Location

Windsor, Ontario (Canada), Detroit, Michigan (United States)

Sector

Transportation

Procuring authorities

Windsor–Detroit Bridge Authority (WDBA)

Project company

Bridging North America (BNA)

Contract obligations

Design, build, finance, operate, maintain (DBFOM)

Financial closure year

2018

Capital value

CA$5.7 billion (USD4.4 billion) – 2018 nominal value

Contract period (years)

36 (six years construction and 30 years operation and maintenance)

Key facts

Canadian Government is providing funding for the project with tolls to recuperate. The contractual structure is an Availability Payment public-private partnership (PPP).

 

Project highlights

The Gordie Howe International Bridge is a land border crossing between Ontario, Canada and Michigan, US. The bridge will connect the fourteenth largest metropolitan area in the US with its second largest trading partner. The Windsor–Detroit trade corridor is the busiest commercial land border crossing on the Canada–US border, handling almost 30% of all Canada–US trade transported by truck. As such, the Gordie Howe International Bridge is a critically important piece of public infrastructure.

The bridge will be 2.5 km long with a central span of 853 m, making it the longest main-span cable-stayed bridge in the US. Given the cross-border use of the bridge, the project includes extensive ports of entry with related immigration and customs facilities. On the Michigan side, the port of entry will be one of the largest US ports along the Canada–US border. On the Canadian side, the port of entry will be the largest along the Canada–US border.

The project includes roadway improvements on both sides of the crossing, including reconfiguration of the Michigan Interchange over a distance of 3 km. The project will provide a safe, efficient and secure end-to-end border crossing system directly connecting with the key high-speed and high-capacity links of Highway 401 in Windsor on the Canadian side and Interstate 75 (I-75) in Detroit on the US side.

The Gordie Howe International Bridge’s inception was jointly developed by the governments of Canada, Ontario, the US and Michigan. The project has been procured using a PPP model. Overseen by the WDBA, the contractor consortium BNA will design, build, finance, operate and maintain the bridge and ports of entry and will design, build and finance the Michigan interchange on the US side.

Figure 1: Four components of the Gordie Howe International Bridge Project (Source: WDBA)

 

Project timeline

 

Development

Policy and planning setting

The concept for the Gordie Howe International Bridge began in 2000, driven by the strong perceived financial benefits it would bring. The transport departments of Canada, the US, Ontario and Michigan came together to initiate discussions and eventually form the partnership that would drive the project forward.

The Canada-United States-Ontario-Michigan Border Transportation Partnership (the Partnership) was established in 2001 among Transport Canada, the United States Federal Highway Administration, the Ontario Ministry of Transportation and the Michigan Department of Transportation. The goal was to study and justify trans-border infrastructure improvement works in the Windsor–Detroit trade corridor.

On 15 June 2012, the Government of Canada and the State of Michigan signed an agreement (the Agreement) to provide the framework for Canada and Michigan’s roles and responsibilities toward the biggest and most ambitious cross-border infrastructure project between Canada and the US. The Agreement provides fundamental guidance on the design, build, financing, operation, maintenance, ownership, material procurement requirements and jurisdictional requirements of the Gordie Howe International Bridge project. The agreement states the following conditions:

  • The Government of Canada will pay all costs of the required land acquisition in Canada and Michigan and for the construction of an interchange to provide connections to the I-75 highway.
  • Tolls for both Canada-bound and US-bound traffic will be collected on the Canadian side of the crossing and used to reimburse the Canadian Government for the funds it advances related to the project.
  • All iron and steel for any bridge component in Canada and for any component of the project in the US will be sourced in either Canada or the
  • The PPP agreement must contain provisions for community benefit plans/planning and for the involvement of the host communities in Canada and Michigan.
  • The crossing will be publicly owned, jointly by the Canadian Federal Government and the State of Michigan.
  • The International Authority will be comprised of equal representation by Canada and Michigan.

The agreement created WDBA, with a role to direct and administer all aspects of the crossing’s implementation, from financing to procurement and eventually operation and maintenance. From its inception, it was expected that the staffing of WBDA would adjust over time to reflect the expertise required to deliver the crossing at the various stages of the project. The role of WBDA would consequently change over the life of the project to adapt to project needs.

