Similar in concept to pass-through tolls, availability payments are a means of compensating a private concessionaire for its responsibility to design, construct, operate, and/or maintain a tolled or non-tolled roadway for a set period of time. These payments are made by a public project sponsor (a state DOT or authority, for example) based on particular project milestones or facility performance standards. Project milestones can refer to the completion of the facility itself by a certain deadline, while performance standards can be measured operationally, measuring such metric as lane closures for maintenance purposes, incident management, or snow removal. Level-of-service performance could also be used as the primary payment metric for availability payment concessions involving the implementation of managed lanes.
Availability payments are often used for toll facilities that are not expected to generate adequate revenues to pay for their own construction and operation. In this case the project sponsor retains the underlying revenue risk associated with the toll facility rather than the private partner.
Also in this manner, there is less overall risk to the private entity than with a full concession. Rather than relying on achieving certain levels of traffic and revenue, the concessionaire receives a predictable, fixed set of payments over the life of the agreement. The concessionaire also can rely on the public agency's credit to secure financing rather than unpredictable toll revenue. Private financings involving availability payment concession could include private equity, taxable debt, federal credit assistance such as TIFIA, and private activity bonds. The question of who sets the toll rates is also eliminated under an availability payment arrangement, making concessions with private, often foreign-based companies more politically palatable.
Availability payments may be structured in a variety of ways. In certain cases, no payments may be made until after construction is complete. Alternatively they may be predicated on particular construction milestones. Project sponsors may also define how the periodic payments are to be made, and may also set a maximum payment cap based on agreed-to operating and maintenance performance standards.
Availability payments have been used extensively in Canada, Europe, and Australia, but are just beginning to gain interest in the U.S.
I-595 Corridor Roadway Improvements Project
The U.S. experience with availability payments for transportation facilities is limited to the upgrade of a 10.5-mile segment of I-595 between I-75/Sawgrass Expressway and I-95 in Fort Lauderdale, Florida. A comprehensive project profile of this project gives detailed information on its utility, financing, and construction status.
More information is also available on FDOT's project website.
An article written by the law firm Nossaman LLP, a member of the project's legal advisory team also provides further information on the deal and on the potential implications to California, which recently passed legislation in February 2009 (SBX2 4) authorizing public-private partnerships for transportation projects where availability payments may be an attractive financing option.
Introduction to Public-Private Partnerships with Availability Payments
paper provides a brief overview of availability payments within the context
of deciding to utilize a public-private partnership for project delivery.
for Money Analysis: I-595 Corridor Roadway Improvements
document provides an example Value for Money (VfM) analysis used to assist
FDOT in choosing between two financing/delivery methods for its I-595 project
- a DBF or DBFOM (concession) contract. This analysis helped lead to the
selection of a DBFOM contract supported by availability payments.