VALUE FOR MONEY ASSESSMENT

TORONTO SOUTH DETENTION CENTRE

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ARTIST’S RENDERING OF THE TORONTO SOUTH DETENTION CENTRE

Image Courtesy of Integrated Team Solutions

Highlights of the Toronto South Detention Centre:

Size 67,000 square metres Capacity for 1,650 inmates Number of Beds Capacity for 320 intermittent inmates State-of-the-art integrated technology, safety and security standards Security enforced by expertly trained staff. Staff to im p l e m e n t current best-practices for i n m a t e rehabilitation.

Environmentally Leadership in Energy and Environmental Design (LEED) Silver certification. Sustainable Design Highlights include:

• 7.8 million mega joules of energy to be provided by ground source heat pumps; • ground source heat pumps will reduce the building’s natural gas consumption by a minimum of 40 per cent; • 75 per cent of construction waste will be diverted from landfill; • a 20 per cent reduction in water use through low-flow technologies; and • low emitting volatile organic compound materials will be used for adhesives, paints, carpet and sealants.

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Table of Contents

Summary ...... 8 Project description ...... 10 Competitive selection process timeline ...... 11 Project agreements ...... 12 Achieving value for money ...... 15

© Queen’s Printer for Ontario, 2010

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Summary

ReNew Ontario 2005-2010 is a $30-billion-plus under two different delivery models expressed in strategic infrastructure investment plan to dollar values measured at the same point in time. modernize, upgrade and expand Ontario’s public infrastructure. Value for money is determined by directly c o m p a r i n g the cost estimates for the following two Infrastructure Ontario is an essential component of delivery models: the ReNew Ontario plan. The Crown Corporation ensures that new infrastructure projects are delivered on time and on budget. Model # 1 Model #2 Traditional project delivery Alternative financing and The Toronto South Detention Centre (TSDC) is being (Public sector comparator) procurement delivered under the Province’s Alternative Total project costs that Total project costs incurred Financing and Procurement (AFP) model. would have been incurred by the public sector to by the public sector to deliver the same The project includes a 1,650-bed maximum security deliver an infrastructure infrastructure project with facility for adult inmates, including those with project under traditional identical specifications procurement processes. using the AFP approach. special needs. This new and modern facility will replace the Toronto Jail. The cost difference between m o d e l #1 and model

#2 is the estimated value for money for this project. The Toronto South Detention Centre project also includes the construction of the Toronto Intermittent The value for money assessment of the , which is a facility to accommodate those serving primarily weekend sentences. South Detention Centre project indicates estimated cost savings of 7.8 per cent or $66.8 The Toronto South Detention Centre will be located million, by using the AFP approach in on the south portion of the Mimico Correctional comparison to traditional delivery. Centre property in (Etobicoke) a n d wi l l target Leadership in Energy and Environmental Design (LEED) Silver certification.

LEED buildings focus on healthy indoor environments, reduced greenhouse gas emissions and efficient use of energy, water and other resources.

The public sector retains ownership, control and accountability of the facility.

The purpose of this report is to provide a summary of the project scope, the procurement process and the project agreement, and to demonstrate how value for money was achieved by delivering the Toronto South Detention Centre project through the AFP process. KPMG completed the value for money assessment

of the Toronto South Detention Centre project. Their The value for money analysis refers to the process of assessment demonstrates projected cost savings of developing and comparing the total project costs

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7.8 per cent by delivering the project using the AFP model, versus what it would have cost to deliver the project using a traditional delivery model.

Property One Consulting acted as the Fairness Monitor for the project. They reviewed and monitored the communications, evaluations and decision-m a king processes associated with the Toronto South Detention Centre project, ensuring the fairness, equity, objectivity, transparency and adequate documentation of the process. Property One Consulting certified that these principles were maintained throughout the procurement process (please see letter on page 4).

Infrastructure Ontario is working with the Ministry of Community Safety and Correctional Services to develop the facility, which will remain publicly owned, publicly controlled and publicly accountable.