Challenges and opportunities addressed by the project

The Partnership focused its efforts on addressing four transportation needs:

  1. Redundancy – Provide reasonable and secure crossing options leading to network redundancy. At the onset of the Partnership, the crossings included roadway bridge, rail tunnel, truck ferry and passenger
  2. Current and future travel demand – Provide new border crossing capacity to meet increased long- term travel
  3. Processing improvements – Improve operations and processing capabilities at the border.
  4. End-to-end connectivity – Improve system connectivity to enhance the continuous flow of people and goods.

The events of 11 September 2001 (9/11) highlighted the importance of the corridor to the newly formed Partnership.4 When border crossings were shut for the period following 9/11, the abrupt stop in trade had ripple effects on both economies that were felt for some time. The period of no trade demonstrated the impact of a reduction in trade at the crossing and underscored the detrimental effect of the mismatch in demand and capacity at the crossing. The importance of reducing travel times and increasing throughput became quantifiable and clear.

A subsequent Need and Feasibility Study validated that steps should be taken to expand infrastructure capacity in the Windsor–Detroit trade corridor through the construction of a new end-to-end transportation system that will link Highway 401 to the US interstate system with inspection plazas and a new river crossing between them.

Perceived long-term benefits

The economic impact of the crossing is one of the driving justifications for the project. The potential economic impacts were assessed in a report conducted in 2004, which found that by 2020, increased congestion and delay would cost the US more than USD2.2 billion and Canada more than CAD300 million (USD200 million) per year in lost production and output. The impacts of congestion would rise exponentially over the subsequent decade (2020 to 2030) and would lead to further production losses of USD11.4 billion per year to the US and CAD2.1 billion per year to Canada by 2030. These impacts amount to projected losses of USD40 billion between 2003 and 2020 and another USD60 billion by 2030.

From an employment perspective, nearly 12,000 full-time-equivalent jobs could be created by 2030, with over 4,700 in the Detroit area alone as a result of the crossing. In contrast, failure to relieve congestion in the Detroit–Windsor corridor could cost up to 6,000 jobs by year 2020 in Ontario, and over 31,000 by the end of 2030. The Canadian economy would lose over 35,000 jobs.

Through these findings, the study validated that steps should be taken to expand infrastructure capacity at the principal border crossings between Michigan and Ontario to stave off the economic impacts of the ‘do nothing’ scenario.

Alternative options considered

A Focused Analysis Area (FAA) was established in the Windsor–Detroit portion of the broad geographic area, based on the transportation needs within that corridor. The current crossing facilities within the Windsor and Detroit area include freight train, freight ferry, automobile bridge and automobile tunnel.

The capacities and demands of each facility were carefully considered when selecting the final alternative. The final crossing type and the location of the crossing were determined in the alternatives’ analysis conducted in the environmental assessment (see Table 1).

All options considered had to include border processing and roadway improvements, with new or improved border crossings, to satisfy the long-term transportation needs in the FAA, as shown in the assessment of transportation alternatives. For the medium- and long-term needs of the transportation network in the FAA, the assessment also supported the inclusion of travel demand management measures, with rail, transit and ferry service improvements, as part of a multi-modal strategy. Ultimately, a roadway crossing was selected because it best satisfied the overall objectives of the project.

Table 1: Summary of evaluation of transportation alternatives

Procuring and financing

Procurement model

Initially, the crossing implementation was to include various types of procurement vehicles, with a PPP delivering only the bridge component. The inspection plazas and other associated infrastructure were to be implemented using more traditional procurement methods. The intention was to keep the funding streams separate and leverage the private sector to operate and maintain portions of the project. As the project progressed, it became clear that aligning the timing of the various components would present a challenge, potentially resulting in a partially completed project. Because each component was to be driven by a different party, it would be difficult to manage timing because there was no mechanism to ensure alignment of the various milestones.

Canada has a long history of successfully developing and implementing infrastructure projects using the PPP model. WDBA decided to leverage the deep experience in Ontario and across Canada to deliver the Gordie Howe International Bridge project via a PPP. The success of past complex, high profile projects using this model provided a foundational maturity of the market that was tapped to increase the scope of this project.

Eventually, the Gordie Howe International Bridge was fully converted to a PPP model for procurement.

