With limited public funding available for needed improvements to the nation's motorways, bridges, and tunnels UK's Highways Agency began to apply PFI on parts of the highway system in August 1994, using the design-build-finance-operate (DBFO) contracting and delivery approach. The Agency's objectives for each DBFO project were to:
• Ensure that the project road is designed, maintained and operated safely and satisfactorily so as to minimize any adverse impact on the environment and maximize benefits to road users;
• Transfer the appropriate level of risk to the private sector;
• Promote innovation, not only in technical and operational matters, but also in financial and commercial arrangements;
• Foster the development of a private sector road-operating industry in the UK; and
• Minimize the financial contribution required from the public sector, particularly in the initial years of project development and delivery.12
DBFO contracts in England are typically for a period of 30 years from the commencement date, even though most financing used for these projects has a 20-year repayment period. This is done to encourage use of alternative funding sources, financial innovation, and the possibility of re-financing after the completion of construction to provide financial benefits to the Highways Agency. The Highways Agency also wanted a contract period that was sufficiently long to promote the use of life-cycle costing to the project.13
Since 1994, private concession teams have delivered or initiated numerous major highway projects under the PFI program for England's Highways Agency. These include such major infrastructure projects as the M6 Tollway, the Second Severn Crossing Toll Bridge, the Dartford Toll Bridge, and the M1-A1 Link shadow toll road. Most of the highway projects have been delivered through the DBFO contract arrangement using shadow tolls, whereby the concession team finances the project and is reimbursed for the cost of the project directly by the Government through vehicle-based payments, road availability payments, or active management (considering congestion and safety performance factors) payments over the term of the concession agreement. This eliminates the need to install tolling equipment and collect tolls directly from the users of the facility while encouraging the concession team to operate and preserve the highway at high performance standards to ensure the availability and use of the roadway. Few use actual tolls collected from users to fund the projects.
The involvement of the private sector through PPPs has enabled the Highways Agency in England to expedite the delivery of highway projects built to high standards at lower costs. It is estimated that for the first eight PPP highway projects delivered under the PFI program through DBFO contracts, the average savings was 15 percent when compared to the public sector costs.14 In addition, urban governments are outsourcing maintenance of their road networks to lower costs and improve performance, while speed cameras are widely used to produce additional program revenues.
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12 Highways Agency, July 2006. URL: http://www.highways.gov.uk/roads/3008.aspx
13 Highways Agency, July 2006. URL: http://www.highways.gov.uk/roads/2995.aspx http://www.highways.gov.uk/roads/2995.aspx
14 Highways Agency, July 2006. URL: http://www.highways.gov.uk/roads/2665.aspx