2nd annual canadian innovation in infra fin 2011

Achieving better value, timeliness and accountability through
Public-Private Partnerships

2nd Annual
Federal Canada
Innovation in Infrastructure Finance
Forum

PPP Canada
October 30, 2012

What is PPP Canada?
•  A Federal Crown Corporation
•  Reports to Parliament through the Minister of Finance
•  Led by an accomplished private sector Board of Directors
•  Partial Agent of the Crown

Mandate

•  To act as a source of expertise and advice on public-private
partnership matters.
•  To assess public private partnership opportunities at the federal
level in accordance with criteria established by the Treasury Board.
•  To advise on the execution of public-private partnership projects at
the federal level.
•  Manage the $1.2 billion P3 Canada Fund

2

PPP Canada Value Proposition

What and who we •  Knowledge and networks to capital
know market participants and private and public
sector P3 practitioners

Project experience •  Practical and technical project experience

Providing incentives •  P3 Canada Fund
and support •  Project Development Fund

3

Growing and Supporting a Pipeline of Federal P3s

Supporting P3
Implementing Building
business case
Federal institutional
development
Screen frameworks

4

Definition
P3s are a long-term performance-based approach for procuring public
infrastructure where the private sector assumes a major share of the
responsibility in terms of risk and financing for the delivery and the
performance of the infrastructure, from design and structural planning, to
long-term maintenance.

•  Integration of roles (Design, Build, Finance, Operate, Maintain);
•  The provision of capital assets and associated services to meet a defined
output specification (i.e., define what is required rather than how it is to be
done);
•  A transfer of risk to the private sector anchored with private sector capital
at risk;
•  Entered into by a competitive process.

5

What is Not a P3
The following types of contractual arrangements ARE NOTARE NOT
The following types of contractual arrangements examples of
P3 arrangements:
examples of P3 arrangements:
–  privatization;
–  joint ventures with the private sector;
–  co-ownership with another public sector body;
–  arrangements for the divestiture of federal assets where the private
partner will become the new owner;
–  design-build contracts;
–  service-only contracts
–  Sale/lease-back contracts; and
–  lease-purchase contracts.

6

How do P3s Work?

Contractual relationship between public sector and private
sector

Payments based on performance

Private sector puts money at risk

7

The Federal Screen
• The purpose of the P3 Screen isis to raise the level of
The purpose of the P3 Screen to raise the level of
awareness and consideration of P3s inin the federal
awareness and consideration of P3s the federal
investment planning process.
investment planning process.
•  It is a consistent and systematic approach for assessing
the P3 suitability of capital investments.
•  The screen supports the efficient use of analytical
resources by ensuring that investments with limited P3
suitability do not needlessly consider the P3 option.

8

What Types of Projects?

Larger, more complex projects

Outcomes / outputs can be specified and are stable

Market interest / capacity

User fees not a driver or necessity for P3s but can broaden
scope

9

PPP Canada’s Screening Matrix
•  The P3 Screening Matrix identifies whether an investment
presents the right mix of traits to succeed as a P3.
•  It asks the user to consider 14 questions on a scale of
indicators from 1 to 5.
•  The user considers the question in the context of their
proposed investment and identifies the best indicator that
best aligns with their assessment.
•  The user also provides a complete rationale for their rating.
•  The user’s scores will be modified by a weighting factor
that reflects the relative importance of that criterion in
determining P3 suitability.
10

Interpreting Screening Results

Green
•  Indicates that the P3 option should be included in
the Procurement Option Analysis or Business
Case to be developed for the investment

Yellow
•  Indicates that the investment presents a mix of
favorable and unfavorable indicators for P3
delivery

Red •  Indicates the P3 option should not be retained for
further analysis

11

A Word on the Screening Result

The accuracy of these results is a function of the degree of
definition and the current state of planning around the
investment – clearer definition and greater understanding of
the investment will provide better screening results.
There is no one overwhelming indicator of P3 suitability.

12

My Asset has P3 Potential: What Now?

Assessing P3 potential is only the first step in a larger analytical process that
concludes with a recommendation on the optimal approach to procurement.