The PPP includes:

  • design, build, finance, operation and maintenance of the Canadian and US ports of entry and the bridge
  • design, build and finance of the Michigan Interchange (following construction, Michigan Government will be responsible for operations and maintenance of the Michigan Interchange).

The selected private sector partner is to deliver all infrastructure associated with the bridge, including:

  • the bridge itself
  • bridge approaches
  • toll plazas
  • customs and immigration facilities
  • related interchange ramps for the I-75

Operation and maintenance of the bridge and the ports of entry will last for 30 years. WDBA will set and collect toll revenue for the Canadian Government, with the private sector partner receiving an availability payment based on performance.

Following a competitive tender process, it was announced on 5 July 2018 that the consortium BNA had been selected as the project’s preferred proponent. BNA signed a CAD5.7 billion (USD4.4 billion) fixed price contract with WDBA for the project on 28 September 2018. Of the contract value, CAD3.8 billion (USD2.9 billion) was allocated to the construction phase, which was scheduled for completion by the end of 2024. The remaining CAD1.9 billion was allocated for the operations phase. The contract value reflects the progress and service payments the Canadian Government will provide to BNA throughout construction and operation, based on performance.

Utilising a PPP model improved value for taxpayers by reducing overall costs compared to traditional procurement. The PPP model for this project is projected to save approximately CAD562.8 million (or 10.7%) compared to delivery of the project using traditional procurement methods, as modelled by an independent value-for-money analysis.

A key component of this PPP is that the government and the private sector share various aspects of risk. For example, cost overruns and delays to projects are shifted from the taxpayer to the private sector, but other foreseeable risks, such as foreign exchange risk, are borne in part by the public sector.

Private sector involvement

The PPP process required a private sector partner to enter a contractual agreement with WDBA. A competitive bidding process was used to engage various consortia to select the winning tenderer. The consortia were required to provide all expertise necessary to deliver all aspects of the bridge financing, operation, construction and maintenance. To meet these requirements, the consortia became a complex combination of numerous entities.

BNA is comprised of the following engineering and construction entities:

Design-build team

Operations and maintenance team

Other partners

 

  • Dragados Canada
  • Fluor
  • Aecon

 

  • ACS Infrastructure
  • Fluor
  • Aecon

 

  • AECOM
  • RBC Dominion Securities Inc.
  • Carlos Fernandez Casado and FHECOR Ingenieros Consultores,
  • S.A. (CFC/FHECOR)
  • Moriyama & Teshima
  • Smith-Miller+Hawkinson Architects

 

A separate tender was called to engage a design consultant to act on behalf of WDBA to ensure compliance of the final design. Ultimately, Parsons was selected as the owner’s representative consulting engineer.

Infrastructure financing

Under the terms of the PPP contract, BNA is required to finance delivery of the project, with the Canadian Government providing progress payments (through WDBA) at various gateways required to support construction. Once construction is completed, BNA must finance aspects of its operation as well, as it is responsible for operating and maintaining the crossing. The consortium is paid during operation of the bridge through ‘availability payments’ provided by the Canadian Government based on performance metrics in the PPP contract.

Sophisticated financing was a consortium requirement during the tendering and evaluation process. The selection of the appointed consortium included an evaluation of its approach to financing and cash flow to ensure the financial health and, ultimately, the viability of the entity. Financial risks associated with cash flow during operations and maintenance must be borne by BNA.

Following the expiry of the operations and maintenance contract after 30 years of operation, tolls will continue to be collected by the Canadian Government, however the operation model is yet to be determined.

Separate to the PPP contract, the Canadian Government had invested CAD559 million between 2005 and 2018 to develop the project and enable financial close on the PPP contract. This initial investment will be repaid to Canada using the toll revenues gained during operation.

The analysis of cash flows is used and reported by WDBA in its financial reports to inform shareholders of the operations’ financial balance.

Financial risks

It was estimated in a 2010 report that in its first year of operation (when opening was projected for 2016), the bridge would generate USD70.4 million in toll revenues, with USD123.5 million in total gathered by 2025.

