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Current Trends in Canadian PPP and Infrastructure Projects

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Current Trends in Canadian PPP and Infrastructure Projects January, 2014 Presented by Graham McLeod Outline of Presentation PPP Projects and the Global Infrastructure ... – PowerPoint PPT presentation

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Title: Current Trends in Canadian PPP and Infrastructure Projects


1
Current Trends in Canadian PPP and
Infrastructure Projects
  • January, 2014
  • Presented by
  • Graham McLeod

2
Outline of Presentation
  • PPP Projects and the Global Infrastructure
    Deficit
  • Canadian PPP Project Examples
  • PPP Delivery Models
  • Canadian PPP Project Trends and Innovation

3
  • 1. PPP Projects and the Global Infrastructure
    Deficit

4
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

5
Comparison Sudbury Regional Hospital
  • Phase II
  • PPP Build-Finance with Infrastructure Ontario
  • Construction Start 2007
  • Construction End Dec 2009
  • Result On time, on budget with demonstrable VFM

Phase I Traditional Procurement Construction
Start 1998 Construction End 2004 Result Scope
creep over budget by 195
6
  • 2. Canadian PPP Project Examples

7
Profile Bridgepoint Health
  • The new Bridgepoint Health is a LEED certified,
    state-of-the-art facility that has been designed
    to advance Bridgepoint Healths focus on
    research, education and care for individuals with
    complex chronic diseases.

8
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.

9
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.

10
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

11
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.

12
BC Housings SRO Renewal Initiative
  • The SRO Renewal initiative is a public-private
    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.

13
  • 3. Canadian PPP Project Delivery Models

14
Design-Build-Finance-Maintain (DBFM)
Payments starting at Substantial Performance
Project Sponsor
Government
Lenders Direct Agreement
Project Agreement
Lender
Project Co
Construction Loan
Integrated design-construction-services
Contractor
Facilities Management
Design
Hospital or IO (Public Works)
15
Design-Build-Finance-Maintain model
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
16
Design/Build-Finance (D/BF) Model
Infrastructure Ontario
Design
Local share (if applicable)
Community
Public Sector Sponsor (e.g., Hospital)
Government
Payment after Substantial Completion
Construction Loan
Financier
General Contractor/ Project Co
17
Build-Finance model
Traditional
AFP Build-Finance (BF)
Public Sector Scope
Private Sector Scope
Public Sector Scope
Private Sector Scope
Construction
Functional Program
Functional Program
Design Coordination
Construction Schedule
Design
Design
Construction
Financing
Facility Maintenance
Construction Schedule
Facility Maintenance
Lifecycle
Financing
Lifecycle
Facility Availability, Performance Asset Value
Facility Availability, Performance Asset Value
18
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

19
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

20
Benefits of Canadian PPP Delivery Models
BENEFITS OF PPP Uses private expertise and financing to deliver public infrastructure 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 Sponsor-Client (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
21
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
    IOs P3 model

22
  • 4. Canadian PPP Project Trends and Innovation

23
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.

24
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

25
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

26
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
    bidders structure and financing approach

27
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

28
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

29
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

30
Procurement Trends Hybrid Models
  • Ontarios Design-Build-Finance and Build-Finance
    models use PPP approaches for projects that
    arent 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
  • Ontarios 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
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