California eyes efficiency, taxpayer savings in first PPP

California taxpayers could save $150 million if a public-private partnership to replace a road leading up the Golden Gate bridge in San Francisco is successfully executed. The “foundational” project will also lay the groundwork for future private sector involvement in the financing of the state’s infrastructure, according to a senior California government official overseeing the effort.

Dale Bonner, Secretary of California’s Business, Transportation and Housing Agency, said the savings would be realised from a combination of transferring construction risk to the private sector and establishing preventive maintenance measures over the life of a 30-year concession for the new road, which will be re-named Presidio Parkway.

The political support is there to complete the project Dale Bonner

The current road, Doyle Drive, was built in 1936, is vulnerable to earthquakes and is near the end of its useful life. It’s also the only link between the city of San Francisco and the populous North Bay counties on the other side of the Golden Gate bridge, which means that shutting down the 1.6-mile road while it is undergoing replacement is not an option.

“I think everybody acknowledges that not only is the facility old and in need of replacement but that it’s got to be done according to a schedule and quickly,” Bonner said. “The political support is there to complete the project,” he added.

Dale Bonner

The combination of strong political support for the replacement and the need to deliver it quickly and efficiently prompted the state to replace Doyle Drive using a PPP. Under this approach, instead of simply hiring contractors to design, bid and build the new six-lane road, the state and its local government partners will also give the private sector a concession to operate and maintain the road for in exchange for periodic payouts known as availability payments.

All in, the design-bid-build method would cost about $1.3 billion. Under a PPP, the cost is $1.9 billion, “the difference being that in the first case you’re covering the initial capital cost,” Bonner said, “and in the second case, with PPP delivery, we’re building into the financial package the full lifecycle cost that accounts for the higher price tag”.

Even with the higher price tag, though, Bonner estimates taxpayers could save “somewhere in the neighborhood of $150 million” thanks to the risk transfer and efficiency gains over the project’s 33-year lifecycle, comprised of three years’ construction time and a 30-year concession.

On 2 February the state issued a request for qualifications for bidders to express their interest in the project. It is the first project the state is bidding under its new PPP law, enacted a year ago, which allows California to pursue PPPs for infrastructure projects without limit to number or location.

Presidio Parkway: now in procurement

“We’re hoping to get a number of strong bids from senior developers from around the world,” Bonner said. “I think second to that, we’re looking for those that have demonstrated the ability to deliver a project of this complexity.” Bonner is also looking for a bidder who can line up “a great financing package” for the Doyle Drive replacement.

Nearly $1 billion of federal, state and local funds have been corralled to move the project forward, with the US government chipping in $96 million from last year’s $787 billion

We have a population, roughly 38 million people, that are living with infrastructure that was planned and developed in the 50s to support a population about half of what we have now Dale Bonner

stimulus bill.

The money will go toward funding two phases of the project, split across eight different contracts. Phase one involves making improvements to Doyle Drive to ensure it is safe from earthquakes. Construction on this phase began late last year. The second phase will consist of the PPP to replace Doyle Drive and is scheduled to begin in 2011.

The project, which Bonner called “foundational” for the state’s PPP programme, could set the stage for similar undertakings across the state. Roads in need of replacement can be found “all thoughout the state of California”, Bonner said. “That is the basic challenge that we have and why we think the market will be so strong here in California when it’s fully opened and institutionalised.”

“We have a population, roughly 38 million people, that are living with infrastructure that was planned and developed in the 50s to support a population about half of what we have now,” Bonner added.

Responses to the Presidio Parkway request for qualifications are due 1 March.