The design-build-finance-operate (DBFO)11 approach is a variation on the DBOM structure that involves some level of involvement by the private contractor in financing the design, construction, operation, and maintenance of the highway asset. Typically, the DBFO model uses revenues generated from the operation of the facility (usually in the form of tolls or other pricing mechanisms) to repay the private and other financing used to construct the facility. The potential benefits of the DBFO approach include those benefits available under the DBOM approach plus the transfer of financial risk to the DBFO contractor during the contract period. A variation on the DBOM approach is the build transfer-operate (BTO) arrangement, under which the contractor retains ownership of the project until construction is completed. Under both the DBFO and BTO structures, the public sponsor will own the facility after completion of construction.
Only a few toll road projects in the United States have been procured using the DBFO model because public agencies generally are able to obtain cheaper, tax-exempt debt through traditional municipal financing methods. However, in the last several years, more design-build, operate, finance, and maintain/manage (DBFOM) projects are being planned or implemented because of limits on the amount of tax-exempt bonds that can be issued by state entities and due to the emergence of several innovative financing techniques (such as TIFIA financing, private activity bonds, and 63-20 public benefit corporations) that can provide financing at rates that are almost as low as tax-exempt debt.12
Another DBOM financing option is known as "availability payments"-a type of PPP in which the public entity agrees to make regular payments to the private party based on the facility's availability and level of service achieved for operations and maintenance. In this case, the public entity normally accepts the revenue risk and may provide some level of initial funding to offset capital requirements. The private entity takes the risk of project delivery, maintenance, and operations. This method is currently more prevalent with transit work. Transit agencies are experimenting with adding incentive payments based on increased ridership or service.13
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11 See U.S. Dep't of Transp., 2006 Status of the Nation's Highways, Bridges, and Transit Conditions and Performance, Report to Congress, Jan. 22,2007,at357, available at http://www.fhwa.dot.gov/policy/2006cpr/pdfs/cp2006.pdf.
12 See, e.g., Greg Korbel Design, Build, Finance, Operate, and Maintain Project-BART Oakland Airport Connector Project, Infrastructure Law Blog, posted on Mar. 10, 2006, available at http://www.infrastructureblog.com/2006/03/articles/alternative-project-delivery-m/design-build-finance-operate-and-maintain-project-bart-oakland-airport-connector-project/.
13 Philip Armstrong and Mel Placilla, Public-Private Partnerships: What's Old Is New Again, CE news.com, Jan. 29,2008, available at http://www.cenews.com/article.asp?id=2632.See also transcript of June 14, 2007, meeting of Texas Department of Transportation Commission, during which the concept of availability payments is fully discussed, available at http://www.txdot.gov/about_us/texas_transportation_commission/07_jun14_transcript.htm.