Infrastructure Ontario Approach to Large Infrastructure and Real Estate Projects

Infrastructure Ontario

Approach to large infrastructure and real estate projects

Partnering to modernize Ontario’s infrastructure

Long-term Infrastructure Plan (LTIP)

– Formal commitment every five years

Bill 6, Infrastructure for Jobs and Prosperity Act, 2015

– Community benefits/apprenticeships

Legislation, mandate, and accountability for the Agency

– Mandate letter (annual) and Memorandum of Understanding (five year)

– Infrastructure and Realty Directives – Annual Letter of Direction

– Business Plan and Annual Report

– Internal and external audits, and Auditor General audit annual reports

Project Delivery Division

Major Projects

Real Estate & Lending Division

Real Estate

Acts as procurement and commercial lead

for all major public infrastructure projects in

the province
Modernizes and enhances the government

real estate portfolio through asset planning,

facilities contract management, and real estate advisory services

Commercial Projects

Loan Program

Provides advice and negotiation support to the government and public sector partners regarding commercial transactions, including major land developments
Supports the renewal of public sector infrastructure by delivering low-cost and low-risk loans to eligible clients

Upfront planning

Empirical data and improved budgeting Proper people resourcing

Integrating project elements

Avoiding design risk and encouraging innovation Selecting good partners Alignment of interests, negotiating leverage and

counterparty “skin in the game”

Withholding payments in proportion to risk Taking externalities into account Taking a whole-life approach to projects

Since 2005, Infrastructure Ontario has been

assigned nearly 90 Alternative Financing and Procurement (AFP) projects worth more than $40 billion

All AFP projects

Completed

Number Capital cost

55

20

14

89

$18.34 billion

$15.07 billion

$ 6.83 billion

$40.24 billion

Under construction

Procurement/planning

Total

(as of June 30, 2016)

Number of AFP Projects
Completed or in Construction
AFP Projects
Capital Cost ($ billions)

$1.66

7
4

$4.75

6
$14.45

10
$10.07
48

$2.48

Health Care Transit
Justice Transportation
Health Care Transit
Justice Transportation
Other (Education, Sport, IT Delivery)
(Education, Sport, IT Delivery)

Other

(as of June 30, 2016)

Third-party assessment of IO’s performance for

the first 45 AFP projects to reach substantial completion

– 45 AFP projects had reached substantial

completion by March 31, 2015, with an approximate capital value of $12 billion

– 98% were completed on budget (within the

contract award plus post-contract contingency)

– 73% were completed on time or within one month of their scheduled completion date

IO recognizes that projects have different characteristics and requirements and has developed several AFP models:

– Build‐Finance (BF)

– Design‐Build‐Finance (DBF)

– Design‐Build‐Finance‐Maintain (DBFM) – Design‐Build‐Finance‐Operate‐Maintain (DBFOM)

Flexibility ensures that all projects are successfully delivered

Best suited to projects with opportunity for risk transfer Typically larger, more complex projects Projects are often systems; project bundling has been used in rare exceptions

– IO has committed to inform industry partners when co‐sponsors have approval to

implement a project as a bundle

Shareholder (government) commitment to AFP Project assignment approach: clear commercial authority on transactions

Develop output specifications to achieve optimal risk allocation

Technical and financial due diligence is conducted in partnership with the AFP sponsor‐client, ensuring that the best team is selected

Clear, consistent timing from RFQ release to financial close

Continuity of IO involvement throughout procurement Standardized documents and processes

IO works with clients to drive high quality design innovation

through use of performance‐based output specifications

– AFP balances design‐technical merit and cost; in 80% of our

projects, the winning team has both the highest ranking financial

submission and one of the top two design‐technical scores.

Bidders can differentiate their bid proposals through innovative solutions that drive value, resulting in:

– Significant capital and life cycle cost savings

A whole life-cycle approach to design facilitates collaboration in design, construction, and maintenance, increasing opportunities for innovation

– Design innovations are increasingly evidence-based, resulting in improved productivity, operating performance, and customer satisfaction

Accelerated infrastructure spending

– Commitment to infrastructure at all levels of government is an exciting opportunity – but will create challenges (financial capacity; project oversight capabilities; supply of skilled trades)

Shift to linear infrastructure

– Projects through urban environments have significantly different public interaction and risk profile than other types of infrastructure
– AFP can be used to manage these risks

Lender’s

Direct Agreement (LDA)

Authority

Increasing project and partnering complexity

Project Agreement

– Larger and more complex projects result in more complex structures for both owners

(e.g., multiple funders) and project companies (e.g., multi-party DBJVs with asymmetric

risks)

Design

Project Company

Lender (s)

Design

Finance

Facilities Management
Provider
Contractor

Build

Maintain

Ongoing need to balance risk transfer and cost of financing

– Ongoing tension between creating fully aligned incentives and ensuring sufficient skinin-the-game, while minimizing the cost of private financing

Local knowledge Safety Balancing the costs of financing with risk transfer Vendor performance (such as improving on-time performance) Ethical bidding practices / conflict of interest Managing public disruption and community benefits

Nearly 5,000 buildings under management in

383 communities, Canada’s second largest real

estate portfolio

– 44 million rentable square feet of owned and

leased space
– $13.7 billion replacement value – $652 million annual operation/maintenance expenditure

– $278 million annual capital reinvestment – 130,000 acres of land under management – $25 million in annual gross revenue from land and building sales transactions

The Macdonald Block complex in downtown

Toronto is the administrative centre of the Ontario government, accommodating 3,600 staff in 15 Ontario government ministries

– The initiative involves the extensive reconstruction of the Macdonald Block complex, which includes the Macdonald Block podium, and the Hearst,

Hepburn, Mowat, and Ferguson towers

– This long-term project will take approximately eight years to complete

1.22 million

3,600

15

9

Total rentable area in square feet; the complex is used as government offices
Approximate number of OPS employees in the Macdonald
Block complex
Number of ministries located within the Macdonald Block complex

Number of Ministers’ offices

located within the Macdonald
Block complex

The Realty Transformation

Strategy is a 10-year

Inside Toronto

Outside Toronto

commitment to transform the way government manages its real estate holdings.

Office footprint reduction targets includes:

– reduction of 1 million square feet of office space in Toronto

– reduction of 300,000 square

feet of office space outside of

Toronto

Achieved

In Progress

Achieved

In Progress

(as of March 31, 2016)

Mandate and governance matter

– Political will, policy direction, and centralized government expertise are essential – Project delivery capacity levels the playing field for government

Government/ProjectCos should hire construction/operations subject matter experts

– At IO, 75% of employees have private sector experience in architecture, engineering, law, finance, procurement, facility management, or communications

Public ownership and public interest

– Financing is not funding; confidence in budget commitments must be firm

Standardized approaches can drive competition and excellence

– Technical, financial and budget due diligence must be done up front – Templates for procurements and contracts, and project pipeline matter to the market

Develop a project financing and delivery model that can be adapted

– Flexible model can address different asset types and client needs

35 new or expanded health care facilities completed

13 health care projects under construction Over 1,000,000 m²of new health care space

Humber River Regional Hospital , T oronto

550-650 in-patient beds

Receiving 450,000 ambulatory visits and 100,000

emergency visits in its first year

North America’s first fully digital hospital with 75%

of supplies delivered via automation

Projec t T ype: Design-Build-Finance-Maintain Contract Price : $1.75 billion

10 justice projects completed, including