Case Studies: M80 Haggs to Stepps

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Project Overview
M80 1.png
Figure 1: Proposed routes of the M80 Haggs section (The Motorway Archive trust, 2009)
M80 Haggs to Stepps Project Profile, UK
Project Type: Both
Contract duration: 33 years
Budget: GBP 320M (Cost to upgrade and construct new sections originally valued GBP 251,4M)
Project Time Line
First proposed: 1970s;
Public Enquiry: 2004;
Tender call: 14 March 2007;
Financial close: January 2009;
Contract signed: 19 January 2009;
Start of operations: 1 November 2011

Introduction

The A80 forms part of the strategic road network between Glasgow, Stirling and North East Scotland. It is one of the most heavily used roads in Scotland, carrying both strategic and commuter traffic. The section of road between Stepps and Haggs was an all-purpose dual carriageway and was the only non-motorway section between Glasgow and the end of the M80 at Dunblane.

The upgrade to this section of the Scottish network was being formulated from the 1970`s. Two alternative routes were identified [see Figure 1] and through public consultation and inquiry it was decided that the development of the motorway was best done as an upgrade to the existing road. This was because of impact on a world heritage site; areas of scientific importance; cost of green field development compared with improvement of existing infrastructure.

The project is broken into three phases, as outlined in the Public Inquiry (Enterprise, Transport & Lifelong Learning Department, 2006):

Phase 1 Mollinsburn to Auchenkilns;

Phase 2 Auchenkilns to Haggs;

Phase 3 Moodiesburn Bypass.

A section of the new road was “new build” to accommodate the expanding urban areas served by the road. Construction works for the scheme include almost 5 miles (8 km) of new dual two-lane motorway and hard shoulders between Stepps and Mollinsburn; 1.6 miles (2.7 km) of the existing A80 road upgraded to dual three-lane motorway between Mollinsburn and Auchenkilns; and almost 4.5 miles (7.3km) of the existing A80 upgraded to dual two-lane motorway between Auchenkilns to Haggs, with hard shoulders and climbing lanes.

The Contracting Authority (Public Party)

The UK Treasury provided oversight. The devolved state-level sponsor was the Scottish Government and Scottish Executive, which provided the structure and requirements for the agreed scope of the project, whilst the commissioning agency was Transport Scotland. The contractual agreement is covered by UK law (Highways Act 1980 and New Road and Street Works Act 1991), which allow concessions for services linked to road infrastructure.

The route was agreed by government bodies in consultation with the public at large. Although the project was privately financed, the public agency retained the authority to act as spokesperson for the project with the public and media.

Other stakeholders included local authorities and councils, which these were focus of concerns from the public.

The Concessionaire (Private Party)

The concessionaire is Highways Management (Scotland) Ltd. Currently Bilfinger Berger holds 100% of shares in the SPV. In the original shareholding structure 80% of the equity was held by Bilfinger Berger, with John Graham (Dromore) 10%, and Northstone (NI)10% being the other partners in the consortium (HM Treasury, 2012).

The change of ownership had been anticipated by the public sector agencies and presented no issues. This was because the minority stakeholders in the SPV were construction companies whose input diminished as the contract moved into the operational phase, leaving Bilfinger Berger – an international Infrastructure developer that is active within the PPP market - as the company best equipped with the resources and expertise to complete the contract.

The European Investment Bank was involved in the initial financing of the scheme, but this changed after the opening date when Bilfinger Berger purchased the shares of the other participants.

Users

The road is used by domestic and commercial traffic.

Other stakeholders include local highway authorities with regulatory responsibilities, which have had key influence in terms of public interaction. These were Coatbridge, Chryston and Bellshill, Cumbernauld, Kilsyth and Kirkintilloch East, and Falkirk.

The publicwere influential at the project planning and early decision-making stages. Opposition to the scheme was dealt with via mitigation technologies for reducing noise in the existing conurbations, and public participation was encouraged by the public agency. Land purchase was managed in a sensible manner, and the environmental assessment was carried out in conjunction with the EIA (Scotland) Regulations 1999.

Key Purpose for PPP Model Selection

The main objective for the public sector was ensuring value for money. This was achieved through a DBFO structure linked to performance-related payments, although initially it was anticipated that shadow tolls would be used.

The technical requirements driving the project were:

  • The need to increase the capacity of the non-motorway section of the road with minimum public expenditure;
  • The removal of peak time congestion and delays;
  • The need for major maintenance to the existing carriageway;
  • The need for re-design of the junction layouts to improve performance and safety.

Project Timing

Tendering and contract negotiations coincided with the economically turbulent period, which started in 2008, yet the project was still able to go ahead. This suggests that the PPP road infrastructure market still offers opportunities for investment.

Project Locality and Market Geography

The M80 is one of the most heavily used roads in Scotland, carrying both strategic and commuter traffic. The route carries significant amounts of commercial through traffic and is therefore an important economic artery.

Procurement & Contractual Issues

Tendering

There were originally three consortia bidding, which was restricted to one preferred bidder during the competitive dialogue phase. The total length of time from the initial call for Expressions of Interest to the signing of contract was approximately 25 months. The M80 (Stepps-Haggs) was the first road project in Scotland to adopt the competitive dialogue approach. However this did not bring with it the innovative response expected from the private sector. The main reason is that the dialogue was restricted to the “wants” of the public sector, perhaps due to lack of familiarity with this form of tendering. The public sector was more accustomed to specifying projects in terms of inputs such as the levels of management to be provided and the wearing surface to be used, rather than specifying the required outputs and the Key Performance Indicators (KPIs) used to measure them.

The approach of stipulating inputs rather than performance outcomes negates the premise that one of the key objectives of PPPs is to encourage the private sector to use its skills and management expertise to increase the value of the project. If the private sector is not encouraged to innovate then the result is effectively a build and maintain contract.

However Transport Scotland`s view is that the dialogue ensured that their required outcomes became the central focus of the project, and helped to build a meaningful relationship with the private partner.

Contract Structure

The type of PPP employed is a DBFO. The repayment methodology changed during the tendering process from shadow tolls to performance payments related to availability, carriage way performance and safety impacts, with deductions for under-performance.

Risk Allocation

Risk is allocated as depicted in the table below.

M80 2.png

Figure 2: Risk Allocation

Commercial/ revenue risk – Revenues are performance driven, with penalties. With the switch away from shadow tolls the traffic risk is borne by the public sector;

Financial risk – This was taken by Bilfinger Projects Investment;

Regulatory risk – The risks of changes to the regulatory environment were shared so as to ensure a good working relationship.

Performance

The key measure of success is availability of lanes to road users.

Measurable and effective KPIs are mainly linked to payment-related elements of the contract.

The lack of incentives for improvement over and above the agreed performance levels means that although the project can be categorised as successful, it is not fully exploiting the potential for future change.

Other indicators that could be used to measure the success of the project include:

  • Environment: reduction of the road’s impact on the built and natural environment through better design and more effective management;
  • Safety: accident rates, with the emphasis on reducing conflicts between vehicles and separation of vehicles from other potential road users;
  • Economy: support for sustainable economic activity and value for money;
  • Integration: completion of the Central Scotland motorway;
  • Accessibility: provision of adequate access to other facilities, in particular to jobs, and adequate accessibility for freight deliveries.

The reality is that economic and environmental benefits are not actually measured, so evidence of any changes will be anecdotal. In addition, most potential indicators are influenced by factors external to the road, making accurate measurement of its impact impossible.

References