Infrastructure Past, Present, and Future Casebook/Port Miami Tunnel

This page is for a case study on the Port Miami Tunnel, created by Xiyuan Tang, Yitong Zhou, and Yueying Cao. It is part of the GOVT 490-003 (Synthesis Seminar for Policy & Government) / CEIE 499-002 (Special Topics in Civil Engineering) class offered at George Mason University taught by Jonathon Gifford.

Summary
Port Miami Tunnel, located in Miami, Florida, is a vital transportation infrastructure project designed to improve connectivity and enhance traffic flow in and out of the Port Miami area. The tunnel was conceived to address the growing congestion and facilitate the movement of goods and people between the port and the surrounding areas.

Approved after decades of planning and discussion in December 2007, the project faced a temporary cancellation a year later. However, construction resumed, commencing in May 2010. Subsequently, the tunnel was opened to traffic on August 3, 2014.

On a typical weekday, nearly 16,000 vehicles commute to and from Port Miami via downtown streets, with truck traffic constituting 28 percent of this vehicular movement. Beyond facilitating expedited access for trucks and automobiles heading to the port, the Port Tunnel is strategically designed to optimize traffic flow in Downtown Miami.

The Port Miami Tunnel enhances accessibility to and from the Port, functioning as a dedicated roadway connector that links the Port with the MacArthur Causeway (State Road A1A) and I-395. This tunnel is accessible to all, catering to both cruise and cargo traffic.

History/Timeline

 * October 1981– M-D MPO Transportation Planning Committee (TPC) establishes POM Access Task Force.


 * March 21, 1991 – At joint Technical Advisory Committee (TAC)/Citizen Advisory Committee (CAC) meeting, members are informed that FDOT, FHWA, Port of Miami and City of Miami endorsed the preferred alternative, which makes  the tunnel a viable project with potential for implementation.


 * February 17, 2006 – FDOT issues a Request for Qualifications (RFQ) from proposers seeking to develop, design, construct, finance, operate and maintain the POMT project through a Concession Agreement.


 * October 4, 2007 – M-D BOCC agrees to fund a portion of project ($402.5 million) provided that the City of Miami also contributes a portion of the local funding.


 * December 13, 2007 – The City of Miami Commission agrees to fund a portion of project ($55 million).


 * February 15, 2008 – MAT is named the Best Value Proposer.


 * December 12, 2008 – FDOT announces that an agreement with MAT will not be reached due to financial difficulties.


 * April 16, 2009 – FDOT announces plans to continue procurement process.


 * May 8, 2009 – FDOT authorizes replacement of Babcock & Brown with Meridiam Infrastructure as the MAT equity partner.


 * June 2, 2009 – FDOT reaches Commercial Close with MAT consortium.


 * October 15, 2009 – FDOT reaches Financial Close with Miami Access Tunnel (MAT) and issues Notice to Proceed for 55 month Design and Construction schedule.


 * May 24, 2010 – Florida Department of Transportation (FDOT) issues Notice to Proceed 2, allowing the contractor, Bouygues Civil Works Florida (BCWF), to begin construction.


 * July 31, 2012 - Mining of the Eastbound Tunnel was completed as the Tunnel Boring Machine broke out on Dodge island (PortMiami).


 * May 6, 2013 - Mining of the Westbound Tunnel was completed as the Tunnel Boring Machine broke out on Watson Island.


 * August 3, 2014-The Tunnel was opened to traffic.

Funding and Financing
=== Funding sources === Total Eligible project cost - $1,072.9 million


 * Senior Bank debt - $341.5 million

Provided by  BNP Paribas, Banco Bilbao Bizcaya Argentina, RBS Citizens, Banco Santander, Bayerische Hypo, Calyon, Dexia, ING Capital, Societe Generale, and WestLB.


 * TIFIA Loan - $341 million

Federal Highway Administration' s (FHWA) approval of the TIFIA loan was contingent on the provision and approval of financing from the City of Miami and Miami-Dade County.


 * Equity contribution - $80.3 million (private)

MAT Concessionaire LLC

□ Meridiam Infrastructure Finance SARL (Luxembourg) provides 89.8 percent of project equity through Meridiam Infrastructure Miami, LLC. (90% equity partner)

□ Bouygues Travaux Public S.A. provides 10.2 percent equity contribution through Dragages Concession Florida, Inc. (10%equity partner)


 * FDOT Milestone Payment during construction - $100 million  
 * FDOT Development Fund - $209.8 million

Availability Payment
Besides the $100 million milestone payments during the construction period between 2010 and 2013, FDOT paid MAT  a $350 million final acceptance payment upon construction completion.

