Infrastructure 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

Partnering to modernize Ontario’s infrastructure Partnering to modernize Ontario’s infrastructure Project Delivery Division Real Estate & Lending Division

Major Projects Real Estate Acts as procurement and commercial lead Modernizes and enhances the government for all major public infrastructure projects in real estate portfolio through asset planning, the province facilities contract management, and real estate advisory services

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

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure Since 2005, Infrastructure Ontario has been assigned nearly 90 Alternative Financing and Procurement (AFP) projects worth more than $40 billion

All AFP projects Number Capital cost Completed 55 $18.34 billion Under construction 20 $15.07 billion Procurement/planning 14 $ 6.83 billion Total 89 $40.24 billion

(as of June 30, 2016)

Partnering to modernize Ontario’s infrastructure Number of AFP Projects AFP Projects Completed or in Construction Capital Cost ($ billions) $1.66 7 4 $4.75 6 $14.45

10 48 $10.07

$2.48

Health Care Justice Health Care Justice Transit Transportation Transit Transportation Other (Education, Sport, IT Delivery) Other (Education, Sport, IT Delivery) (as of June 30, 2016)

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure 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

Authority Lender’s Direct Agreement Increasing project and partnering complexity Project (LDA) Agreement – Larger and more complex projects result in more complex structures for both owners Design Project Company Lender (s) Design Finance (e.g., multiple funders) and project companies (e.g., multi-party DBJVs with asymmetric Facilities Management Contractor Provider Build Maintain risks) Ongoing need to balance risk transfer and cost of financing – Ongoing tension between creating fully aligned incentives and ensuring sufficient skin- in-the-game, while minimizing the cost of private financing

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure The Macdonald Block complex in downtown 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 Approximate number of OPS Number of ministries located Number of Ministers’ offices feet; the complex is used as employees in the Macdonald within the Macdonald Block located within the Macdonald government offices Block complex complex Block complex

Partnering to modernize Ontario’s infrastructure The Realty Transformation Inside Toronto Outside Toronto Strategy is a 10-year 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)

Partnering to modernize Ontario’s infrastructure 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

Partnering to modernize Ontario’s infrastructure Partnering to modernize Ontario’s infrastructure 35 new or expanded health care facilities completed 13 health care projects under construction Over 1,000,000 m2 of new health care space

Humber River Regional Hospital, Toronto 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 Project Type: Design-Build-Finance-Maintain Contract Price: $1.75 billion

Partnering to modernize Ontario’s infrastructure 10 justice projects completed, including courthouses and detention centres 18 Ontario Provincial Police facilities constructed across Ontario 300,000 m2 of new justice and public safety space

Waterloo Region Courthouse Space for 30 courtrooms, including a multiple- accused high security courtroom Eight judicial conference rooms ProjectType: Design-Build-Finance-Maintain Contract Price: $379 million

Partnering to modernize Ontario’s infrastructure One educational project completed; one project in construction; one project in transaction 63,000 m2 of teaching, study, and administrative space Humber College Learning Resource Commons Six-storey, 24,000 m2 academic support and student services facility Features a new library, group and independent study spaces, a centralized hub for student services, and a student gallery ProjectType: Design-Build-Finance Contract Price: $84 million

Partnering to modernize Ontario’s infrastructure Two major highway projects completed; one project in construction; one project in pre-tender 20 provincial highway service centres redeveloped on Ontario’s principal highways

Rt. Hon. Herb Gray Parkway, Windsor 11 km six-lane highway and four-lane service road 34,000 m2 of retaining walls; 14 bridge structures 11 covered tunnels from 120 m to 240 m long Use of proven techniques to reduce noise levels Project Type: Design-Build-Finance-Maintain Contract Price: $1.4 billion

Partnering to modernize Ontario’s infrastructure Air Rail Link completed linking Toronto’s Pearson Airport to Union Station Two major Toronto Light Rapid Transit projects entering procurement or construction Eglinton Crosstown LRT, Toronto IO is managing procurement; Metrolinx will oversee detailed design/construction 19 km corridor will include 25 stations and stops and a 10 km tunnel Project Type: Design-Build-Finance-Maintain Contract Price: $9.1 billion Scheduled completion: 2021

Partnering to modernize Ontario’s infrastructure IO was TO2015’s partner in delivering the largest, most complex facilities for the Pan/Parapan Am Games IO partnered to build the Athletes’ Village and six sports facilities with a total value of $959 million: – Stadium – Hamilton Stadium – Milton Velodrome – Toronto Pan Am Sports Centre – Markham Pan Am Centre – University of Toronto Field Hockey Centre

Partnering to modernize Ontario’s infrastructure