Current Trends in Canadian PPP and
Infrastructure Projects
January, 2014
Presented by
Graham McLeod
Outline of Presentation
1. PPP Projects and the Global Infrastructure
Deficit
2. Canadian PPP Project Examples
3. PPP Delivery Models
4. Canadian PPP Project Trends and Innovation
1. PPP Projects and the Global
Infrastructure Deficit
Infrastructure Deficit
• Studies show the global economy running an infrastructure deficit of
anywhere from US$ 40 trillion to $70 trillion
• Problem is compounded by growing (and ageing) populations and
ageing infrastructure
• Significant issues with deferred maintenance
– Accelerates decline in the useful life of an asset
– Politically expedient to focus on short term priorities rather than longer term goals
such as long term lifecycle of an asset
Comparison – Sudbury Regional Hospital
Phase I
Traditional Procurement
Construction Start: 1998
Construction End: 2004
Result: Scope creep; over budget
by 195%
Phase II
PPP Build-Finance with
Infrastructure Ontario
Construction Start: 2007
Construction End: Dec 2009
Result: On time, on budget with
demonstrable VFM
2. Canadian PPP Project
Examples
Profile: Bridgepoint Health
The new Bridgepoint Health is a LEED® certified, state-of-the-art facility that
has been designed to advance Bridgepoint Health’s focus on research,
education and care for individuals with complex chronic diseases.
2015 Pan/Parapan American Games
•
•
•
Pan Am Athletes' Village:
– Housing for more than 10,000 athletes, with
community benefiting from post-game housing,
recreation and student facilities
– Redevelopment of vacant brownfield site close
to downtown Toronto
Pan Am Stadia and Velodrome:
– Redevelopment of 22,500-seat stadium to meet
FIFA and CFL requirements
– 5,000-seat athletics stadium
– 2,500-seat 250 metreindoor velodrome
Other Pan Am projects:
– Aquatics centres, field hockey centre, lab and
training facilities, field houses, etc.
Profile: Eglinton Crosstown LRT Project
Infrastructure Ontario and Metrolinx are working to deliver a new light rapid
transit project in Toronto. This is the cornerstone of an $8.4 billion commitment
to new transit projects in Toronto.
The 19-kilometre corridor will include a 10-kilometre underground portion, with
25 stops and stations that will provide linking to bus routes, three subway
stations and various GO Transit lines.
Sudbury Biosolids PPP Project
•
•
•
Construction started in July
2013 on a new biosolids
management facility procured
by the City of Sudbury, Ontario
as its first PPP project
The new Biosolids
Management Facility will
process sewage sludge to
create a product with low odour
potential and little
environmental impact
Project value is $63.1 million.
PPP Canada is funding $11
million of that amount
Profile: Waterloo Regional Courthouse
The Waterloo Regional Courthouse project will consolidate Superior Court of
Justice and Ontario Court of Justice services in one facility. Bringing justice
services together under one roof in a modern, accessible facility will help
reduce delays in the court system and increase access to justice.
BC Housing’s SRO Renewal Initiative
•
•
•
The SRO Renewal initiative is a publicprivate partnership to renovate and restore
13 historic public housing buildings in
downtown Vancouver
The capital cost for the project is $143.3
million, which includes $29.1 million from
the Government of Canada through the P3
Canada Fund.
The project includes a 15-year
maintenance term to cover lifecycle, repair
and replacement of building components
and systems.
3. Canadian PPP Project
Delivery Models
Design-Build-Finance-Maintain (DBFM)
Government
Payments starting at
Substantial Performance
Lenders’ Direct
Agreement
Lender
Construction Loan
Contractor
Project
Sponsor *
Project Agreement
Project Co
Integrated
designconstructionservices
Design
* Hospital or IO (Public Works)
14
Facilities
Management
Design-Build-Finance-Maintain model
Traditional
Public Sector Risks
Private Sector Risks
Functional
Program
Construction
Design
Construction
Schedule
Financing
Facility
Maintenance
AFP: Design-Build-Finance-Maintain (DBFM)
Public Sector Risks
Functional
Program
Private Sector Risks
Design
Construction
Project
Specific
Output
Specifications
Construction
Schedule
Financing
Scheduled
Lifecycle
Lifecycle
Facility
Availability,
Performance
& Asset Value
Facility
Availability,
Performance
& Asset Value
Facility
Maintenance
Design/Build-Finance (D/BF) Model
Infrastructure
Ontario
Community
Government
Financier
Local share
(if applicable)
Public Sector
Sponsor
(e.g., Hospital)
Payment after
Substantial
Completion
Construction
Loan
16
General
Contractor/
Project Co
Design
Build-Finance model
Traditional
Public Sector Scope
AFP: Build-Finance (BF)
Private Sector Scope
Public Sector Scope
Functional
Program
Construction
Functional
Program
Design
Construction
Schedule
Design
Financing
Facility
Maintenance
Facility
Maintenance
Lifecycle
Facility
Availability,
Performance
& Asset Value
Lifecycle
Facility
Availability,
Performance
& Asset Value
17
Private Sector Scope
Design
Coordination
Financing
What makes PPP different
Differences from traditional procurement:
• Appropriate risk transfer away from public sector
• More opportunity for innovation with built-in penalties and incentives
• Payment occurs only after construction completed
– Lender due diligence brought in to achieve on-time, on-budget delivery
• Long term building maintenance concession tied in with building
team (DBFM)
– Ensures that the facility will be available over the long term
– Integration of design and construction with building maintenance and
lifecycle costs
PPP Models: Risk Management
• Identify all potential project risks
– Discuss likelihood and consequences or impact of sources of
risk (e.g. site, schedule, environmental, construction, design,
etc.)
