With availability payment DBFOM concessions, project revenue risk is retained by the public sector sponsor. The sponsor provides the private partner with availability payments to compensate it for designing, constructing, operating, and maintaining the facility for a set concession period. During this time, the private partner receives a predictable, set of income. Availability payments may be used on non-tolled projects, or on tolled projects where the revenue may not be sufficient to cover the debt repayment or in cases where the project sponsor wants to retain control over toll rates.
The availability payment DBFOM P3 approach has proven popular with private sector developers as it involves considerably less financial risk compared to the real toll concession model. Project sponsors use traditional federal and state sources to fund the availability payments. These can be supplemented with project toll proceeds or other state and local transportation funding sources. Public funds used for availability payments must be prioritized ahead of other needs throughout the concession period. As state financial commitments, availability payment financings essentially leverage the faith and credit of state governments. However, there is the added risk associated with state legislatures obligating monies to DOTs in future budget cycles, and the risk involved with funding the availability payments in state DOT budgets.
With availability payment concessions, the private investment partner receives ongoing periodic payments throughout the concession period for making the facility available to users. However, these payments may be reduced if the private partner does not meet operational performance standards such as lane closures, incident management, or snow removal. In the case of priced managed lane availability payment concessions, traffic level of service may be used as the primary performance metric. If the private partner does not meet the required traffic service standards, the amount of the availability payment may be reduced.
Availability payments transactions may also include milestone payments during construction or a one-time completion payment when construction is finished. If the structure of the P3 agreement is such that a private partner does not receive any payments until construction is complete, the magnitude of required upfront financing may be greater than if milestone payments were made during construction.
Design Build Finance Operate Maintain (DBFOM) Availability Payment Concessions: