IPD QUICK FACTS
Availability payments are a form of P3 that involves risk transfer without necessarily involving tolls.
The private sector receives availability payments over the concession term (usually greater than 30 years) in exchange for constructing, operating, and maintaining a facility at a certain performance level.
If standards are not met, payments can be reduced or eliminated.
The private sector takes on most of the risks of design, construction, financing, operation, and maintenance.
The public sector takes on the long-term obligation of making payments.
THE FEDERAL Highway Administration (FHWA) recently implemented a policy that will allow State Departments of Transportation (DOTs) to use Federal-aid funds in innovative long-term contracts with private developers. In such agreements, the State grants exclusive rights (a "concession") to a developer - concessionaire - who assumes responsibility for the highway's construction, operations, and upkeep. Such contracts often allow the concessionaire to collect tolls, but tolling may not prove suitable for every project. Instead, some States agree to regularly scheduled payments ("availability payments") that the concessionaire earns via its ability to make the highway available to the public at prescribed levels of service.
The new FHWA policy will allow those considering the availability payment public-private partnership (P3) delivery method to count on a level of Federal assistance comparable with that of a traditional public works project. Although San Francisco's Presidio Parkway was the first project in the country to use Federal-aid for availability payments, these new and expanded policy flexibilities will make it easier for other States to follow suit and take advantage of this form of innovative financing.
The subject policy allows (1) Federal-aid reimbursement for the profit (to include return on equity) found in availability payments and (2) Federal-aid participation in a unitary availability payment, as opposed to individual cost items.
FHWA Division Offices and State DOTs execute an advance construction project agreement, which allows long-term Federal-aid participation (subject to availability of funds, as the project is likely to remain open for 30 years or longer) without requiring an up-front obligation of the entire Federal share. As a condition of Federal-aid participation, the State DOT and the concessionaire agree to follow Federal regulations throughout the life of the project.
FHWA anticipates that State DOTs, facing fiscal constraints and engineering challenges in delivering major new infrastructure, will increasingly consider the availability payment concession as an alternative to traditional project delivery.
PROGRAM AREAS OF THE OFFICE OF INNOVATIVE PROGRAM DELIVERY
IPD provides a one-stop source for expertise, guidance, research, decision tools, and publications on program delivery innovations. Our Web page, workshops, and other resources help build the capacity of transportation professionals to deliver innovation.
IPD's project delivery team covers cost estimate reviews, financial planning, and project management and assists FHWA Divisions with statutory requirements for major projects (e.g., cost estimate reviews, financial plans, and project management plans).
IPD's project finance program focuses on alternative financing, including State Infrastructure Banks (SIBs), Grant Anticipation Revenue Vehicles (GARVEEs), and Build America Bonds (BABs).
IPD's P3 program covers alternative procurement and payment models (e.g., toll and availability payments), which can reduce cost, improve project quality, and provide additional financing options.
IPD's revenue program focuses on how governments can use innovation to generate revenue from transportation projects (e.g., value capture, developer mitigation fees, air rights, and road pricing).
The Transportation Infrastructure Finance and Innovation Act (TIFIA) program provides credit assistance for significant projects. Many surface transportation projects-highway, transit, railroad, intermodal freight, and port access- are eligible to apply for assistance.