Alternative Financing and Procurement in Ontario, Canada David Livingston President and CEO Infrastructure Ontario

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Alternative Financing and Procurement in Ontario,
CanadaDavid LivingstonPresident and
CEOInfrastructure Ontario
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Welcome to Ontario

• Half a trillion dollar economy
• Population of 12.8 million 39 of Canadas
  nominal GDP and population
• Toronto is the 3rd largest financial centre and
  5th largest urban centre in North America
• Trade-oriented over 300 billion with US in
  2006

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Building A Better Tomorrow framework

• Addresses Ontarios infrastructure deficit
• Five key principles
• The public interest is paramount
• Value for money must be demonstrable
• Appropriate public control/ownership must be
  preserved
• Accountability must be maintained
• All processes must be fair, transparent and
  efficient
• Infrastructure Ontario established as execution
  agency for Alternative Financing and Procurement
  (AFP) projects

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What AFP is all about Protecting the public
interest

• AFP is
• Integrating a projects Design, Build, Finance
  and Maintenance components
• Risk transfer
• Value for money
• On time, on budget execution
• AFP is not
• Generally new money
• Privatization
• So why not call it PPP?
• Avoid privatization label

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Infrastructure Ontarios role

• Execute assigned projects
• Drive scope detail post assignment
• Project costing prior to RFP release
• Manage procurement process
• Manage construction phase
• Hand over at construction completion

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Alternative Financing and ProcurementDelivering
projects for Ontario

• Nearly 6 billion in capital tendered in the past
  26 months
• Closed a variety of projects and worked with
  diverse market participants, advisors and
  stakeholders
• Standardized models and templates

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What makes AFP different

• Differences from traditional procurement
• Appropriate risk transfer away from public sector
• 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)
• Warranty to the Province that the facility will
  be available over the long term
• Integration of design and construction with
  building maintenance and lifecycle costs

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Managing interest-group oppositionCounter myths
with the truth about AFP
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Managing interest-group oppositionCounter myths
with the truth about AFP
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Managing interest-group oppositionCounter myths
with the truth about AFP
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Managing interest-group oppositionCounter myths
with the truth about AFP
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Other benefits of AFP and Infrastructure Ontario

• Managing costs
• Optimal cost combination combines capital,
  operating, maintenance and life cycle costs
• Integration of design, construction and
  facilities management
• Competitive whole life cycle cost proposals
• Good project planning
• Clear roles and responsibilities
• Strong governance
• Cost predictability
• Create right incentives
• Transfer financing
• Payment mechanism

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What makes Ontario unique?

• Project assignment approach clear commercial
  authority on transactions
• Build-Finance model
• Time to market time to financial close
• Predictable deal flow
• Opportunities with broader public-sector partners
  (municipalities, universities, etc.)
• Shareholder (government) commitment to AFP
• Continuity of IO involvement
• Standardization of process and documents

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AFP Models and Approaches
New Construction
Project Type
Renovations or additions with significant
interconnections to existing infrastructure

• Design
• Construction
• Financing

Role of Private Sector

• Design
• Construction
• Financing
• Maintenance

Role of IO

• Commercial authority on structuring deals
• Program/project management services through
  transaction and implementation phases
• Focused on standardization, program predictability

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Traditional versus AFP DBFM project
Traditional
AFP Design-Build-Finance-Maintain (DBFM)
Public Sector Risks
Private Sector Risks
Public Sector Risks
Private Sector Risks
Construction
Functional Program
Functional Program
Design
Construction
Construction Schedule
Design
Project Specific Output Specifications
Construction Schedule
Financing
Financing
Facility Maintenance
Scheduled Lifecycle
Facility Maintenance
Lifecycle
Facility Availability, Performance Asset Value
Facility Availability, Performance Asset Value
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DBFM model transaction phase timeline
Expiry of Concession Period
Selection of Preferred Proponent
6 months
6 months
4 months
1 month
11 months
Significant volume of work done before RFQ

• Scope assessment
• Budget commitment
• Value for money determined

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What is Value for Money ?

• Value for money is a process of comparing
  estimated costs using two delivery models to
  determine which is the better value proposition

• The cost difference between Model 1 and Model
  2 is the estimated Value for Money
• AFP costs Financing, Infrastructure Ontario
  overhead, Project advisors
• Key AFP benefit Risk transfer
• The savings achieved through risk transfer more
  than offset additional AFP costs

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Making projects happenProgress to dateMarch,
2008

• 16 social infrastructure projects under
  construction
• Three projects approaching financial close
• 10 projects in procurement phase
• RFP for Ontario Highway Service Centres approved
  for release

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Ontario examples of market response
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Lessons learned so far

• Benefits of the AFP process
• Schedule-driven
• Clear governance structure
• Managing costs through standardization
• Value for money
• Importance of communication with industry,
  co-sponsors
• Staging, managing market capacity issues with
  industry
• Ensuring co-sponsor buy-in on IO approach and
  process
• Interest group opposition
• Counter with transparency
• Third-party validation
• Drive standardization

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Design-Build-Finance-Maintain projectsPlenty of
work and opportunities in the pipeline

• 19 additional DBFM projects to come to market
• Health, courthouses, corrections facilities
• Transit and transportation
• Ontario Highway Service Centres
• MoveOntario 2020 vision
• Water infrastructure
• Energy
• Education institutions
• Continuation of social infrastructure projects
• Other assignments from 10-year, 60-billion
  capital plan

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Alternative Financing and Procurement in Ontario,
CanadaDavid LivingstonPresident and
CEOInfrastructure Ontario