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Project description Background The Toronto South Detention Centre will be built on ReNew Ontario 2005-2010 is a $30-billion-plus the south portion of the Mimico Correctional Centre strategic infrastructure investment plan to property in west Toronto (Etobicoke). modernize, upgrade and expand Ontario’s public infrastructure. The project includes a 1,650-bed maximum security facility for adult inmates. This new and modern Infrastructure Ontario is an essential component of facility will replace the Toronto Jail. the ReNew Ontario plan. The Crown Corporation was created in 2005, to ensure that infrastructure The Toronto South Detention Centre project also projects are delivered on time and on budget. includes the construction of the Toronto Intermittent

Centre to accommodate those serving primarily Under the ReNew Ontario plan, projects are weekend sentences. assigned to Infrastructure Ontario by the provincial government, which uses a made-in-Ontario project Integrated Team Solutions will design, build, finance delivery model called Alternative Financing and and maintain the Toronto South Detention Centre Procurement (AFP). AFP brings private-sector to Leadership in Energy and Environmental Design expertise, ingenuity and rigour to the process of (LEED) Silver certification. managing and renewing Ontario’s public infrastructure while shifting risks associated with cost LEED buildings focus on healthy indoor and schedule overruns away from the public environments, reduced greenhouse gas emissions sector. and efficient use of energy, water and other

resources. TSDC LEED highlights include: Ontario’s public infrastructure projects are guided by the five principles set out in the provincial • 7.8 million mega joules of energy will be government’s Building a Better Tomorrow provided by ground source heat pumps; Framework, which include: • ground source heat pumps will reduce the

building’s natural gas consumption by a 1. public interest is paramount; minimum of 40 per cent; 2. value for money must be demonstrable; • 75 per cent of construction waste will be 3. appropriate public control and ownership must divided from landfill; be preserved; • a 20 per cent reduction in water use 4. accountability must be maintained; and through low-flow technologies; and 5. all processes must be fair, transparent and • low emitting volatile organic compound efficient. materials will be used for adhesives, paints,

carpet and sealants. Project Scope

The Ministry of Community Safety and Correctional Job Creation Services is replacing aging detention centres to The project will help provide economic stimulus address health and safety issues, including by creating and supporting thousands of jobs. inefficiencies of design, technology and space. Labour will largely be drawn from the Greater Older facilities do not meet the current operational Toronto Area. A t t he peak of construction, i t i s requirements of a modern correctional service and e s ti m a t ed that 500 to 550 workers will be on site daily. the current facilities are experiencing significant and growing remand pressures.

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Competitive selection process timeline

The Province has entered into a project agreement price, operational and management plans and with Integrated Team Solutions (ITS) to design, build, financing backing, in accordance with the finance and maintain the pr oj ec t. The procurement evaluation criteria set out in the RFP. stages for the project were as follows: ITS includes - EllisDon Corporation, Fengate Capital June 3, 2008 Management Inc., LPF Infrastructure Fund, RBC Request for Qualifications Dominion Securities Inc., Zeidler Partnership In 2008, the Ministry of Community Safety and Architects, and Johnson Controls Inc.; Correctional Services and Infrastructure Ontario issued a request for qualifications for the project. October 26, 2009 Three building teams were pre-qualified: Commercial and Financial Close A project agreement was executed by ITS and the • Integrated Team Solutions - EllisDon Infrastructure Ontario on behalf of the Province. Corporation, Fengate Capital Management Inc., LPF Infrastructure Fund, October 2009 – September 2012 RBC Dominion Securities Inc., Zeidler Construction Partnership Architects, and Johnson Construction began immediately following the Controls Inc.; Financial Close agreement. During the construction • Access Security Toronto - Babcock & Brown period, the builder’s construction costs will be ULC, WZMH Architects, PCL Constructors funded by its lenders in monthly instalments based Canada Inc. and Honeywell; and on the construction program set out by EllisDon • SNC - SNC-Lavalin Inc., SNC-Lavalin Corporation. Investment, Schenkel Schultz Architecture, SNC-Lavalin in joint venture with Bondfield Construction will be carried out in accordance with Construction and SNC-Lavalin ProFac. the project agreement. The project will be overseen by a joi nt building committee made up of October 17, 2008 representatives f r o m I T S , Infrastructure Ontario and Request for Proposals the Ministry of Community Safety and Correctional A request for proposals (RFP) was issued to the pre- Services. qualified proponents, setting out the bid process and proposed project agreements to design, build, Completion and payment finance and maintain the project. ITS will receive a payment from the Province when the project reaches substantial completion, which is Proposal submission expected in fall 2012. This payment will be followed The RFP period closed on May 28, 2009. Three bi ds b y m o n thly service payments over a 30-year period were received by Infrastructure Ontario and the for construction of the facility, buil d i n g Ministry of Community Safety and Correctional maintenance, lifecycle repair and renewal and Services. The bids were evaluated using the criteria project financing. set out in the RFP. Fall 2012 – Fall 2043 August 2009 Maintenance Preferred proponent notification ITS will maintain the Toronto South Detention Centre ITS was selected as the successful RFP proponent for 30 years and be responsible for building based on predetermined criteria, including maintenance, repair and lifecycle replacement. construction schedule, technical requirements,

