Ohio River Bridges Project: A Landmark Bi-State and Public-Private Partnership
The decades-long challenge of improving cross-river mobility over the Ohio River between Southern Indiana and Louisville, Kentucky is being solved by agencies and instrumentalities of both Kentucky and Indiana acting cooperatively. Two Indiana state governmental entities (the Indiana Department of Transportation (INDOT) and Indiana Finance Authority (IFA)) and two Kentucky state entities (the Kentucky Transportation Cabinet and Kentucky Public Transportation Infrastructure Authority) are implementing a bi-state framework for the construction of new approaches and bridges over the Ohio River, under the legal framework of a Bi-State Development Agreement and an Interlocal Cooperation Agreement (the “Agreements”). Under the Agreements, Kentucky and Indiana have jointly undertaken the overall $2.5+ billion Ohio River Bridges Project, including the Downtown Crossing for which Kentucky assumed procurement responsibility, and the East End Crossing, for which Indiana assumed procurement responsibility. The States cooperated in the overall design of the ORB Project, and within that cooperative framework, each state was free to procure the design and construction work and to provide for financing of project costs as it saw fit.
The overall Ohio River Bridges Project is expected to improve safety, alleviate traffic congestion and connect adjacent highways. Addressing these transportation issues is expected to stimulate the economy of the entire Louisville-Southern Indiana region. The project was groundbreaking and innovative in many respects and has been recognized with both national and international awards.
Ice Miller has been involved on behalf of the State of Indiana on multiple phases of this multi-year, multi-faceted project. The East End Crossing involved an extension of I265 from I65 to the river, a new bridge to the north and east of Louisville and an extension of I265 in Kentucky from I71 to the bridge, including a tunnel under certain historic properties in Kentucky. The entire project was delivered by Indiana using a public-private partnership between Indiana and a private developer to design, build, finance, operate and maintain a new bridge crossing. The Ice Miller team worked closely with the Indiana parties and others to provide the legal and financing framework for the East End Crossing, including public finance, real estate, construction and procurement work as well as drafting of the Agreements between the two states.
Aligning project goals with a financing model
The Ice Miller team worked with the Indiana parties and their financing and procurement team to review and evaluate different financing models for the East End Crossing. Indiana wanted a financing structure that would reduce costs, accelerate the timeline for completion and hold developers and contractors accountable for quality, timeliness and cost goals. These goals aligned with the “availability payments” P3 financing model, which was ultimately selected for the East End Crossing. Variable availability payments related to future project availability over the term of the P3 agreement are used in combination with milestone payments to be made under the developer agreement in the early years to pay a portion of the initial project costs.
Creating incentives through availability payments
The East End Crossing project is structured as an availability payments P3, which included the design, finance and build components of the entire East End Crossing and maintenance and operation responsibility for portions of that project. As a result, life cycle costs of the project are reduced, because Indiana holds the developer continually accountable, and incentivizes an accelerated project delivery timeline, through the use of milestone and availability payments tied to performance.
Under an availability payments P3 model, the developer receives payment based on the periodic and continued availability of a facility at the specified performance level. The developer accepts the risk that, if the project does not always meet the specified performance targets, over the life of the P3 agreement, its compensation will be limited. Availability payments in this instance are made to the Developer from appropriations to be received by INDOT. Anticipated toll revenues will offset the need for actual use of state appropriations for this purpose.
Reduced cost and an accelerated project timeline
Under the Agreements with Kentucky, Indiana is responsible for overseeing the design, construction, and financing (along with operation and maintenance of a portion of the project) of the East End Crossing, whereas Kentucky is responsible for the Downtown Crossing at Louisville. Following an efficient eight-month procurement process, Indiana selected WVB East End Partners to build the East End Crossing. WVB’s proposal included a construction cost of $763 million, which was $224 million, or 23 percent, less than the project estimate of $987 million. Through the competitive bidding process, WVB brought new ideas to the table that will save money for taxpayers and help keep toll rates as reasonable as possible, while satisfying technical and environmental requirements of the project.
The Indiana Finance Authority closed the procurement process on March 28, 2013. The speed and efficiency of the process has been hailed as a model for other states.
On April 15, 2015, the Indiana Finance Authority entered into a TIFIA (Transportation Infrastructure Finance and Innovation Act) Loan Agreement with the United States Department of Transportation Federal Highway Administration to provide up to $162 million in financing for a portion of the Milestone Payments due to WVB as developer to help defray the costs of construction. The proceeds of the TIFIA Loan will be drawn down by IFA as needed in the future, and the TIFIA Loan will be repaid over 15 years from appropriations to be received by INDOT and passed through to IFA. Ice Miller served as borrower’s counsel on this financing.
Toll system provider procurement
In 2015, the Indiana Finance Authority, with Ice Miller’s assistance, procured a Toll System Provider for the entire ORB Project on behalf of all four of the states’ parties under the Agreements, again using its public private partnership powers under IC 8-15.5. Using the P3 approach on behalf of both states, IFA selected a Toll System Provider to design, build and install an all-electronic tolling system for the ORB Project by the time toll operations are expected to commence upon an increase in capacity for cross river traffic, expected to occur in late 2016. The provider will also operate and manage this toll collections system for at least the first seven years of operations.
The Ohio River Bridges East End Crossing project has received a number of accolades, including:
The Bond Buyer 12th annual National Deal of the Year
North American Project Bond Deal of the Year by IJGlobal
Nominated as the Deal of the Year – Transport by Infrastructure Journal Awards
Partnerships Bulletin – Partnership Award (International) for Best Road Project
The importance of financing options
The East End Crossing and the Toll System Provider contract represent two of five P3 projects undertaken since the Indiana General Assembly authorized the Indiana Finance Authority to enter into public-private partnerships on state transportation projects. Both cases mark innovative procurements employed to satisfy component parts of a much larger bi-state cooperative process. The state’s first P3 project involved the lease of the Indiana Toll Road to a private concessionaire for 75 years for cash payments over $3.75 billion. Ice Miller represented the IFA on this landmark transaction. The IFA (with Ice Miller’s assistance as legal counsel) has also used its P3 powers to cooperate with INDOT on the development of Section 5 of the I69 project as its third P3 project.
Availability payment P3s can provide authorized governing bodies with innovative, private sector options that can align project risk with key deliverables to reduce long term (life cycle) project costs and accelerate project delivery. Like other forms of P3s, availability payments can also be a more efficient tool for achieving these goals.
“Financing authorities need options in order to build the incentive structures needed to achieve project goals,” said Brenda Horn, Ice Miller team leader for IFA P3 work. “Our client, the IFA, was able to keep the project moving on time and on budget by incentivizing contractors through an Availability Payment P3. This option may be viable for others who want to use competition and private sector innovation to meet their project needs.”
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