Canadian Council for Public-Private Partnerships Sample Articles

Prepared for VIA Rail May 27, 2015

                                                                                           

                                                                                           

WWW.P3BULLETIN.COM VOLUME 1 ISSUE 1

CENTRALIZED PROCUREMENT Why the US P3 market could benefit from a central body p12

LATIN AMERICA KPMG’s Mauricio Endo analyses the region p17

SARAH CLARK Partnerships BC’s president and chief executive looks to the future p24

WEST COAST Find out what happened at our inaugural P3 Hub event p22

THE NEED FOR SPEED Canada’s P3 market is heading for transport

                                                                                           

The Canadian market is regarded as a global leader when it comes to social infrastructure P3s. But with other sectors like transport now in serious need of investment, Dan Colombini reports on the next big challenges for the country

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The era of the big

P3 hospital is now

behind us

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TRANSPORT PROJECTS AT A GLANCE – CANADA

Toronto

Regina

Edmonton

WaterlooWindsor

LIGHT RAIL TRANSIT (LRT) PROJECTSToronto, Ontario Eglinton Crosstown P3 Edmonton, Alberta Edmonton LRT P3Waterloo, Ontario Kitchener-Waterloo LRT P3

BRIDGE PROJECTS Windsor, Ontario Detroit-Windsor bridge P3 Montreal, Quebec Champlain Bridge P3

Montreal

Yukon

British Columbia

Northwest TerritoriesNunavut

Alberta

Saskatchewan

Manitoba

Ontario

Quebec

NewBrunswick

Newfoundland and Labrador

Prince Edward Island

HIGHWAY PROJECTSRegina, Saskatchewan Regina Southeast Bypass Toronto, Ontario Highway 407 East Phase 2

MAINTENANCE AND CIVIC OPERATIONS PROJECTS Toronto, Ontario GO Transit East Rail Maintenance Facility P3 Toronto, Ontario Scarborough/Sheppard Maintenance and Storage Facility P3 Montreal, Quebec Pointe-Saint-Charles Commuter Train maintenance Centre P3

COVER STORY NEED FOR SPEED

!"#$%&&'()*##+##21 Please find this article online at: http://www.p3bulletin.com/features/view/1156 !

By: Tess Kalinowski Transportation reporter, Published on Fri May 22 2015 Public-private partnerships (P3s) are like car insurance, says Infrastructure Ontario CEO Bert Clark. It costs more up front but when things go wrong you don’t have to worry about paying for the repairs.

Ontario’s agency in charge of public-private partnerships has used various private-sector financing, project management, design and maintenance arrangements to build dozens of Ontario hospitals, courthouses and other public facilities. The majority have been delivered on time and on budget. All of those assets — and Clark stresses this because he says it’s a key misconception about P3s — remain publicly owned. Now, at a time when Toronto-area politicians and residents are feeling stung by overdue, over-budget projects such as the Spadina subway extension and Union Station, IO is casting its sights on the transportation sector. Premier Kathleen Wynne and Mayor John Tory (open John Tory's policard) are both focused on transit expansion. “It doesn’t take a political genius to anticipate there will be quite a bit of infrastructure investment over the next five to 10 years and it will likely be in heavy rail or transit,” said Clark. If the TTC had used a P3 to build Spadina, would the subway still be more than two years behind schedule and more than $150 million over its $2.63-billion budget? Could a P3 ensure the Scarborough subway doesn’t suffer similar setbacks? The questions have to be asked, say some city councillors, including TTC chair Josh Colle (open Josh Colle's policard). Through contracts that offer penalties and incentives to private companies to meet construction targets, the government arranges for the private sector to take on the risk of a project going over-budget or over-schedule. In exchange, the public pays an upfront premium to make sure it doesn’t get stuck with a bigger bill in the end. Not everyone believes it’s a worthwhile proposition. Last fall, Ontario’s auditor general reported that the Liberal government’s P3 contracts cost taxpayers $8 billion more than if the public sector had properly managed those projects itself.