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Project agreements

Legal and commercial structure All Ontario detention centres will continue to be The Province entered into a project agreement with publicly owned, publicly controlled and publicly ITS, comprising approximately 35-months of accountable. Correctional services in detention construction and a 30-year maintenance centres will continue to be publicly funded and t i m e f r a m e . Under the terms of the p r o j e c t publicly administered – this is non-negotiable for agreement, ITS will: the Government of Ontario and more importantly, for the people of Ontario. • design and build the Toronto South Detention Centre project; The building and maintenance team will be • finance the construction and capital costs granted a licence to access the site and detention of the new facility over the term of the centre in order to provide the construction and project; facility maintenance services over the term of the • obtain a third-party independent agreement. However, as noted above, the new certification that the detention centre i s facility will at all times remain publicly owned and built; the building and maintenance team are • provide facility management and lifecycle contractually bound to follow the terms of the maintenance for the 30-year service period project agreement. under pre-established maintenance

performance standards in the project Facility management and maintenance agreement; and

• ensure that, at the end of the contract Facility management term, the building meets the conditions Services associated with the day-to-day specified in the project agreement. management of the physical facility, such as

maintaining the elevator, electrical and The Province will make monthly payments to ITS, mechanical systems, ventilation systems and based on performance requirements defined in the other similar maintenance work. project agreement. The Province will not commence these payments until the new Lifecycle maintenance detention centre is substantially completed. Lifecycle maintenance represents the total Moreover, if I TS does not meet the standards set in cost of replacing, refurbishing and refreshing the agreement, it will face financial deductions. building structure and systems over their useful

life. With respect to this project, “lifecycle The province will make a substantial completion costs” will involve the replacement of the payment of $200 million for the Toronto South facility’s base building elements that have Detention Centre and a $50 million substantial exceeded their useful life (e.g., floor finishes completion payment for the Toronto Intermittent and certain mechanical and electrical Centre. ITS will be paid an average of $29.8 million components); these components must be left each year for a 30-year period for the construction in a state acceptable to the government at of the facility, building maintenance, lifecycle the completion of the 30-year maintenance repair and renewal, as well as project financing. agreement. Lifecycle costs are typically

capital costs.