A positive screening outcome signals that the P3 option must be included the
broader Options Analysis for the investment.

Life-cycle options analysis is a long-standing requirement of Treasury Board
policy.

PPP Canada is developing tools and methodologies for supporting these
subsequent phases of analysis as well as the procurement phase.

13

100, Queen Street, Suite 630
Ottawa, Ontario K1P 1J9
Canada

Telephone: (613) 947-9480
Fax: (613) 947-2289
Toll Free Telephone: 877-947-9480

Email: info@p3canada.ca
Website: www.p3canada.ca

Budget 2011 and Federal Public-Private
Partnerships

Office of the Comptroller General
Treasury Board of Canada Secretariat
October 30th 2012

Overview

•  Budget 2011 Screening requirements.
•  Government of Canada real property asset
portfolio and policy context.
•  Implementation of Budget 2011 and next steps.

2

Budget 2011 – P3 Screen for Large
Investments in Infrastructure
•  Mandatory P3 screening requirement when
capital costs of the asset are $100M or more and
the lifespan is at least 20 years.
•  If the screen identifies a P3 as a viable option,
the department is required to develop a P3
proposal in addition to other options.
•  Departments to screen in consultation with PPP
Canada.

3

Government of Canada Real Property
Portfolio
•  Complex portfolio across large geographical area.
•  Assets include a very broad range of resources
ranging from land, office buildings, special purpose
buildings (eg. laboratories) and engineering works and
infrastructure (eg. bridges, roads).
•  Total value of assets: approx. $57 Billion (2011).
•  Current issues :
–  Aging assets (particularly buildings and
infrastructure, such as roads and bridges).
–  Need to optimize scarce capital dollars.
–  Need to use private sector innovation and
financing. 4

Government of Canada Real Property
Inventory
Buildings Properties
•  29,929 domestic •  21,252 properties
•  1,917 abroad •  40.7M (ha) domestic
•  82% Crown owned •  1,100 (ha) abroad
•  Major Custodians: •  95% Crown owned
–  National Defence •  Major Custodians:
−  Parks Canada
–  Parks Canada
Agency
–  RCMP −  National Defence
–  Public Works and −  Agriculture and
Government Services Agri-Food
–  Fisheries and Oceans −  Transport Canada
5

Treasury Board Policy Instruments

•  Relevant Treasury Board policies include:
•  Policy Framework for the Management of Assets and
Acquired Services
•  Policy on Management of Real Property
•  Policy on Management of Projects
•  Policy on Investment Planning

•  These policies govern the management of assets
throughout their life cycle.

6
6

Key Policy Principles

•  Assets are only held to support a department’s
delivery of program
•  Value for money
•  Stewardship
•  Management strategies developed based on life
cycle management principles
•  Management decisions encourage innovation

7

Treasury Board Policies and P3

–  P3s are a new tool for managing government
infrastructure.
–  TBS released a guideline for implementing
Budget 2011 P3 requirements.
–  TBS is working on further measures relating
to the requirement to screen investments for
their P3 viability.
–  References are made to PPP Canada’s
Screening Matrix.

8

Federal P3s Going Forward

•  Recent P3 agreements include:
–  Royal Canadian Mounted Police ‘E’ division
headquarters – 76,000m2 facility housing 2,700+
employees in British Columbia.
–  Communications Security Establishment long term
accommodation facility in Ottawa - 72,000m2 facility
housing 2,000+ employees.
•  Federal government is exploring new P3
opportunities:
–  Detroit River International Crossing Project Bridge
–  Champlain Bridge - Montreal

9

Potential Benefits of P3s

–  Risk transfer
–  Private financing
–  Upfront planning / Integration of life cycle phases
into a single contract
–  Innovation / output-based specifications
–  Performance-based payments
–  Quality of the asset at the end of its life cycle
–  Cost, schedule and scope certainty

10

Conclusions

•  Given today’s fiscal climate and the challenges
of managing a large and complex infrastructure
portfolio, the Government of Canada is looking
to alternative and innovative solutions.
•  Treasury Board Secretariat is working closely
with PPP Canada in ensuring value for money
through P3s.