The concession for the tunnel was structured under an availability payment model, under which the concessionaire would receive ongoing payments over the life of the concession covering capital and maintenance costs. The Maximum Annual Availability Payment is $32.5 million (2009 dollars) The payment is  based on the availability of the road  Deductions are made from this amount if MAT's operation of the facility does not meet prescribed performance standards.

30 years of availability payments during the operating period comes from a combination of federal and state funds. Responsibility for covering these payments is based on a roughly 50/50 distribution between FDOT and the local public agencies. FDOT will provide an estimated $457 million, which will be paid from its annual budget. Miami-Dade County is providing an estimated $402 million. To complete the funding for the project, the City of Miami has agreed to contribute $50.0 million, which is being financed through a Letter of Credit.

Legal Foundations
In 1991, the Florida Legislature, recognizing the public need for “rapid construction of safe and efficient transportation facilities”, enacted Florida Statute§334.30. The legislation was subsequently amended several times over the next twenty years.

With the legislation final amendment in 2004,  FDOT was granted comprehensive authority, with legislative approval, to enter into agreements with private entities to build, operate, own or finance transportation facilities. The 2004 amended version of §334.30 established the following guidelines for PPP contracts: (i) permitted the receipt of solicited and unsolicited proposals; (ii) allowed reimbursements to the private sector through the Toll Facilities Revolving Trust Fund; (iii) refined the guidelines for toll rate setting; (iv) encouraged revenue sharing between the private sector and FDOT; (v) allowed FDOT to use a combination of funding sources for project development, including federal funds; and (vi) limited PPP contracts to 50-years.

In addition, the bill also requires that no more than 15% of the total annual state and federal funds in the State Transportation Trust Fund be allocated for P3 projects. FDOT is required to submit the P3 into either its five-year work plan, or, in cases of projects of more than $500 million dollars, the 10-year strategic intermodal system plan.

Florida Department of Transportation (FDOT)
On the Port of Miami Tunnel project, FDOT is the project’s Grantor and will be entering into a concession agreement throughout an undetermined (approximately 30-50 years) amount of time.

The Miami Access Tunnel (MAT) Concessionaire LLC,
Comprised of Bouygues Travaux Publics (France), S.A. Babcock & Brown Infrastructure Group (Australia), and Canadian financing partners (Minnesota Department of Transportation )

Responsible for the design, finance, building, operation and maintenance of the Port of Miami Tunnel in conjunction with FDOT.

Narrative of the Case
The Florida Department of Transportation District 6 (FDOT D6) began a study in 1987 for a master plan to improve the traffic circulation and congestions between the Port of Miami and downtown Miami, FL. This sudy included a tunnel connection between two man-made islands, the Watson and the Dodge islands. Though a finding of no significant impact was completed in 1992, the project remained on hold for about 10 years.

In 2003, Florida's Turnpike Enterprise (FTE) started POMT Re-evaluation Study to update project documents based on present conditions and examine construction methods for preferred alternative selected in original (Project Design & Environmental Study)

In 2005, the FDOT D6 regained its charge over the project and concluded that a bored tunnel under Biscayne Bay was feasible.

Pre-construction analyses identified the significant potential risk associated with the tunnel, as a bored tunnel of that size had never been constructed in the U.S. As a result, FDOT began to explore the possibility of developing the Port of Miami Tunnel as a P3 in order to mitigate the state's risk exposure, drawing on Florida's recently strengthened P3 enabling legislation. Discussions with potential bidders regarding this approach were also positive, leading FDOT to initiate procurement of the project as a DBFOM concession in February 2006.

In May 2007, FDOT announced its intent to award the concession to MAT, comprised of the Australian investment firm Babcock and Brown and the French construction firm Bouyges, a subsidiary of which would serve as the lead contractor on the project. Once funding commitments from the state, county, and city partners were finalized, a formal award was made in February 2008. However, financing for the project soon became caught up in the market turmoil of that year, which would see the failure of both Babcock and Brown and Lehman Brothers, its underwriter for the project. In late 2008, Meridiam replaced Babcock and Brown as the primary equity partner in the concession.

Unpredictable Geotechnical Conditions
Due to the highly porous and inherently unpredictable geology beneath Biscayne Bay, the Port of Miami Tunnel project poses a significant challenge even for the most experienced tunneling contractors. The unforeseeable ground conditions are likely to result in delays and cost overruns. The final ground model from the ground investigation of the Port of Miami Tunnel indicates the presence of weak, highly porous Key Largo coralline limestone in Layer S7. This led to disputes over the additional costs for pumping extra concrete (i.e., grouting) to allow tunneling to continue. It is evident that FDOT cannot bear this risk alone, and if it were to transfer all the risks of geotechnical condition changes to the private sector, either no one would bid or bid prices would skyrocket.

