VA expects P3 structure for Ferrovial-led toll lane project to save $2.5B

Dive Brief:

Virginia Gov. Terry McAuliffe announced on Nov. 3 that the state has awarded a 50-year, high-occupancy toll lane contract to a Ferrovial-led joint venture under a public-private partnership, the Washington Business Journal reported, a deal expected to save Virginians $2.5 billion. Ferrovial beat out another bidder, the team of Transurban and Skanska.
After a lengthy procurement process, state officials chose Express Mobility Partners — which includes Cintra, Meridiam and contractor Allan Myers in addition to Ferrovial — to design, finance, build, maintain and operate the lanes that state transportation officials hope will ease congestion along Interstate 66 between Washington, DC, and Northern Virginia.
This is the first major procurement under the state's revised Public-Private Transportation Act, which state officials said improves transparency and accountability while increasing competition.

Dive Insight:

The act's new provisions are intended to insulate state residents from fallout similar to that experienced from past project failures, according to the Richmond Times-Dispatch. Express Mobility Partners will be responsible for all upfront design and construction costs and will issue a $500 million concession payment at financial close, which is expected to take place in early 2017.

In exchange for the right to collect tolls after the project is complete, the joint venture will also kick in $800 million for other transportation projects along the I-66 corridor and another $350 million toward projects that reduce gridlock, the Times-Dispatch reported.

P3s have been suggested as the panacea for everything from unfunded backlogs of infrastructure projects to cash-strapped university building and maintenance programs. Some critics have hedged on turning over massive projects to private interests, but just as many, if not more, maintain that they are the smartest, most efficient way to finance public works.

The partnership structure is also a vehicle through which to transfer risk to the private sector, attorney Lee Weintraub, shareholder at Becker & Poliakoff and chair of the firm's P3 group, told Construction Dive earlier this year.

Using Virginia's I-66 project as an example, it's likely that the Ferrovial team's profit estimates rely heavily on projected toll revenue. The joint venture will benefit if toll revenue is higher, but it is assuming the risk of lower-than-expected income as well. Therefore, as the I-66 project demonstrates, P3 private financing lets state and local government entities leverage the cash they have into more projects.