11

Defence & Security
Infrastructure Panel
2nd Annual Innovation in Infrastructure
Finance Forum

Moderator:
Brian Budden, Senior Vice President, Plenary Group

Panel:
James Paul, President & CEO, Defence Construction Canada
Wayne Sutherland, Director of Major Capital Projects, RCMP
Rick Taylor, President, Balfour Beatty Capital

October 30th, 2012

Outline
RCMP E

CSEC – Driving Collaboration

Military Housing

Potential Canadian Applications

2

RCMP E Project Overview

»  Project Scope
!  Design-Build-Finance-Maintain of a 76,000 m2 purpose-built facility to house the RCMP E
Division Headquarters in the City of Surrey
!  Project includes Facilities Management for the full 25 year term
»  Project Approvals Process
!  2003 Preliminary Project Approval, allowing for planning and land acquisition
!  2005Purchase of Green Timbers site
!  2007 Revised Preliminary Project Approval to proceed with P3-DBFM assuming value for
money
!  2008 Request for Qualifications and short list of top three consortia
!  2009 Request for Proposal and formal evaluation
!  2010 Effective Project Approval allowing for contract award and financial close

3


»  Security Issues and Other Challenges
!  Security Clearances for the key personnel on all three proponents in the RFP stage
!  Physical Security requirements for spaces within the functional program
!  Dealing with sanitized drawings and room names
!  Dealing with security concerns without being prescriptive
»  Procurement Process
!  Designed to identify optimal balance between quality and cost through all phases of the Project
(design, construction, services and maintenance)
!  RFP stipulated a maximum price, carefully established to ensure VfM within existing budget
limits and clearly communicated expectations to the Proponents
!  Flexible request for proposals that enabled dialogue with proponents on optimal balance of
public and private communications
!  Agreed upon independent fairness monitor overseeing all collaborative meetings and RFI’s

4


»  Lessons Learned
!  The phased approach and additional upfront capital contributions by Canada allowed for the
possibility of greater competition and facilitated greater financing options to Proponents
!  Establishing an affordability ceiling likely improved an already highly competitive process that
required each Proponent’s proposal to balance quality and cost while demonstrating how it most
closely met the requirements of the Project Agreement
!  Implement a process for the flow of information in advance of receiving RFIs, i.e. identify the
individuals to have input into responses based on area of expertise and determine who will
provide any oversight function (e.g. legal, technical, etc.)
!  Prior to initial internal circulation of the TB submission, concurrence as to the appropriate
legislative authority as well as the approvals being sought should be obtained from the
Department of Justice legal counsel representing TBS, the department and client department
!  Each Project Agreement and its related Schedules are project specific. Care should be taken to
ensure that the Project Agreement is written to reflect the performance requirements of that
particular project as well as reflects any pertinent legislative requirements

5


»  Current Status
!  Early Access to the Data Center and telecommunication closets in Sept 2012
!  Construction 98 % complete; scheduled Substantial Completion in December 2012
!  Ongoing work on deficiencies and commissioning
!  Work ongoing with all proponents as part of the move in schedule
!  Move in to be completed by April 2013 less than 3 years after commencement of construction

6

Outline
RCMP E


Military Housing


7

Communications Services Establishment Canada

Project Description:
»  The Project entails the design, financing, construction and Size $867 million
subsequent operations of an approximately 775,000 ft2 facility
(the “Facility”) over a 42-month construction period. Located on a Financial
January 2011
Crown-owned (approximately 36-hectare) greenfield site in Close
Ottawa, Canada. To meet CSEC’s program requirements, the
Facility will consist of a mix of general office space, special Substantial
purpose spaces and a data centre and will include an July 2014
Completion
approximately 800-stall parking garage. The Facility will be LEED
Gold certified.
Team
PCL, HDR Architects/WZMH, Honeywell/HP
»  At the completion of construction, the Plenary Properties team will Members
be responsible for providing full-scope facilities management
services (including both hard and soft services) as well as a
30-year IT Service Commitment, Security
bundle of commodity IT services (such as email, printing and Challenges
Requirements, Debtholder Restrictions
computing).