At several points, the project experienced setbacks due to funding issues; in particular, the inability of the US side to contribute to the construction costs. An agreement announced on 15 June 2012 ensured the project will proceed, with the Canadian Federal Government to fund bridge construction, land acquisition in Michigan and the construction of the I-75 on-ramps. On 18 February 2015 Canada announced that it would also fund the construction of a customs plaza on the US side of the bridge in Detroit’s Delray neighbourhood. The plaza will have

a budget of around CAD250 million and be recouped through tolls. In order to cover the plaza’s operational and staffing costs, the US Department of Homeland Security indicated that, in the first year of operation, the operations and staffing cost will be about USD100 million, with an ongoing cost of USD50 million per year. While no tolls will be charged on the US side, both US- and Canadian-bound travellers will pay tolls collected on the Canadian side.

In the end, Canada would fund all the construction activities required for the crossing. Portions of the Michigan side of the crossing qualified for funding under the FHWA scheme. The required design elements and processes were adhered to, ensuring compliance with FHWA federal aid requirements.

WDBA manages financial risks through financial reporting and risk analyses. WDBA provides regular reports on the financial situation of the crossing’s construction.

Approach to currency risk and credit ratings

At the onset of the project, three stages of foreign exchange (FX) risk were identified:

  • bidding and financial close
  • construction
  • operations.

Bidding and financial close

During this period, the tendering consortia needed to establish a baseline FX rate to assemble a competitive bid. To avoid unnecessarily increased bid prices as a result of FX, the Canadian Government assumed the risk at the bid stage. This was achieved by establishing a rate reset at the financial close of the tendering process. This realigned the bid prices to use the same FX rates at the time of evaluation. While precedence existed for this approach, a new mechanism for facilitating the rate reset needed to be developed by WDBA.

On 28 September 2018, a Project Agreement (contract) was executed between WDBA and BNA, signifying financial close. The conclusion of negotiations and the rate rest process enabled WDBA to provide protection for BNA against fluctuations in interest rates on debt and fluctuations in credit spreads on financing instruments. WDBA also protects the consortium against exchange rate fluctuations between the period when the proponents submitted bids and when rates were locked in for the Project Agreement (i.e. Financial Close).

Construction

The contractor must purchase materials throughout construction. As a result of the procurement guidelines, the sources of the materials could be Canadian or American, so costs could be incurred in US dollars, whereas the project is financed using Canadian dollars. The risk associated with this exchange is entirely borne by the contractor.

The two countries will provide all iron and steel for any bridge component. Costs of the required land acquisition in Canada and Michigan, and for the construction of an interchange to provide connections to the I-75, will be paid by the Canadian Government.

Operations period

In a DBOM contract, the consortium must account for costs during a lengthy operational period. WDBA acknowledges that asking a contractor to bear the FX risks associated with this operational period is not fair and may impact the long-term solvency of the consortium.

The viability of BNA is essential to the success of the project. A mechanism was created to share the FX risks during the operations and maintenance period whereby payments can be made between WDBA and BNA in either currency. This allows for costs that are incurred by the contractor in one currency to be repaid in that currency, thereby reducing inefficiencies and eliminating the need to hedge.

Tolls for both Canada-bound and US-bound traffic will be collected on the Canadian side of the crossing and used to reimburse the Canadian Government for the funds it advances related to the project. The PPP agreement must contain provisions for community benefit plans and for the involvement of the host communities in Canada and Michigan.

 

Management

Political and operational coordination

The International Authority is a joint Canada–Michigan governance entity responsible for monitoring compliance of WDBA with the Crossing Agreement signed by Canada and Michigan. Six members with equal representation from Canada and Michigan make up the International Authority. Two members are appointed by Canada, one appointed by WDBA and three appointed by Michigan. The appointment terms for members of the International Authority will last until one year after the bridge opening.

WDBA is responsible for the design and delivery of the PPP procurement process, and for overseeing the construction and operation of the new crossing. WDBA will set and collect all tolls. WDBA is led by a Chief Executive Officer (CEO) and governed by a board of directors who are responsible for overseeing the business activities and other affairs of WDBA. Up to nine members, including the CEO, form the board. All directors are approved by the Canadian Government, with the Chair and CEO holding office for five years and the directors holding office for up to four years. WDBA’s office is located in Windsor, Ontario.

