Contractors threaten to withdraw from $5.6bn Purple Line PPP

The project's construction companies are threatening to terminate their contract, which would make the Maryland project the latest in a series of troubled North American PPPs.

The construction companies contracted to build the Purple Line light-rail project in Maryland cited delays and cost overruns in their decision to end their involvement in developing the $5.6 billion public-private partnership.

In an open letter to the PPP’s developers, Scott Risley, project manager for Purple Line Transit Constructors, cited more than two years of delays and $519 million of additional costs for the development of a 16-mile, 21-station light rail in Maryland’s Prince George’s and Montgomery counties.

Fluor Enterprises, Lane Construction Corp and Traylor Bros make up PLTC, which is the development arm of the Purple Line Transit Partners consortium, made up of equity sponsors Fluor, Meridiam and Star America.

“The owner has been unwilling to grant PLTC any of the compensable time extensions it has sought and refused to grant any additional compensation amounts,” Risley wrote.

Despite addressing the PLTP consortium in the termination notice, which begins a 60-to-90-day “orderly transition”, the construction companies were pointing blame at the Maryland state government for their withdrawal, the letter stated. Without financial compensation, the developers “would be forced to absorb hundreds of millions of dollars in additional costs that are [the state’s] responsibility,” according to Risley.

“After six months of intense negotiations, all parties came to an agreement in principle on a settlement of certain issues, only to have [Maryland Transit Administration] refuse to move forward with that deal,” Risley’s letter stated.

In March 2016, Maryland’s Department of Transportation awarded the PLTP consortium a 36-year PPP agreement to build, finance and manage the Purple Line project, which reached financial close three months later and received a $900 million grant from the US Federal Transit Administration and an $875 million TIFIA loan.

The project was originally scheduled to open in March 2022 but is now expected to open in two phases: late 2022 and in mid-2023. The construction contract to build the Purple Line costs $2 billion but was beset by an unsuccessful lawsuit brought by environmental activists, problems obtaining property required for development and last-minute changes in design requirements.

In a news release accompanying the open letter, Risley added that the construction companies “did everything we could to work with [the state] to attempt to come to an agreeable framework for us to complete the project”.

It’s possible that PLTC, the Purple Line’s consortium and Maryland are able to negotiate a resolution before PLTC’s withdrawal. But regardless of the outcome, the project’s upheaval is likely to cast a shadow on other PPPs in the US.

A troubled sector

There have already been grumblings about the PPP structure from North America’s private sector in recent years. In December, Nicholas Varone, director of the US corporate finance group at Fitch Ratings, told Infrastructure Investor that there are “undertones of frustration” about cost overruns and delays in PPP projects.

Canadian construction company SNC-Lavalin cited fixed-price PPPs as the “root cause” of its C$367.6 million ($262 million; €241 million) of negative cashflows during the second quarter of 2019. The company announced it was withdrawing from ongoing bid processes and would not target fixed-price PPPs in Canada.

In a similar move, Swedish construction firm Skanska announced at the end of 2018 that it would pull out of the US PPP market, having taken a $100 million write-down from two high-value projects.

A $1.8 billion PPP to redevelop an airport terminal at Denver International Airport was called off last August after the government procurer said the airport and Spanish developer Ferrovial were “unable to reach an agreement on the cost and schedule impacts” of setbacks to the renovation of Jeppesen Terminal.