8

CSEC LTAP Timeline
Collaboration, Innovation, and Flexibility
Project Management Team

Partnerships
Fasken
»  Through the collaborative Martineau
DuMoulin LLP
British Columbia

approach CSEC/DCC was able to
receive three different yet Fairness
Monitor
Deloitte Touche
1/2010 10/2010 Tohmatsu LLP
Building-in-
extremely viable RFP Issuedinnovative
and 7/2010 Use
Selection of
Environmental IT/NET

The Result
Technical Bids Preferred Proponent
Psychologist

proposals that met the needs of9/2010
9/2009 all 11/2010
RFQ Issued
Communications 7/2014
stakeholders andSecurity
6/2009
continued Financial Bids TB Approval
Building Occupancy Date
collaboration is achieving amazingFlexible, adaptable workspace
1. 
Establishment
Preliminary Project 1/2011
Canada
Approval PMO Contract Award
outcomes. Defence

LTAP
2.  Collaborative space Authority
Construction
Canada every turn
at
Contract
KWC
Architect

3.  Ubiquitous IT
Functional
program
1/2008 1/2009 1/2010 1/2011 1/2012 1/2013 1/2014

August 2007 Wood Banani Various December 2014
11/2007 - 11/2008
Business Case
1/2009 - 1/2010
Department of
Development of 4.  30+ Parizeau Inc. of performance
years
Bouthillette
2/2011 - 6/2014
Construction Period
specialists

National Defence
Output Specs
Infrastructure FoTenn

5.  On budget and on schedule
Consulting
Inc.
P3
Advisors
CSP
Security
Consulting
The Attain Inc. Consultant
Group
Watson MacEwen
Architects Federal Government

LTAP – Owner’s Advocate
Marshall &
Murray
Inc.

9

Outline
RCMP E


Military Housing


10

ADF Single LEAP 2

»  33.5 year DBFM project for 3,015 accommodation »  Following construction phase of approx. 3 years
units at 14 military bases across all Australian Plenary Living will provide a range of hard and soft
mainland States FM services over a 30 year term including:
»  Contract value +$1bn. Government counterparty is !  Preventative and reactive maintenance
the Australian Department of Defence !  Concierge services and accommodation
management
»  Key project objective the provision of comfortable
housing for single Military Personnel as a critical !  Housekeeping services (cleaning, waste
management and linen/laundry services)
element to the attraction and retention of high
calibre Servicemen/women. !  Utilities management
!  Pest control
!  Grounds maintenance
!  Lifecycle

11

U.S. Military Housing Background

»  Why did they take the P3 route? (These “Before” photos told a powerful story)

»  In the early 1990s, U.S. DoD determined the following:
!  Over 60% of DoD owned family housing was inadequate (180,000 of 300,000 units)
!  If addressed using traditional funding, would require $20B and take 30 years
!  Housing was not a core competency of the military services
!  Quality of life was affecting ability to attract and retain service members
»  Recognized private sector development and management expertise, benefits of
competition, and ability to attract private financing
»  Resulted in landmark legislation in 1996 Defense Authorization Bill

12

U.S. Military Housing P3 Program
»  Pilot projects initially, but expanded to 100% of domestic military bases

Map represents Balfour Beatty portfolio only
13

U.S. Military Housing Basic Deal Points
»  50 year DBFOM; some with 25 year renewal options

»  Demand risk assumed by private sector
!  Focus on customer service and on more than just housing

»  Most financed through capital markets

»  Varied financial participation by DoD
!  equity, subordinate debt, limited loan guarantees

»  GMP Construction Contracts typical

»  Joint review/approval of O&M budgets

»  Lifecycle addressed through Recapitalization Account
!  Different risk profile than traditional P3
!  Demand risk motivates private sector to perform
!  Limited ability to influence revenue (rental income) changes
!  No specific hand back requirements

14

Outline
RCMP E


Military Housing


15

»  Future defence accommodation projects
»  Base housing (following Australia's LEAP programs)
»  Planes/vehicles (following the UK's refueling aircraft PFI)
»  Research facilities and labs
»  Ports, including major redevelopment projects
»  Data centres

»  Satellite infrastructure

16

UNCLASSIFIED

1

A world-class workplace for a world-class workforce

!
Federal!Canada!Infrastructure!Finance!Forum!
30!October!2012!

