The risks of ageing and failing infrastructure

21 December 2018

Innovative approaches are required to address ageing and failing infrastructure, as tens of thousands of structures around the world reach the end of their working lives.

Thirty-five years ago in 1983, Connecticut’s Mianus River Bridge collapsed, killing three motorists.

The collapse was caused by the failure of two pin and hanger assemblies that held the deck in place on the outer side of the bridge, according to an investigation by the National Transportation Safety Board.

The disaster is symbolic of a wider problem of ageing infrastructure, as tens of thousands of structures around the world reach the end of their working lives.

Demands on bridges, ports, utilities and other key infrastructure have been increasing, but a failure to maintain or replace these structures comes at a human and economic cost.

“Catastrophic failures like the Mianus River Bridge and the I-35W in Minneapolis just over a decade ago have a major impact on people’s lives, on businesses and on the wider economy.

These are not isolated incidents, and there is a growing recognition of the need to urgently address ageing infrastructure in the US and Europe,” says Naresh Dade, Partner at JLT Specialty’s Construction Division.

Bridge backlog

In the US, nearly 10 per cent of bridges are deemed structurally deficient (in some States the figure is as high as 25 per cent), according to the American Society of Civil Engineers (ASCE).

Some 188 million trips are made across a structurally deficient bridge each day in America, where many are fast approaching the end of their design life.

Almost four in ten bridges in the US are 50 years or older while one in ten bridges are subject to safety related traffic or load restrictions, says ASCE.

Bridges can fail for a number of reasons, including design faults, poor maintenance, collisions, corrosion and natural catastrophes such as earthquakes, floods and high winds, explains Dade.

Older bridges, in particular, are often subject to excessive loads, where traffic volumes have risen in line with increasing populations, compounded by additional lanes being added over the years, he says.

In 2007, the eight-lane I-35W highway bridge in Minneapolis experienced a catastrophic failure, causing vehicles and a large part of structure to fall 108 feet into the Mississippi River below, killing 13 people.

The investigation into the collapse found that additional loading placed on the bridge during maintenance had combined with design and quality control issues.

Cost of infrastructure failure

Failure to address the gap in infrastructure investment funding will cost the US economy $4 trillion in lost GDP or $7 trillion in lost business sales by 2025, according to the Infrastructure Report Card.

This highlights how infrastructure failures can have a big impact on local economies and businesses.

In addition to the incalculable cost of the lives lost, the collapse of the I-35W bridge resulted in a $60 million loss to the Minneapolis economy in the two years following the disaster.

And for owners and operators, infrastructure failures can also result in loss of revenues, law suits and third-party liability.

Despite a recent rise in spending on bridges in the US – fixing them is a government priority – a recent estimate puts the backlog of US bridge rehabilitation at $123 billion, according to the Infrastructure Report Card.

In a 2017 speech to Congress, US President Trump said he wanted a $1.5 trillion investment in infrastructure rebuilding, using a mix of federal and private funding.

Financing solutions

Innovation in finance could also help deliver much needed infrastructure investment.

Recent years have seen the emergence of public private partnerships (PPP or P3) as one possible solution, according to Alexis Bradshaw, PPP and Alternative Delivery Manager at Construction Risk Partners.

PPPs, which promote innovative and integrated approaches to procurement, design and construction, potentially offer a more cohesive and efficient approach to replacing aging infrastructure or extending the life of existing structures, she says.

P3s place significant emphasis on the operations and maintenance of the given asset, which can help address one of the key contributors to our current infrastructure crisis; lack of or deferred maintenance.

It is important to note that P3s do not act as a funding source; rather, they can provide additional options for financing and help leverage public funds.

The power of PPPs and more imaginative approaches to procurement are illustrated by the recent Pennsylvania Rapid Bridge Replacement Project, the largest ever multi-asset PPP to be awarded in North America.

The Commonwealth of Pennsylvania has more than 25,000 state-owned bridges and an increasing number of those bridges are becoming structurally deficient, explains Edward Dice, Head of Delivery, Pennsylvania Bridges, Plenary Group.

The Pennsylvania Department of Transportation selected 558 structurally deficient bridges throughout Pennsylvania to be completely replaced under a PPP contract that includes design, construction, financing, operations and maintenance.

The bridges are predominantly crossings on smaller state highways, many in rural areas. It is not practical to place tolls on the bridges, and individually the bridges are too small to justify P3 transaction costs.

The bundling of smaller bridges provides the critical mass to make private investment feasible.

Starting in 2015, Plenary Group entered a contract to finance and manage the bridges' design, construction and maintenance during a 28-year contract term.

Administering the project in this manner led to cost and time savings, explains Dice. Plenary incorporated basic design templates to streamline the manufacturing process for major components, as well as industry innovations, such as polymer deck overlays, to reduce future maintenance costs, he says.

“The work would typically take government agencies 12 years to complete, mainly due to their appropriations and bidding process. We are on track to finish in fewer than four years, and at a cost of 20 per cent less than the industry average,” according to Dice.

Risk mitigation

John Buttarazzi, a senior P3 adviser to JLT, notes that in utilising PPPs as a delivery solution, it is critical to balance affordability for users (i.e. tolls) and governments (i.e. subsidies and availability payments) with bankability (or commercial viability) for the private participants.

He says: “This is where insurance and surety plays a critical role in the financing of a P3 project. Adequate security packages and well-structured insurance is an important tool for lowering financing costs and re-assuring lenders.”

There has been an increase in off takers and owners of infrastructure looking for better protection for defects post construction, and the desire to transfer this risk naturally finds itself in the Inherent Defects Insurance market (IDI).

This type of insurance, which protects against losses caused by defective design, materials or workmanship after completion, is increasingly purchased for large construction and infrastructure projects, explains Dade.

“It is more relevant for covering the risk of failure in the early stages of the asset life cycle, as opposed to a lack of or deferred maintenance; the maximum period of coverage is normally 12 years post completion.

“Therefore, it is a great tool in the box by virtue of first-party cover for defects post completion, but it is not a cure all.”

While not a piece of ageing infrastructure, the recent collapse of the Florida International University Bridge is a good example of where the cover could have helped identify some of the design issue at an early stage, and where the cover can help assist.

The cover also involves regular inspections during construction, and this independent scrutiny could help prevent failures by identifying defects during design and construction.

In general, we are starting to see a downturn in the construction insurance market, where soft market conditions are beginning to give way to a harder market characterised by limited capacity and reduced numbers of international carriers, warns Dade.

The construction market and the professional liability market, in particular, are more challenging and the planning and preparation for the presentation of risk is becoming more important.

As always early engagement with your insurance and risk advisers will help you prepare and navigate your way around some of these issues.

For further information please contact Naresh Dade, Partner in JLT Specialty’s Construction Division on +44 7825 106572.

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