Las Vegas is set to give Elon Musk’s Boring Company its first payout: a $44m contract to build a high-speed underground transit system serving an expanded convention center. But the city is hedging its bets. The contract withholds over two-thirds of payments until construction is complete, and specifies hefty penalties should the system fail to accommodate enough passengers.

The project is a gamble on technology that has yet to be demonstrated at a commercial scale, and on a company whose founder has a reputation for missing deadlines.

Musk formed The Boring Company in 2016 after growing frustrated with Los Angeles’ bumper-to-bumper traffic. He initially envisioned building a subterranean network for private cars, but the concept has since evolved into an underground transit system called Loop that uses modified Tesla electric cars to transport pedestrians across cities.

The Boring Company has built one tunnel to date, a 1.1-mile test tunnel in Hawthorne, California, but has projects under way in Chicago, Los Angeles and Washington DC. The Las Vegas system would be the first to earn The Boring Company any money, and the first to break ground.

Facebook Twitter Pinterest The Boring Company would build two tunnels and three underground stations at the Las Vegas Convention Center. Photograph: Las Vegas Convention Center and Visitors Authority

According to the proposed contract between Musk’s company and the city, which was made public ahead of a vote on Wednesday by board members of the Las Vegas Convention and Visitors Authority (LVCVA), The Boring Company would build two 0.8-mile tunnels and three underground stations at the Las Vegas Convention Center, the world’s largest single-level convention center. Construction would begin as soon as September, with the entire system being completed by November 2020.

In December, Elon Musk showcased Tesla Model X SUVs automatically driving themselves through its Hawthorne test tunnel. But holding just four passengers at a time, these would need to depart the Las Vegas stations about every six seconds to hit the convention center’s target.

Facebook Twitter Pinterest The Boring Company’s Hawthorne test tunnel. Photograph: Robyn Beck/AP

One solution The Boring Company proposed would be to use modified Model X vehicles that could accommodate up to 16 people, sitting, standing or in wheelchairs. The Boring Company has yet to show it has built those models.

The Boring Company declined a request for comment and LVCVA did not immediately respond.

Not everyone came out in favor of experimenting with Musk’s new system. Las Vegas’s mayor, Carolyn Goodman, cautioned at a meeting of the LCVCA in March that The Boring Company does not have a track record, and she voiced concerns about fire safety in the underground system. “The backbone of Las Vegas is tourism and convention center business,” she told a local TV station this week. “Don’t put anything at risk that risks tourism and conventions.”

But Steve Hill, CEO of the LVCVA , said at the same meeting that the city simply could not afford any of the alternatives.

The Boring Company’s $44,250,000 fixed price contract came in at about a fifth of a reported $215m bid submitted for a rival, elevated rail system. Musk said that he thinks the Loop’s small tunnels can be built for a tenth of the cost of traditional rail or road tunnels, and in less than a tenth of the time.

The Boring Company will need to rely on those economies as it embarks on the Las Vegas project. Under the contract, it would get only a little over a million dollars up front, receiving more money as it hits various milestones, including $2.5m for excavating the first station and $3.2m for completing the first 100 feet of tunnel. It will have to build all the tunnels, stations and system infrastructure on payments of less than $14m.

Payments would increase when the first autonomous electric vehicles start testing, around six weeks before the system opens in late 2020. The Boring Company’s final payments will depend on it demonstrating that it can transport 4,400 passengers an hour, day after day.

Even once the Las Vegas Loop is up and running, The Boring Company is not off the hook. The contract specifies that if the system is unable to provide full passenger capacity during its first 18 months of operation, The Boring Company will pay a penalty of $300,000 per event, up to a total of $4.5m.

Musk’s system is likely to face its toughest test almost immediately. The world’s most attended trade show, the Consumer Electronics Show, descends on Las Vegas every January, with the 2021 exhibition starting just a few weeks after the Loop’s planned completion date.

If the Loop can successfully cope with those crowds, The Boring Company envisages expanding the Loop to eventually serve the airport, a stadium, and its famous Strip. Ultimately, Musk wants to build networks in cities around the world.