Dive Brief:
- The Indiana Finance Authority (IFA) has reached an agreement to take over a state highway project from the consortium contracted to build and maintain it under a public-private partnership (P3), according to The Indianapolis Star.
- I-69 Development Partners was hired to design, build and then maintain for 35 years a 21-mile piece of Interstate 69 near Bloomington, IN, but one of the companies in the private group — Spain-based Isolux Corsan — allegedly has financial problems, and the project is two years behind schedule.
- State officials will buy out the current bondholders, a move which they can finance at a lower bond rate. I-69 Development Partners will pay a $50 million settlement to the state, as well as $12 million to current bondholders.
Dive Insight:
It was just days ago that the IFA announced it was going to take the project over, citing that there was only $72 million left to fund the $236 million of remaining work. State officials reportedly became aware of the troubles when some subcontractors claimed they had not been paid. Several delays have caused Fitch ratings to downgrade the original bonds to B-.
Indiana officials originally justified using the P3 structure by assuring taxpayers it was a way to save money and tap into private sector innovation, an argument that is often made when the opportunity to use a P3 arises. The state said construction costs have risen since the initial agreement, but that by taking over the maintenance end of the project, it will save $30 million in total project costs.
Although this particular project with I-69 Development Partners was not successful, Indiana officials said they will consider using the structure in the future.
Keith Poliakoff, partner in the Fort Lauderdale, FL, office of Arnstein & Lehr, told Construction Dive earlier this month that municipalities and other public entities need to have aggressive vetting processes in place to make sure that the consortium hired to design, build and maintain a project — a contract that can last for decades — is capable of doing so. This question of reliability and longevity, he said, is often why public agencies choose contracting groups with a proven record and don't take a chance on companies new to the P3 structure.
