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Designe-Build-Finance-Operate-Maintain Contract  

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  1. 1. Have you heard of a "design-build-finance-operate-maintain (DBFOM) contract?" 

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I don't know about the specific terminology, but this was the practice when building a building in Saudi Arabia.  Whichever prince it was that time got the exclusive non-competitive contract from the Army or whomever to design and build a building and then to rent it to the U.S. forever, all at sole-source rates.  But that was done because the ethics situation in the kingdom allowed for that.  At least, that is what I have heard.  

In the U.S., this approach has been talked about for privatizing bridges or highways and allowing the operators to collect tolls.  Similar approaches are used in some concessionaire contracts.  These can be honest and ethical approaches.  

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The first such project I ever saw was the Bridge and causeway between Saudi Arabia and Bahrain in the 1980’s I believe that it was a 50 year arrangement between Saudi Arabia and/or Bahrain and the Contractor. There was no toll as of 1991, when I drove over it.

Many Public Private Partnerships (P3) for transportation projects use that arrangement. The State of Alabama Department of Transportation tried to force through such an arrangement for a new I-10 bridge crossing of the Mobile River and a new elevated bayway across the Delta/Mobile Bay to Baldwin County. The project design and construction cost estimate (Design-build portion ) ballooned from $800 million to $2 billion, including an “initial toll” of $6 per vehicle, one way. It was for a 50 year concession I think. There were many amenities added including bicycle lanes(!!!!) all the way, sidewalks for hikers(!!!!!) all the way, and an observation deck accessible by an elevator on the  new bridge over the river(!!!!). They were also going to toll the existing Wallace and Bankhead tunnels on the current Bayway and Causeway routes. I named it the “Payway” and others named the new bridge the “Poison Ivey Bridge” (for Gov. Kay Ivey).

Due to massive organized, angry public opposition, the South Alabama Regional Transportation Planning Board voted not to approve putting the project in their master plan , which killed it for now. The State was planning to award the contract for the P3 project, when they discovered they had to have the Regional Board’s approval.

It would be the only Tolled portion of I-10 between Florida and California. There are tolled express lanes in Houston,Texas and maybe elsewhere. However, the rest of the lanes are toll-free. 

This was ALDOTs first attempt at a P3 project. I think that it is also their first attempt at a Design-Build transportation project.

ALDOT had kept the details from the public until they were well along in the competition. In fact, the State Legislature had not even authorized the ALDOT to use a P3 process with tolls until the competition was in its final stages. I feel that ALDOT was ill equipped to develop and award this project.

That level of tolls is unaffordable to the residents of South Alabama. The contract would have allowed the developer to charge hefty “administrative fees” to remotely (no tollbooth) bill and collect the tolls. Plus, there would be no cap on toll increases.

 

 

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Alabama Department. of Corrections and the Gov. have signed two P3 type,  30 year leases for new state prisons. The estimated annual cost for one lease is $94 million. I didn’t look up the other one. They will be privately designed, built, owned and maintained but will be operated by the Alabama Department of Corrections.

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Yes, we covered it in grad school (Public Administration).  As I recall, all the case studies were from UK (apparently its much more widely applied over there), EU or transportation in US.  Seems to be a reasonable option when there's a large up-front capital expenditure that the government is unable or unwilling to finance, plus a predictable future revenue stream, and low interest rates. 

They do tend to be very expensive - hefty premium when the contractor is responsible from cradle to grave, and break-even is like 20 years in the future - but sometimes its worth it.  P3's have other issues too, but I think this arrangement is no better or worse than the alternatives, just different.  

Close to home, I think some of the northern VA toll roads are P3s.  Results are a mixed bag - the specifics of the project matter a lot.

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I have not but like the thought process behind it. 

On 3/27/2021 at 9:15 PM, joel hoffman said:

Many Public Private Partnerships (P3) for transportation projects use that arrangement. The State of Alabama Department of Transportation tried to force through such an arrangement for a new I-10 bridge crossing of the Mobile River and a new elevated bayway across the Delta/Mobile Bay to Baldwin County. The project design and construction cost estimate (Design-build portion ) ballooned from $800 million to $2 billion, including an “initial toll” of $6 per vehicle, one way. It was for a 50 year concession I think. There were many amenities added including bicycle lanes(!!!!) all the way, sidewalks for hikers(!!!!!) all the way, and an observation deck on the  new bridge over the river(!!!!). They were also going to toll the existing Wallace and Bankhead tunnels on the current Bayway and Causeway routes. I named it the “Payway” and others named the new bridge the “Poison Ivey Bridge” (for Gov. Kay Ivey).

Question - Would something like this be set up where we pay them the cost of the DBFMO contract and the toll would be the contractor's profit (consideration)?

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On 3/31/2021 at 2:49 PM, Constricting Officer said:

I have not but like the thought process behind it. 

Question - Would something like this be set up where we pay them the cost of the DBFMO contract and the toll would be the contractor's profit (consideration)?

Poison Ivey Bridge and new Payway (New I-10 Bridge and Bayway) will be financed by the P3 Contractor , who collects all tolls and fines.

Excluding the cost of maintenance, it appears that the Developer stands to make back several times its investment over the 20 year concession period. Actually, I think it is a 50 year concession. 

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Seriously though. P3 arrangements are usually pursued because the public entity doesn’t have the up front funding sources to pay for the project construction costs and often can’t afford the life cycle operations and/or maintenance costs. So they establish concessions where the concessionaire collects revenue through such vehicles as fees or tolls.

If I didn’t answer your question above, in the ALDOT case, the State won’t pay for construction. I don’t know if they will pay for the design phase or if the concession contractor team will finance that-I suspect the latter will be the case. 

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10 hours ago, joel hoffman said:

If I didn’t answer your question above, in the ALDOT case, the State won’t pay for construction. I don’t know if they will pay for the design phase or if the concession contractor team will finance that-I suspect the latter will be the case. 

Question answered. It would have to be a good outlook on returns for the contractor to put the investment down up front and throughout. 

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Yes, there may be significant risk involved. Some P3 teams have failed/defaulted. 

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Texas DOT had proposed several P3 Tollroad Freeways a few years ago but many of them didn’t come to fruition:

https://www.google.com/amp/s/www.brookings.edu/blog/the-avenue/2017/05/16/tapping-the-brakes-on-public-private-partnership-in-texas/amp/

Here is a Federal Highway Administration website page for P3 projects:

https://www.fhwa.dot.gov/ipd/p3/default.aspx

Here is a link to a TxDOT P3 project with shared cost:

https://cdmsmith.com/en/Client-Solutions/Projects/TxDOT-SH-183-Managed-Lanes-P3

Another USDOT page :

P3_Successful_Practices_Final_BAH.PDF

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