That’s a big “if,” say P3 advocates, given the preponderance of over-budget, overdue public projects. The Ontario government’s commitment to the model doesn’t necessarily mean it makes sense for the city either, said Councillor Shelley Carroll (open Shelley Carroll's policard), a former Toronto budget committee chair, who sits on the TTC board. She says she’s not wedded to public management of large capital projects. “But I’m not seeing the P3 payoff,” said Carroll, particularly in terms of financing. The city already has excellent borrowing capacity and a 30-year private financing arrangement on a project like the Scarborough subway could just add to the long-term burden of building the infrastructure, she said. It’s the project-management side “that’s the real piece” for the city, said Carroll, who says she’s never seen an exhaustive evaluation of public- versus private-sector project management (the scheduling, supplying and subcontracting of the project). Once that’s determined you can have an ideological discussion about whether control should remain in the public sector or whether it makes sense to contract out management, operations and maintenance of the project, she said. According to IO’s Clark, ideology — the belief that the public sector should own every aspect of a project that belongs to the taxpayers — is the only reason anyone wouldn’t consider a P3 on capital works in the billion-dollar range. “This is an entirely pragmatic project management approach to delivering infrastructure. But there are still people who will say, ‘I don’t like P3s because it is privatization.’

“We say, ‘What about this is privatization?’ We have the same architectural firms designing it, the same guys designing it in the past, the same guys building it, those guys built it in the past. We’re now holding those guys accountable for the work they do. It’s still a public asset. If you walk into a public hospital we built you will not notice anything other than it’s a very well-maintained building. In terms of your experience as a user of the public service in there — zero difference,” he said. Clark wouldn’t discuss specifically whether a P3 is the right solution for the Scarborough subway. He would only say that it needs to be considered for any large project — large meaning anything in the billion-dollar range. While P3 transit projects are relatively rare in North America, IO has already dipped its toe into the multi-billion-dollar sector. Its provincial P3 on Metrolinx’s $5.3-billion Eglinton Crosstown LRT, is out to tender. It is also spreading the P3 gospel at the municipal level, helping Waterloo and Ottawa procure their LRTs. In Ontario, P3s have been less about tapping into private-sector financing than managing construction and cost overruns, something the public sector hasn’t always done well, said Matti Siemiatycki, assistant professor of geography and program planning at University of Toronto. Whether it’s a good idea to use a public-private partnership for transit depends on many factors because they are complex in different ways than a hospital or courthouse, he said. Transit infrastructure runs through changing communities with the constraints of neighbourhood concerns and traffic considerations. Tunnelling adds more risk in terms of what the engineers find in the soil and utilities.

There’s no reason the public sector can’t use IO-style contracts with all the same incentives and penalties, said Siemiatycki. “Why can’t Infrastructure Ontario manage traditional jobs? Then you remove that potential view that public-private partnerships are the only game in town and you open up their set of skills to traditional build projects. Why can’t we structure traditional projects a bit more like P3s in terms of who’s managing the projects?” How P3s work There are different kinds of public-private partnerships. These are two commonly used Infrastructure Ontario models. But some alternative finance and procurement models, as P3s are also known, include operating contracts where a private company maintains and operates the facility it builds. The public-sector owner can still set parameters on user fees and service levels. Build Finance (BF): The public sector designs the facility and the private sector is in charge of construction and finances the project while it is being built. The public sector pays up once the construction is substantially or fully complete. Design Build Finance Maintain (DBFM): The public sector determines the kind of project it wants to build and the needs the facility is to fulfil. Then the private sector designs the infrastructure, builds it, maintains it for a contracted period and finances it. The public sector pays a lump sum once construction is complete and pays the balance over the long-term period of 25 to 30 years that matches the maintenance contract. The Eglinton Crosstown LRT is a design-build-finance-maintain P3. The winning bidder will maintain the line for 30 years, but the TTC will operate the transit. Source: Infrastructure Ontario