A world-class workplace for a world-class workforce!
Un milieu moderne à l appui d un effectif moderne !

Conceptual Rendering – Aerial View

UNCLASSIFIED

2

Long;Term!Accommoda>on!
(LTA)!Project!:!
•  2000!Employees!
•  2014!Occupancy!Date!

Design!Build!Finance!Maintain!
(DBFM)!contract!for!30!years!
"
includes:!
  "Design"and"Construc1on"of"72,000rm2"
LTAP"facility""
!  includes"a"4000m2"Data"Centre,"
4500m2"PurposeABuilt"
Engineering"Facility,"Top"Secret"
Knowledge"Centre""
!  Separate"and"secure"Shipping"
and"Receiving"Building""
!  Visitor"Centre"for"unclassiﬁed"
visits"
!  Power"Genera1on"Facility"to"
accommodate"excep1onal"
power"requirements"
!  Parking"Structures"etc…"
!  LEED"Gold"Accredita1on"
required"



UNCLASSIFIED

3

IT!Infrastructure!!
(What!is!included)!
•  Data!Centres!
–  Design,!build!and!operate!
–  Space!management!
•  Cooling!
–  Provision!and!maintenance!
•  Power!
–  Provision!and!maintenance!
–  Not!power!usage!cost!
•  Flexibility!
–  All!technical!services!that!support!the!oﬃce!
automa>on!environment!!


UNCLASSIFIED

4

IT!Infrastructure!
Speciﬁcs!
!
Network"
–  Telephony"
–  Network"
–  Network"Security"
–  Remote"Access"
•  End"User"
–  Compu1ng"&"
Engineering"
–  Prin1ng"
–  EAmail"
•  IT"Tools"&"Processes"
–  Professionally"managed"
data"centre"
–  IT"Help"Desk"
•  Development"&"Test"
Environment"
•  Technical"Infrastructure"


UNCLASSIFIED

5

Mi>ga>ng!30!years…!
!
•  Key!Performance!Indicators!
–  Availability"schedule"
–  Deduc1ons"
"
•  IT!Joint!Technical!Review""
–  capacity"requirements,"technical"requirements,"hardware,"soYware""&"innova1on"
–  Deduc1ons"applicable"for"missing"performance"indicators"
–  IT"Unavailability"Event"deduc1ons"
"
•  Benchmarking!
–  First"benchmark"3rd"anniversary"of"Service"Commencement"Date"
–  Every"5th"anniversary"of"the"last"benchmark"date"for"IT"Services"
–  Provisions"established"so"that"original"prices"are"based"on"reasonableness"and"
due"diligence"
–  Crown"rights"of"audit"rela1ng"to"costs,"overheads"and"margins"of"IT"provider"
guaranteed."



PUBLIC PRIVATE
PARTNERSHIPS

OPPORTUNITIES IN IT PROCUREMENT

-A PRIVATE SECTOR PERSPECTIVE

Sherry Casey
Vice President, Industry Sales
HP Enterprise Services
October 30, 2012
© 2011 Hewlett-Packard Development Company, L.P.
The information contained herein is subject to change without notice.

THE P3 AND IT - A POINT OF INFLECTION
& REFLECTION

2

TRADITIONAL IM/IT PROCUREMENTS
ARE NO LONGER ADEQUATE

Service delivery organization's business challenges are increasingly
relying on the IM/IT infrastructure for:
•  Enterprise solutions, horizontal integrated services across levels of
government
•  Protection against cyber security attacks, privacy violations
•  Promoting “Open Government” initiatives
•  Standardized, streamlined and more affordable IM/IT
•  Self service delivery models, mobile solutions
•  Services anywhere and anytime
•  Greater use of social media in support of service delivery & democracy
•  Desire for adaptable, scalable, responsive solutions

P3’S LEVERAGE STRATEGIC
BUSINESS VALUE OVER
TRADITIONAL OUTSOURCING
1.  Capability based, highly collaborative, iterative procurements - can be
quickly refined into “contractible” frameworks

