Michigan’s Freeway Lighting Upgrade P3 Improves Efficiency and Safety
Editor’s Note: The following article is one in a series of six profiles of winners of NCPPP’s 2017 National Public-Private Partnership Awards, which recognize organizations and individuals that have gone above and beyond to advance the concept and implementation of P3s across the country. The winners will be honored during P3Connect in Miami in January.
Joseph Pavona has some advice for any state agency that is considering using a P3 for the first time to develop an infrastructure project: “Think big and start small.”
This is the strategy the Michigan Department of Transportation (MDOT) followed in choosing the relatively modest — but highly successful — goal of improving the metropolitan Detroit freeway lighting system as its first P3 project.
“MDOT, which had done several small design-build projects in the past, decided it was time to ‘cut its teeth’ on one that was small in scale but would encompass all possible P3 elements — design, build, finance, operate and-maintain — to ensure that the experience we gained would inform future, more ambitious projects.” explained Pavona, special advisor for public-private partnerships in Gov. Rick Snyder’s office. “Michigan has been looking at putting a P3 program together for several years. We realized that choosing a modest project that had a high probability of success, and using it to educate the public on this procurement approach, would make everyone more comfortable with it,” he added.
The $125 million project — the first of its kind in the United States — involved replacing 15,000 lights across bridges and roadways and in tunnels with more modern, LED-efficient bulbs over two years, as well as maintaining the lighting network for another 13 years. It is being conducted by Freeway Lighting Partners LLC. This consortium was led by equity owners Aldridge Electric, Inc., which also served as the design-build contractor, and Star America Infrastructure. Parsons Brinckerhoff, Inc. was the designer and Cofely Services, Inc. is conducting operations and maintenance. Nossaman LLP, AECOM and KPMG served as advisors.
Under the agreement, Freeway Lighting Partners would earn a payment upon reaching 90 percent of lightbulb installation and another one at 100 percent of completion, given the installation occurred within the stipulated two-year timeframe. Incredibly, the consortium reached these milestones six months ahead of schedule, and has proceeded to the operations and maintenance phase. During the 13-year operation and maintenance period, MDOT will make quarterly service payments to Freeway Lighting Partners. A portion of these payments is contingent on the lighting network consuming less energy than the rate MDOT estimated it would achieve using the non-LED bulbs; failure to meet required service and reporting requirements would trigger reductions in those payments. MDOT retained responsibility for paying all electricity costs.
“MDOT is very pleased with this project’s outcome. In fact, if we knew it was going to go so well, we’d have started it sooner,” he said. “In addition to saving an estimated 10 percent by upgrading to more efficient and environmentally friendly lighting as well as optimizing risk transfer, we improved safety — always our first concern — by improving illumination along the freeway from less than 70 percent of operating lights to nearly 100 percent.”
Based on the project’s success, MDOT has decided to use a P3 to take on a more ambitious project: a major design-build-finance-maintain project to rebuild a 5.5-mile segment of Interstate 75.
When asked whether he had any lessons learned to pass on to an agency that is considering undertaking its first P3 project, Pavona stressed the importance of initiating open and frequent communication between all stakeholders early on, especially about the P3 procurement process.
“Some of the administrative staff — especially those who cover the finances and auditing — weren’t familiar with P3s and we spent a lot of time discussing risk allocation and making sure everyone was on the same page,” Pavona explained. “Starting that type of knowledge transfer as early as possible is key and will set you up well for future projects.”
“It’s also important to have a good advisory team, representing the technical, commercial, financial and legal interests of the project owner,” he added. “That ensures that those engaged on the project and advising the public sector have the right combination of experience and qualifications, which leads to the development of procurement documents that not only protect the public interest but provide the best shot at success. Finally, selecting the right consortium or project team to deliver the project is another key element for success.”
Similar street lighting upgrades are planned in metropolitan Phoenix, where the state transportation department wants to replace more than 19,000 street lights along 300 highway miles with LED bulbs, and Washington, D.C., which is pursuing a “smart lighting” project through a P3 that also involves the deployment of free broadband WiFi and remote light monitoring. Municipalities in Canada, the United Kingdom, France, India, Mexico and other countries are using P3s to upgrade their street lighting as well.
Governor Snyder has praised Michigan’s upgraded freeway lighting network, saying, “Keeping our busy highways well lit is vitally important for safety.”
He also singled out the P3 agreement, saying, “This innovative arrangement ensures that we have better, more efficient lights, improving the service for the residents and businesses using these roads every day.”
NCPPP is honoring the Michigan Department of Transportation’s Metro Region Freeway Lighting Project with its 2017 Innovation Project Award for its success in using the P3 procurement model to improve the lighting network’s efficiency and improve public safety throughout the metropolitan Detroit area.