How does a P3 differ from a traditional project management model such as the Spadina subway extension? Infrastructure Ontario CEO Bert Clark says there are four important components that bring a P3 project in on time and on budget. The private sector gets a premium — Clark says it usually works out to less than 1 percentage point — to take the risk for problems that emerge on infrastructure projects. Under the traditional model, the public sector comes up with a design for a hospital, school, wastewater plant or transit line. Builders would be asked to bid on an existing design. Inevitably there are problems in the design and the contractor wants more money to repair the issue. It’s what Clark calls “the classic change order.” In the P3, the builder designs the project so they are responsible for keeping changes within the price of the bid. “Lo and behold . . . there are often cheaper ways to resolve design issues. When they’re doing the design they’re constantly looking for more efficient ways to build the building. There’s no incentive for them to be doing that when it’s your design,” said Clark. Big projects aren’t broken into many smaller projects under the IO model. On the Spadina extension there are five contractors building six stations. On Eglinton there will be one for 25. Under the P3 model the contractor doesn’t typically get paid until the job is done. “Under the traditional model we would pay them monthly,” said Clark. “Whenever we got in disputes, they would say, ‘If you’re going to try to make me pay for that issue we’re just going to walk off the site. I’m not going to pour more money into this project. This is your project not mine.’ So we had no leverage.

The leverage you have when all the money in a project is yours is very small. We turned around and said, ‘I’ll pay you when it’s done.’ ” In a public-private partnership where there’s also a maintenance component — as will be the case on the Eglinton Crosstown — the public agency holds back a bit of money beyond completion. “Once it’s built I say, ‘I’m going to pay you almost all the construction costs because I want to know five, 10 years, 15, 20 years from now, this thing was built to last. I don’t want to have something that is breaking down in 20 years and I’m trying to go and find the builder.’ ” Tess Kalinowski         Please find this article online below: http://www.thestar.com/news/gta/transportation/2015/05/22/is-toronto-area-transit-the-next-frontier-for-the-private-sector.html

                                                Enticing large pension funds to spend big on Canadian infrastructure projects will form a key part of the Liberal Party’s cities agenda, which is among the next policy planks that Leader Justin Trudeau will announce in the coming weeks. Mr. Trudeau and his team of advisers are working on the final details of the infrastructure platform, which the party has long said would form a significant part of its pitch to voters in the October election.

But having decided to largely devote future surpluses toward tax cuts and enhanced direct payments to families, there is little room left to promise major additional spending on infrastructure. Senior Liberals responsible for the party’s economic policies say the infrastructure component will draw inspiration from Australia and Britain, where efforts are being made to plan infrastructure projects so they meet the needs of pension investors looking for large, long-term projects that are open to private investment. Liberal finance critic Scott Brison said in an interview that the Liberal plan would not interfere with the mandate of large Canadian pension funds such as the Canada Pension Plan, but would aim to address the reasons these funds are more likely to invest in infrastructure abroad than at home. “You can respect absolutely the independence of Canadian pension funds to do their jobs – and that is maximize long-term pension security and returns for their members – but at the same time you can package projects within Canada that are attractive to not just Canadian pension funds but global pension funds,” he said. Mr. Brison and Liberal MP Chrystia Freeland met Monday with The Globe and Mail’s editorial board. While no date has yet been set for the release of the party’s infrastructure platform, the annual meeting of the Federation of Canadian Municipalities is scheduled for June 5-8 in Edmonton and the party would like to have details ready by then to discuss with Canada’s mayors and city councillors.

