LANSING — A plan to have the private sector pay for construction and maintenance of part of the busy I-75 corridor in Oakland County will be the largest public-private transportation project in state history, Michigan transportation administrators said.
The plan to hire a contractor or a group of contractors to design, build, finance and maintain a stretch of the freeway from Eight Mile Road to 13 Mile Road would top a 2015 private-sector partnership to update 15,000 freeway and tunnel lights, according to the Michigan Department of Transportation.
So-called "P3s," while still relatively new in Michigan, are being viewed more favorably by transportation administrators as a way to stretch taxpayer dollars for transportation and maximize efficiency of construction projects. Rather than having to borrow for the entire project cost up front or build one section of road at a time over years as money becomes available — a process that likely would cost more when factoring in rising prices for materials and labor — a private company could finance multiple sections at once and the state could repay the investment over 25 or 30 years.
Public-private partnerships also are expected to play a large role in President Donald Trump's proposal to infuse $1 trillion into rebuilding the nation's infrastructure systems by using some federal funding to leverage even more private capital.
"The message that we're beginning to see coming out of Washington relative to infrastructure (is) looking at P3 delivery and private financing," said Joe Pavona, a senior adviser for innovative contracting and P3s for MDOT. "The feeling is that it's going to be looked at favorably."
MDOT administrators decided to speed up its original construction schedule for I-75 — an estimated $1.3 billion project in nine segments, to be completed by 2034 — in part because of feedback about the amount of time the heavily traveled corridor would be under construction.
The first segment, a $91.8 million reconstruction of three miles of the freeway near the Square Lake Road exit, was mostly completed before Labor Day. The remaining work will be condensed into two segments.
The first of those will span from 13 Mile to Coolidge Highway, with the state contracting with a company to design and build the project. That contract is expected to be awarded next summer and construction should finish in 2020, according to MDOT. This portion will use existing state dollars and the state will be responsible for long-term road repairs.
The second leg to the south, however, will include a contract not just for design and construction, but also for long-term financing and preventive road maintenance, MDOT said. That contract should be awarded by the fall of 2018, with construction set to finish in 2022.
The state will continue to be responsible for routine maintenance, such as snow removal, Pavona said. The type of long-term maintenance that will be handled under the new contract is expected to include such work as building sound and retaining walls, and surface patching.
MDOT estimated construction costs for the two remaining stretches of freeway at $325 million to $350 million for the northern section, and up to $650 million for the privately financed section to the south.
Until a contract is negotiated, state transportation leaders said they have not decided how many years Michigan will reimburse the contractors, nor the amount of long-term savings by speeding up construction, Pavona said.
Companies bidding on a P3 contract could join a consortium, with a group of firms handling everything from design to construction to securing financing from a private lender, Pavona said. The private sector can benefit from having more control over multiple aspects of the project, giving them greater efficiency and economies of scale that could lead to lower materials costs for a large, bundled project.
In addition, private firms can trust the government is not going to default on its payment obligations, Pavona said, adding that their involvement could lead to higher-quality work because the contractors have assumed more of the risk and will be required to maintain their work for decades.
"It's all calculated risk," MDOT spokesman Jeff Cranson said.
Public-private partnerships netted about $61 billion in contracts from 1989 to 2013 — a sliver of the $4 trillion spent on highway projects during those years at all levels of government, according to the Congressional Budget Office in 2014. Yet roughly half of that $61 billion was contracted in the five years before the report was issued, the budget office said, reflecting growing interest in P3s.
There is some evidence that bundling more of the project could lead to faster, cheaper construction because a company will have more of a reason to rein in costs and meet deadlines, according to the budget office.
In 2015, MDOT joined a $123 million partnership with New York-based firms BlackRock Infrastructure and Freeway Lighting Partners LLC to update 15,000 lights on Detroit-area freeways and tunnels. The private companies are responsible for operating and maintaining the lights for 15 years, while the state provides repayment over the life of the contract; MDOT has said the annual cost should be less than what the department would have to pay for the updates.
So why not use the P3 approach from the start?
"It's like buying a house or buying a car. You know, what's the perfect balance for you in terms of how much you privately finance and how much you pay for yourself?" Pavona said, adding that it was important to the state to begin the project with available funding that already had been set aside. "We continued to analyze and see what are other options that could be used that could improve delivery of the project. This is a huge project, and sometimes the right combination doesn't always reveal itself immediately."