2.  Strong Executive Governance for a shared commitment for relentless
focus on horizontal business outcomes and timely problem resolution

3.  Financing requirements, penalty structures & duration of agreements
catapults requirements to industrial strength, proven suppliers

4.  Government funding cycle constraints for capital & operational funding are
removed, flow of government payment streams can be normalized

5.  Risk transfer to private sector with rewards for continued long term
performance drives improved agility and business outcome focus

6.  Business outcome focus also builds-in supplier motivation for innovation
and continuous improvement once base infrastructure in place

CONSIDERATIONS UNIQUE TO
IM/IT P3 VERSUS TRADITIONAL
BRICK & MORTAR P3

1.  Special IM/IT terms and conditions
(Protection of IP, nature of commercial business software & applications, desire to
appropriately limit liability plus others)

2.  IM/IT infrastructure is constantly evolving and P3 supplier cannot
dictate or control the technology roadmaps for implemented solutions
3.  Usually dealing with an installed base of products and solutions
4.  Usually difficult to have accurate picture of the assets as not visible &
asset management is often weak
5.  High level of interdependency between various IM/IT infrastructure
elements to be understood & managed, etc

5

TRANSFERABLE PRECURSORS FOR
SUCCESS, LESSONS LEARNED & BODY
OF BEST PRACTICES EXISTS
What is known about complex IM/IT procurement is readily
transferable to the P3 procurement
A few examples:
–  Criticality of the relationship between suppliers and clients
–  IM/IT supplier should have a front seat early in the procurement; discussions
and continually throughout the P3 duration – communication is key
–  Significant due diligence within IM/IT companies is to be expected with regard
to financing and internal approvals in pursing these types of ventures
–  A certain amount of flexibility within the contracting framework is required and
a willingness to address constraints for mutual resolution
–  Strong governance and executive leadership is paramount
–  Change management, focus on innovation

MGS – New Data Centre

Pioneering risk allocation in government data
centre projects in Canada. Setting the stage for IT
risk transfer.

October 2012

Project Overview

!  New Government of Ontario data centre
!  Located in Guelph, Ontario
!  225,000 ft2
!  First Canadian data centre to be procured as an Alternative Financing and
Procurement (“AFP”)
!  Reached Financial Close in 2008, delivered on time and on budget in 2010
!  Critical environment for the government
!  Tier IV highly redundant– only PPP data centre
in the world to reach this classification
!  Green Design: certified LEED Gold certified
despite massive energy requirements

2

Partnership Overview

Debt funding

Jan$

3

Risk Allocation
!  Design/construction, financial and operations risks were largely transferred to
Plenary Properties.
!  Specifications were prescriptive in performance outcomes:
"  Specifications set standards not methods

"  We were able to innovate within these parameters

"  Tier IV was a critical in the design philosophy – this set the higher standard

!  Key construction risks included price certainty, scheduling and delays,
permitting, M&E, financing, commissioning and transition to new facility.

4

Risk Allocation
!  Key operational term risks include facilities maintenance (including lifecycle
renewal), meeting Tier IV operational standards, facility availability, power
supply, energy and labour costs.
!  Key risks retained by the government were: planning, changes in law, pre-
existing site contamination, public-sector initiated scope-change, force majeure
(shared risk).
!  The Ontario government provides client side IT – i.e. all servers, hardware etc.
that run within the critical environment

5

Project Cost and Payment

!  $352 million net present value (“NPV”) over 32 years
!  The AFP approach saved the taxpayer an estimated $64.2 million (14.3%)
over the 30 year life of the facility
!  $50 million substantial completion payment to reduce the cost of private
financing
!  Annual availability stream payable each year for 30 years (paid on a monthly
basis), including partial inflation indexation at an estimated 2 per cent per
year, subject to certain adjustments for benchmarking, market testing and
inflation changes.
!  Severe abatements for performance failures

6

Summary
!  DBFM ensured an integrated approach to the whole life delivery of the critical
environment
!  Risk transfer can be substantial and managed by the private sector
!  Level of IT transfer can be determined by the client to meet their specific
requirements
!  Significant value for money realized for the client

7

2nd annual canadian innovation in infra fin 2011

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