Mr. Trudeau was also in Toronto on Monday where he delivered a speech to the Canadian Club that promoted the tax policies he announced last week. He argued that taxing high-income Canadians to pay for these measures is a better way to raise revenue than the NDP’s proposal of higher corporate tax rates. The tax proposals were the first of what is expected to be a series of policy announcements in the coming weeks that will include infrastructure, child care and innovation. Attracting more pension investment in Canadian infrastructure would require selling Canadians on a much larger role for public-private partnerships than is currently the case. It would also mean going further in a direction that is already preferred by the Conservatives. It is the Harper government that created a Crown corporation – PPP Canada Inc. – in 2009 focused on public-private partnerships for infrastructure. The 2015 federal budget promised a new public transit fund that would run through PPP Canada and would receive $1-billion in annual funding starting in 2019-20. A 2013 analysis by the Organisation of Economic Co-operation and Development looked specifically at pension-fund investment in infrastructure and compared the Australian and Canadian approaches. It said Canadian pension funds have been dubbed the “Maple revolutionaries” by the Economist magazine for their expertise in infrastructure investing around the world, but that these funds “bemoan the lack of investment opportunities at home.”

The report said these funds view public-private partnerships in Canada as too small. While Mr. Brison and Ms. Freeland said in interviews Monday they are interested in Australia’s approach, the OECD report questioned whether these policies would be popular with Canadians. “Australia has a history of privatization over the last two decades, especially in large transport items such as airports, ports, toll roads and tunnels. In contrast, only very few privatizations of public infrastructure assets have occurred in Canada,” it said. “According to observers, there is no widespread political will to do so in the foreseeable future.” Meanwhile, a 2011 program in Britain called the Pensions Infrastructure Platform that was meant to entice pension investment in infrastructure has run into criticism and has so far failed to meet its initial targets. Please find this article online below: http://www.theglobeandmail.com/news/politics/liberals-to-encourage-pension-funds-to-invest-in-infrastructure/article24383466/

   

Depending on who was asked, it was almost at a full stop, for others, it was definitively a go. The panel was on gaining public and union trust, and featured Bob Kinnear, president of the Amalgamated Transit Union Local 113, Hugh Mackenzie of Hugh Mackenzie and Associates, Mark Romoff,

president and CEO of the Canadian Council for Public-Private Partnerships and Mike Yorke, president of Carpenters Local 27 of the Carpenters District Council of Ontario. "There's no lights on at all at the moment," stated Mackenzie about the use of P3s. "How can you convince people that the government is capable of protecting the public interest in P3 agreements, when we've got a fist load of significant examples in Ontario where that's failed." Mackenzie pointed to the previous sale of Hwy. 407 in the late '90s and the failed gas plants as some examples.

"Every one of the so-called Liberal scandals that we've experienced over the last 10 years, every one of them can be linked to what amounts to a failed P3 contract," he added. However, both Yorke and Romoff were quick to defend the P3 model, stating it has obvious benefits. "We do believe that P3s have worked well. There's been no deterioration on our collective bargaining, our working conditions or our wages," Yorke explained. "In fact, P3s have generated real jobs and real investment. Here in Ontario, 175,000 full time equivalent jobs...$10 billion in total income, wages and benefits, $15 billion in total GDP. These are numbers that are valued to our members and our communities." Romoff stated P3s need to be a tool in the toolbox in order to move needed infrastructure along. "This is an approach that has to be looked at seriously," he said. "These projects continue to deliver and furthermore with every project they get better." He stated Infrastructure Ontario has a strong reputation in managing P3s with 97 per cent of the 37 Alternative Financing and Procurement (AFP) projects recently reviewed delivered on or under budget and 27 completed on time. "The argument is very very compelling," he added. "I think that the government of Ontario would say categorically a number of projects, particularly hospitals in Ontario, would never have gone ahead had it not been for access to the AFP approach." However, from a transit perspective, Kinnear wasn't optimistic about P3s.