To address these issues, a $180 million geotechnical contingency fund was established as part of the PPP contract to to mitigate extra work costs and delay costs arising out of changed geotechnical conditions during construction.

The risk of increased tunneling cost was therefore shared. The distribution of this fund is as follows: the first $10 million is borne solely by the concessionaire, the next $150 million is borne solely by the FDOT, and the last $20 million is borne solely by the concessionaire. Extra work costs and delay costs for changed geotechnical conditions that exceed $180 million are considered extraordinary geotechnical losses. If the USD $180 million fund is exhausted, the parties would have the right to terminate the contract.

Finance challenge
The project was tendered during the most severe period of the global financial crisis. Prior to finalizing financing, Babcock and Brown, which had committed to providing 90% equity, filed for bankruptcy. As a result, it was unable to meet its cash obligations or secure financing. Initially, FDOT considered either reprocuring or canceling the project altogether. To prevent the project from being reprocured and to limit further delays, local and state elected officials lobbied FDOT to allow another company to replace Babcock & Brown as the 90% equity partner in the MAT consortium. Subsequently, Meridiam joined the consortium as the primary equity investor, replacing Babcock and Brown, and completed financial settlement with the project company, MAT Concessionaire, LLC, in 2009.

The economic crisis not only impacted private partners but also had significant effects on City of Miami and Miami-Dade County. During the economic downturn, real estate values plummeted, economic activity declined substantially, leading to a decrease in property and sales tax revenues, severely impacting the Miami metropolitan area. Both the City of Miami and Miami-Dade County faced difficulties in fulfilling their financial commitments. At the time of financial closure, the City of Miami was trying to offset a $118 million deficit, thus delaying the approval of a $50 million letter of credit intended for project funding. Although the City of Miami's financial commitment was approved in December 2007, a second approval was required before September 25, 2009. Specifically, approval of the city and county's financial commitments was a condition for the TIFIA loan. The extension of the financing deadline allowed the project to proceed, and the City of Miami approved the project's letter of credit on October 8, 2009. Financing was completed on October 15, 2009. Miami-Dade County initially needed to provide $600 million for the project. This amount was calculated based on the estimated project cost of $1.2 billion, split evenly with the U.S. Department of Transportation. In 2006, the county developed a financing plan of approximately $489 million. As part of this plan, the county explored the possibility of tunnel tolls. However, the cruise industry at the Port of Miami opposed this tolling method, as it would increase both their employees' actual costs and an additional fee per cruise ticket for customers. After the estimated total project cost was reduced to $900 million, the county's contribution was reduced to $402 million.

Lessons Learned/Takeaways
The POMT was the second availability payment P3 project to reach financial close in the United States. It is innovative in several aspects, providing valuable lessons for the construction industry at large and the PPP market in particular.

Risk allocation is a key focus. In general, the Availability Payment scheme will emphasize transferring sufficient risk， including significant construction and operating risk, to the Concessionaire and discouraging non-performance. All risks not expressly assumed in part or whole by FDOT are assumed by the Concessionaire. In addition, FDOT recognizes the unique nature of the Project’s geotechnical risk and the need to allocate it appropriately between FDOT and the Concessionaire. While in many PPP projects involving construction, most of the construction risks are allocated to the construction contractor, tunnel projects may entail particularly high risks related to unforeseen ground conditions, delays, and cost overruns. The upfront consideration of significant construction and financial risks through the establishment of a contingency fund enabled a satisfactory outcome when these risks materialized during the construction period. In this project, risks that were beyond the control of either party were shared, which had a positive impact on the working relationship between the parties. It ensured a fair and optimized risk allocation and helped maintain a positive relationship between the parties.

Government support and cooperation between different levels of government are also critical for large projects like POMT. This support and cooperation began in the project structuring phase, where funding was provided by federal, state, county, and city sources, with the City of Miami also granting land access. Given the decision not to charge tolls, ongoing funding from government departments is crucial. Joint funding, continuous involvement, and political support from the four different levels of government (federal, state, county, and city) have helped overcome challenges during construction.

Discussion Questions

 * 1) What are the advantages and disadvantages of public-private partnerships for infrastructure projects? In what cases does this model work better?
 * 2) How does the availability payment model in public-private partnerships affect project financing and operations? How does this model incentivize the private sector to provide long-term reliable infrastructure services?
 * 3) Do you think the current public-private partnership model based on risk allocation needs to be improved in the future? Or can the PPP mode such as the Port of Miami Tunnel continue to be used?