Harmonisaton of rules, procedures, and technical standards

Technical standards that were not made clear during the tendering process are communicated via technical reports provided by the study team. Engineering designs submitted by BNA’s consulting team are reviewed for compliance with chosen standards by the Owner’s Engineer, Parsons.

Arbitration issues

Ultimately support for the bridge has been broad, especially among business owners. While some local residents have raised concerns, namely in response to a campaign by special interest groups, their issues have always been met head on by WDBA and its partners. The public’s support of the bridge is ultimately the result of an extensive outreach program conducted by WDBA from the very early stages. They continually invite public comment and feedback on the public works, engaging local residents and stakeholders wherever possible to include them in the process.

Accountability

WDBA, as a Crown corporation, is accountable to the Parliament of Canada through the Minister of Infrastructure and Communities. As per the Financial Administration Act, the duties and responsibilities of the board are to set corporate objectives and direction, ensure good governance, monitor financial performance, approve budgets and financial statements, approve policies and by-laws, as well as ensure that risks are identified and managed.

Communication and dissemination

As a public entity, transparency and public outreach are core functions of WDBA. As part of a community benefits plan, they conduct extensive public engagement to gather feedback on the project and the impacts it will have. The history of public engagement is extensive, starting from the onset of the project and continuing regularly through public meetings and other forms of engagement. Hundreds of meetings have been held on both sides of the border, including with schools, businesses, residents, transportation groups and others. Acknowledging the potential economic and logistical benefits, businesses have been very vocal in their support of the project, especially from the Michigan side of the crossing.

WDBA is committed to ensuring that communication with the public is maintained during construction so that community concerns are addressed as quickly as possible, and to address any disinformation campaigns spread by the bridge’s opponents. Residents receive notifications of upcoming work, regular progress updates and a project contact to discuss questions and concerns. The results of the project’s operation are communicated in WDBA reports.

 

Conclusions

  • Public benefits – Project benefits must be clearly identified and quantified for all parties. Economic benefits are critical, but so are impacts to the environment and sustainability. In the project, extensive economic analysis was completed to justify the project, and exhaustive environmental studies were conducted to satisfy the environmental agencies of both countries. The studies paved the way for broad public support as well as political support.
  • Public perception – Economic studies were conducted to justify the project at a macro level. To maintain public support, especially in the areas directly affected by the project, local outreach programs play a key role. WDBA maintains strong ties with the affected communities, including businesses and residents, involving them in public dialogue and gathering feedback regarding all major project activities. This involvement allows residents to be heard and their needs and worries to be considered, fostering a good relationship between the project and the community. A robust community outreach program should accompany the project, focusing on transparency, involvement and clarity of message.
  • Risk assessment and burden of risk – Identifying risk early and ensuring just risk allocation will help ensure the viability of the project. In the case of the Gordie Howe International Bridge project, Canada used its experience in overseeing PPP projects to fully understand the complexities of using the PPP process in the crossing context. They could identify the risks associated with foreign exchange early on and develop a plan to address and mitigate the costs that the consortium would assume to address these risks.
  • Maturity of private sector and public sector – The PPP process could be used because the Canadian Government had extensive understanding of the capabilities of the private sector to deliver a project of this scale and complexity. In fact, the maturity of the PPP process provided a solution to the critical problem of aligning construction schedules that were previously independent. By incorporating all aspects of the infrastructure works into a single PPP, WDBA could be reasonably confident that the sequencing of activities would align and result in holistic delivery of the project. This confidence was only made possible by the maturity of the private sector to deliver in a PPP context, and the public sector to oversee a project that requires sophisticated oversight.
  • Governance structure – A strong oversight body with the interests of both countries in mind has played a critical role in the success of this project to date. WDBA is empowered by both countries to act for them, giving WDBA a level of authority that commands respect from the PPP partner, which ultimately encourages adherence to rules, regulations and project schedule.
  • Procurement – Complex projects require understanding on both the public and private side during procurement. The public entity must demonstrate knowledge and sophistication when designing the Request for Proposal (RFP). WDBA considered all interests in the RFP process, ensuring that no one party (public or private) was expected to shoulder disproportionate risk. Through a robust RFP evaluation process, WDBA was able to identify strengths and weaknesses of the bidders to reduce the risk of a private sector partner that was unfit to deliver the project.
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