Mast – before term require inspections, during term – 15 years & inspection

Lessons Learned from the 1st P3

• Document and Version Control

• Need for the full team to be on-board at the development of the RFQ

• Identify and include as much information that we have readily available

• RFQ should provide detail on the planned structure of the P3 agreement as well as the expected closing process

• Risk workshops and updates to the financial model and engineering estimates should be done often and reflect the current risk profile of the contract

• Updated term sheets should be readily available to inform management when asked

Next Steps and Potential P3 project

• The Governor’s Office is working on specific P3 legislation – two bills introduced

• HB 4940

• SB 627

• Requests for Letters of Interest developed for Pump Stations

• Responses received November 24th

• 16 responses received

• Evaluation of responses, risk assessment and estimates are being developed to present to Leadership.

P3 Resources

• FHWA has a very informative website:

• https://www.fhwa.dot.gov/ipd/p3/toolkit/

• MDOT’s Innovative Contracting website:

• www.Michigan.gov/ic

• Other State DOT’s and agencies have good information – Virginia and California

• Google is great

Questions?

Charlie Stein, PEInnovative Contracting Unit517-373-7339steinc@Michigan.gov