Project Location: Massachusetts
Public Sector Partner: Commonwealth of Massachusetts
Executive Office of Transportation and Construction/MassHighway
Private Sector Partner: Route 3 North Transportation Improvements Project
Contact Name: Eric Keen, HDR, Inc., firstname.lastname@example.org
In August 1999, the Legislature of the Commonwealth of Massachusetts authorized a design-build-operate project delivery method for the Route 3 North Transportation Improvements Project. The $385 million project involves the addition of a third lane in each direction in a 21-mile corridor from Burlington, MA to the New Hampshire border. This project is the first public horizontal construction project to use the design-build-operate method in the Commonwealth. The special legislation exempted the state’s Executive Office of Transportation and Construction and the Massachusetts Highway Department (EOTC/MassHighway) from the standard procurement laws and was specific only to the Route 3 North Project.
A traditionally financed project of this magnitude would not have been possible given the commitments the Commonwealth had to the Central Artery/Tunnel Project in Boston and the traditional statewide road and bridge program. In addition, the special legislation did not allow EOTC/MassHighway to toll the facility. The financing mechanism approved for the Route 3 North design-build project required the contracting firm to secure privately funded bonds to pay for the project during construction. In the ensuing thirty years, the Commonwealth would appropriate funds on an annual payment schedule to pay down these bonds. This privately financed, publicly funded approach allowed the bidders for the project to develop their own financing strategy.
The special legislation contemplated that the contracting team would form “a special purpose entity” to finance the Route 3 North Project. This would allow the contracting team to secure private financing to support the project during construction. It was generally assumed that the project would be financed through the creation of a tax-exempt association. The bonds secured of an annual appropriation until the bonds were paid off. This would include the cost of the maintenance of the facility for a thirty-year period.
The most obvious benefit of the private financing mechanism was that it allowed Route 3 North Project to be constructed as a design-build project. This reduced the construction time for Route 3 North from an estimated nine years to 42 months. Without private financing, approximately 25% of MassHighway’s annual statewide road and bridge spending would have been diverted to pay for Route 3 North over the life of the project’s construction. During the Route 3 North Project, MassHighway operated a nearly $500 million annual road and bridge program: $400 million spent on the traditional statewide program supported by general obligation bonds and other sources, and approximately $100 million in Route 3 North, privately-financed spending.
The private financing method for Route 3 North also provided for the potential of revenue through development opportunities. The contractor guaranteed ancillary development revenues of not less than $110,000 per year after final acceptance of construction, through the term of the ground lease. The Commonwealth would also receive through the term of the ground lease, which would be used to reduce the Commonwealth’s debt payment.