Builder Agrees To Hold Original Port Tunnel Price Estimates Until Closing
Written by Risa Polansky on October 11, 2007
By Risa Polansky
After months of uncertainty, the Port of Miami tunnel is, for the time being, back on solid ground.
To finally get underneath it, however, the City of Miami still needs to approve a $50 million contribution to the project.
In the meantime, the private development team the Florida Department of Transportation’s committee selected to design, build, maintain, operate and finance the $1-billion-plus tunnel has agreed to hold its original price estimates, offering a reprieve from the Sept. 30 deadline the city missed.
Johnny Martinez, FDOT District Six secretary, had for weeks said the project would be as good as dead once the deadline passed.
But "we are willing to hold those prices to closing," said Matt Dallas, head of communications for Babcock & Brown, a facet of the Miami Access Tunnel consortium. "Of course we hope closing is as soon as it can be."
The team’s project proposal cited in March a price of up to $33.2 million a year over 35 years — annually about $6 million less than the state’s second pick and $30 million less a year than the third group vying for the contract.
County officials voted in July to contribute $402.5 million to the project, and the state is set to lay down $457 million. Both have said they can’t put up more.
The city’s $50 million would seal the deal.
In a letter to state officials, Miami Mayor Manny Diaz said the City Commission would be asked to approve the money no later than December.
However, there’s a chance commissioners will resist: as a Community Redevelopment Agency board, they voted to deny redevelopment funds to the project without a guarantee the agency would recoup the money, a virtual impossibility.
Some have openly opposed the tunnel itself.
The more time that passes as these issues get ironed out, the more the project concessionaire stands to lose, said attorney Stephen Reisman, a partner with Peckar & Abramson who specializes in construction law.
Construction materials and services prices are "volatile," he said. "It could go up, it could go down — traditionally, prices go up. That risk of rising prices is inherent in any project, but when the time of beginning a project is extended indefinitely or for a long time, obviously the risk is greater."
There is no way to quantify how much the team is risking in holding its prices, he said. "You’d have to be a fortune teller."
But the tunnel should be worth it, Mr. Dallas said. "We think it’s a good project, and we’re committed to it."
BuildingTeam Forecast, a Reed Construction Data Web site, cited a 5.3% increase in construction materials since last summer. Labor costs have risen 3.6%.
The forecast, posted by economist Alex Carrick, also predicts that last month’s half percentage point cut in the federal funds rate "is likely to give a further impetus to cost increases."
The cut, designed to help steady weak homebuilding markets, could further stimulate non-residential construction, it says.
In lowering the value of the US dollar, the cut means higher prices for "internationally-traded commodities, such as metals and fossil fuels, which are the key building blocks of many building products," according to the forecast.
These instigators can cause a ripple effect, Mr. Reisman said.
A precipitous rise in steel prices and the cost of cement could, for example, cause the price of concrete to escalate, and it has in the past, he said.
"That same type of escalation could happen anywhere in the market," he said. "You can only lock in your costs for so long."
The Miami Access Tunnel team is comprised of companies Bouygues Travaux Publics, Babcock & Brown and Transfield Services.
The port tunnel is designed to relieve congestion downtown by diverting port-related traffic through a tunnel system connecting the Port of Miami to Watson Island, enabling traffic to flow onto Interstate 395.