– Prioritize risks
– Identify and evaluate risk mitigating strategies
• Risk transfer
– Discuss opportunities for appropriate risk transfer
– Summarize ideal risk allocation strategy
– Strive for a balance
Benefits of Canadian PPP Delivery Models
BENEFITS OF PPP
Uses private expertise and financing to deliver public infrastructure
Project Planning
•Development and management of all project
costs in an integrated fashion over entire project
(construction, lifecycle and operations) for optimal
cost allocation
•Innovation achieved by having three creative
sources for design
•Generic Output Specifications for hospitals
Risk Transfer
•Appropriate risk transfer away from SponsorClient (design, scheduling delays, upkeep of
facility, financial risks)
•Warranty to P3 Sponsor-Client that the facility
will be available over the long-term
•More opportunity for innovation with built-in
penalties and incentives
Procurement Process
•Clear roles and responsibilities
•Strong governance
•Extensive due diligence
Standardization
•Use of templates to reduce costs and stream-line
project delivery schedule
Value for Money
•
•
VFM is a process of comparing costs using two delivery models to
determine which is the better value proposition
If the P3 cost is less than the traditional cost there is positive VFM procuring
a project with IO’s P3 model
4. Canadian PPP Project
Trends and Innovation
Procurement Certainty
•
PPP in Canada has been driven through centralized project
delivery units “centres of excellence”
–
–
–
–
•
Partnerships BC
Infrastructure Ontario
P3 Canada
Sask Builds
This framework has set the stage for the other trends and
innovations in Canadian PPP project delivery.
Standardized Documents
•
Each of the key PPP project delivery units have developed their
own set of standardized PPP procurement documents and project
agreements
–
–
Infrastructure Ontario followed the UK model for project agreements
Province of Alberta developed a greatly streamlined project agreement
Standardized Deal Terms
•
Once a Canadian jurisdiction adapts a model, the trend has been
to adhere to the model from project to project, and across project
types
–
First road project in Ontario relied heavily on the project agreement for social
accommodation projects adjusted for key project risks such as geotechnical
Limited Scope of Negotiations
•
Principle negotiations occur during the RFP period with each of
the bidders
1-on-1 meetings with bidders to discuss and negotiate technical
and legal terms of the project prior to proposal submission
•
–
•
Some common features with competitive dialogue process in UK, but essence
of the Canadian approach is to condense negotiations into the period prior to
proposal submission rather than in multiple stages of competitive dialogue
After proposal evaluation, trend is for very limited scope to
negotiate the project agreement
–
–
Proposal prices are based on the PA attached to the RFP
Negotiations are typically limited to technical issues and modifications to
reflect the preferred bidder’s structure and financing approach
Efficient Procurement Schedule
• Canadian procurement agencies drive up-front due diligence to
make sure that once projects are announced, they reach
financial close
• Once they reach the market, they happen fast
– In Ontario, 12 to 16 months from RFQ to financial close
• Win-win for public and private sectors
– Public sector benefits through on-time and certain project schedules
– Private sector benefits through confidence that their investment in bidding
PPP projects is recognized and rewarded by projects that reach financial
close
Procurement Trends – Bidders Costs
•
•
•
•
An increased tendency to the payment of bid fees paid to bidders
An increasing frequency of “break fees” to be paid in the event
that the competitive procurement is discontinued
Both are investments in the professionalism of the process
These tools help to indicate to bidders that the procuring authority
is serious about the project and intends to carry it through
Procurement Trends – Municipal Projects
•
Canadian municipalities are starting to embrace PPP delivery
models
Range of project size and scope, but include large public
transportation projects
•
–
–
•
City of Ottawa LRT Project
City of Waterloo LRT Project
Partly through use of P3 Canada funding, municipalities are
showing a tendency to “not reinventing the wheel”
–
–
Borrow approach and documentation from provincial procurement agencies
Engage provincial PPP agencies (IO, Partnerships BC) as advisors to
municipal projects
Procurement Trends – Hybrid Models
•
Ontario’s Design-Build-Finance and Build-Finance models use
PPP approaches for projects that aren’t well suited to a full DBFM
model
–
–
•
Renovation projects
Smaller projects where VFM does not exist for long-term finance costs
Result has been to develop risk transfer in innovative ways
–
Ontario’s BF model uses ‘contractor design contingency’ to mitigate change
order risk that is a common source of change orders and cost overruns in
traditional procurement models