"Honestly, I'd like to learn of an example of a transit privatization success because otherwise it means that the people at the very top have absolutely no idea what they're talking about when they recommend transit P3s," he stated. When the panel was asked about the potential for municipalities to move into the AFP realm more prominently, several panelists expressed concern as to how that would be carried out. "The municipalities, generally the scope of work...may not meet the scope of major investors," explained Kinnear. "In general I think that municipalities are operating at too close and too small at the end of the spectrum of P3 investment," added Mackenzie. "I think it would be a mistake." Yorke stated each project would have to be looked at carefully, so that if elements were bundled to make the project more appealing, it wouldn't exclude smaller businesses from trying to compete. "The industry needs growth. If you bundle everything, then you exclude a lot of the smaller players," he said. "You have to be pretty careful in how you approach it." Romoff, however, said it shouldn't be completely ruled out. "What I will say about municipalities is that they have a pretty dismal track record of delivering projects using traditional procurement," he stated, pointing to several Toronto projects like the Spadina subway extension, and the Queens Quay revitalization, which have both come in significantly over budget. "These are clear examples of projects that have not brought the discipline that P3 demands you bring to these projects."

Mackenzie said more discussion needs to be had around P3s and their effectiveness. "A lot of the discussion we get into about P3s...makes the implicit assumption that if there isn't a P3, there aren't going to be any infrastructure projects," he said. But Yorke said for his members, the use of P3s was pivotal during the recession, ensuring there was work. "Is the P3 model perfect? No. Does it work? I would say yes," he added. "Has it helped to keep the economy going and our people working? Absolutely." May 21, 2015 Please find this article online below: http://dailycommercialnews.com/Economic/News/2015/5/Public-and-union-trust-of-P3s-a-winding-road-panel-1007760W/

  Canada's 2015 federal budget plan, released on Tuesday [21 April], sets aside an additional Can$1 billion (£548m €760m US$818m) per year for PPP Canada to establish a new Public Transit Fund. Winning praise from the infrastructure market, the freshly announced fund represents a major boost in funding for P3s, which the budget recognises as a way to transfer risks such as cost overruns, schedule delays and unexpected maintenance to the private sector. The new funding will kick off in 2017 with Can$750 million (£411m €570m US$614m) provided over a twoyear period, after which it will rise to Can$1billion (£548m €760m US$818m) annually. P3 Canada, a crown corporation that both advises and helps fund publicprivate partnerships in Canada, currently has a fiveyear budget of Can$1.25 billion (£685m €950m US$1bn). "The Federal Government has demonstrated leadership today by continuing to invest in public transit infrastructure that is critical to the economic engine of our municipalities and to people's quality of life," Mark Romoff, CEO of the Canadian Council for Public Private Partnerships, said in a statement.

"While all applicable financing mechanisms will be explored, we are grateful that the government specifically identifies P3s as a valuable tool in delivering large complex projects." Romoff told inspiratia that Canada faces significant challenges in public transit investment and that the new permanent funding plan sends an important message and will help drive value for money. Details have yet to emerge – such as which projects may be the first to benefit from the fund as well as the framework of funding allocation. The government will announce further details about program parameters for the Public Transit Fund later this year. The current P3 fund allows the government to fund up to 25% of a project's capex. Romoff says one study found that P3s have contributed Can$25 billion (£13bn €19bn US$20bn) to Canada's GDP over a 10year period, creating 290,000 jobs. The country has successfully completed around 220 PPPs across a range of sectors with an admirable efficiency on average completing projects 1 year faster than in the UK. The majority of projects are procured at the provincial or local level, but there has also been strong political will federally, facilitating efficient coordination and a robust pipeline of projects. The new budget plan notes that executing complex P3 transactions can be a challenge for smaller jurisdictions and encourages bundling of small projects to provide the necessary scale and opportunity to transfer risk to the private sector. Some Canadian municipalities have already successfully launched bundled P3 projects, such as Saskatoon's Civic Operations Centre project, which included

the relocation of the city's transit operations facility and the construction of a permanent snow management facility. The budget also offers to cut red tape on the secondary infrastructure market. Canada is home to some of the world's largest and most experienced private sector infrastructure investors. One potential reform highlighted by the budget would be to scrap a rule restricting federal pension funds from holding more than 30% of the voting shares of a company.