Innovative Maintenance Strategies for P3 Projects in Performance-Based Approach

1. 6THANNUAL CONFERENCE

2. Performance Based Maintenance Approach P3 Projects AMOTIA Conference – October 2014

3. Overview of P3 • Typically 30 to 50 year terms • Significant Risk Transfer to the Private Sector • Can be either Availability based or Demand based (toll roads etc.) • Guaranteed pricing for term (typically with indexation on the OM&R) • Guaranteed performance standards with penalties attached for non conformance • Prescribed hand-back conditions at end of term • Typically require equity investments from private financing sources • Financial security (L/C’s, Bonds etc.) is expected from subcontractors to backstop the risk transfer they’ve accepted AMOTIA Conference – October 2014

4. Common Non P3-Related Risk Exposure – The issue to be solved AMOTIA Conference – October 2014

5. Significant Risk Transfer – P3 Model P3 Procurement Example AMOTIA Conference – October 2014

6. Value Proposition – P3; The Right “balance” is Key • Long term “Whole of Life” costs instead of just first cost construction • Good decisions during design process consider Value for Money and best investment approach • Results in lower whole-of-life cost (the “box” is smaller) • Provides outcomes that are guaranteed • Financial returns / abatement ensures alignment between private partner and owner Initial Construction Cost Maintenance Program Operations Rehab program AMOTIA Conference – October 2014

7. Maintenance/Rehab approaches in the P3 model: • Innovation is encouraged by the P3 model. For example: • Pavement design can be looked at more holistically; a long term deal will include first costs, ongoing O&M costs, traffic projections and hand-back requirements in a performance based arrangement. It may pay to upgrade the initial design in order to reduce long term O&M and Rehab costs. • New products can be evaluated for longevity and applicable Construction, O&M and Rehab costing on a full contract term basis. Some examples of this are: LED lighting, Pavement markings, newly introduced polymers for the asphalt mix, etc. • Bridge designs and construction can be looked at from a “whole life” perspective vs only the construction costing. Examples of this may be bridge deck treatments, structural steel vs precast concrete etc. • To achieve the above, detailed lifecycle comparison models are developed for the entire term with final decisions being made based on lowest MAP or NPV analysis. AMOTIA Conference – October 2014

8. Challenges • Pricing of oil based products for asphalt, equipment etc. • Technology changes – for example: • will oil based asphalt be available in 40 years and what will the cost be? If not, what will the new product be and what will that cost? • Lighting changes – we’ve seen many changes with LED lighting starting to become more prevalent. What will the next generation bring? • And what about the concept of the driving surface acting as solar collector to generate power or heat? Out there perhaps, but…. • Snow and Ice program costing – how do we handle those years when the volume of snow and ice is significantly more than expected? • Increased Traffic – we all know that Traffic projections are partly science, partly an art form. How do we manage that risk? • We know the above challenges face all of us in the room. The question is how do we work together to continue to manage that risk? • Finding maintenance contractors who can understand and manage long term contracts. The good news is we’re starting to see that ability be developed in the industry. AMOTIA Conference – October 2014

9. Summary • P3 promotes innovation in design, construction, maintenance and rehab strategies • P3 results in transfer of risk from States, Counties, and Cities to the Private sector. AMOTIA Conference – October 2014

10. Questions? AMOTIA Conference – October 2014