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Construction and completion risk Site conditions and contamination All construction projects have risks. Some project ITS accepted the site and the site conditions and risks are retained in varying magnitude by the shall not be entitled to make claims against the public sector. Examples of risks retained by the Province on any grounds relating to the site. public sector under either the AFP or traditional Furthermore, ITS is responsible for remediation of any m o d e l include planning, unknown site conditions, contamination at the site that was disclosed in or changes in law, public sector initiated scope could have been reasonably anticipated from the change, and force majeure (shared risk). environmental report or any of the geotechnical reports, or that is caused by ITS or any of its parties. Under the AFP model, s o m e key risks that would have been retained by the public sector are Development approvals contractually transferred to ITS. On a traditional I TS is responsible for applying, obtaining, project, these risks and resource availability can maintaining, renewing and complying with all lead to cost overruns and delays. Ex a m p l e s of r i sks development approvals. transferred to the private sector under the AFP project agreement include: Mechanical and electrical systems responsibility ITS shall be responsible for: Construction price certainty ITS will finance and construct the new detention • any issues with respect to the functionality, centre. ITS wi l l receive a payment from the durability, maintainability and lifecycle cost of government at substantial completion, which is the mechanical and electrical systems expected in fall 2012. This payment will be followed specified in their design, including whether such b y m o n thly service payments over a 30-year period systems will be adequate to meet the output for construction of the facility, building specifications on a consistent basis for the maintenance, lifecycle repair and renewal and duration of the operational term; and project financing. • the operation and periodic replacement of all ITS’s payment may only be adjusted in very specific elements of the facility, whether part of the circumstances, agreed to in advance and in mechanical and electrical systems or accordance with the detailed variation (or change otherwise, including finishes, seals, structural order) procedures set out in the project documents. components, hardware and building fabric, as required to achieve the output specifications Scheduling, project completion and delays for the duration of the operational term. ITS has agreed to reach substantial completion of the detention centre by fall 2012. Construction financing ITS is required to finance the construction of the The construction schedule can only be modified in project until the new detention centre i s very limited circumstances, in accordance with the substantially complete and the Ministry can occupy project agreement. ITS’ final payment will not the facility. ITS will be responsible for all increased commence until substantial completion (i.e., until it financing costs should there be any delay in ITS has completed building the new detention centre reaching substantial completion. This shifts and it has been certified as complete by an significant financial risk to ITS in the case of late independent consultant). delivery.

Costs associated with delays that are the Commissioning and facility readiness responsibility of ITS must be paid by ITS. ITS must achieve a prescribed level of commissioning of the new detention centre a t substantial completion and must co-ordinate the commissioning activity within the agreed-upon

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construction schedule. This ensures the Province will In addition to the transfer of the above key risks to receive a functional building facility at the time ITS under the project documents, the financing payments to ITS commence. ITS will work closely arrangement entered into between ITS and i ts with the Ministry to facilitate transition from the lenders ensures that the project is subject to existing Toronto Jail to the new facility. additional oversight, which may include:

Activity protocols • an independent budget review by a third-p a r ty ITS and Infrastructure Ontario have established a cost consultant; schedule for project submittals taking into account • monthly reporting and project monitoring by a the time for review needed by Infrastructure third-party cost consultant; and Ontario’s compliance architect. • the requirement that prior approval be secured for any changes made to the project budget in This protocol mitigates against ITS alleging delay as excess of a pre-determined threshold. a result of an inability to receive responses i n a timely manner in the course of the work.

Change order protocol In addition to the variation procedure set out in the project documents, Infrastructure Ontario’s protocols set out the principles for any changes to the project work/scope during the construction period, including: • requiring approval and processing of change orders from IO and Ministry of Community Safety and Correctional Services; • specifying the limited criteria under which change orders will be processed and applied; • timely notification of change orders to Infrastructure Ontario; • approval by Infrastructure Ontario for owner- initiated scope changes; • approval by Infrastructure Ontario for any change orders which exceed pre-determined thresholds; and • approval by Infrastructure Ontario when the cumulative impact of the change orders exceed a pre-determined threshold.

Facilities maintenance risk As part of the project agreement, key r i sks associated with the maintenance responsibility (including life-cycle renewal) of the detention centre over the 30-year service period have been transferred to ITS. ITS’ maintenance of the building’s lifecycle repair and renewal m u s t m e e t the performance requirements set out in the project agreement. Under the project agreement, ITS f ac es deductions to its monthly payments if it does not meet its performance obligations.

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Achieving value for money

For the Toronto South Detention Centre, KPMG’s The cost difference between model #1 and model value for money assessment demonstrates a #2 is referred to as the value for money. If the total projected cost savings of 7.8 per cent, or $66.8 cost to deliver a project under the AFP approach million, by using the alternative financing and (model #2) is less than the total cost to deliver a procurement (AFP) approach, as compared to the project under the traditional delivery approach traditional procurement approach. (model #1), there is said to be positive value for money. The value for money assessment is KPMG was engaged by Infrastructure Ontario to completed to determine which project delivery independently assess whether – and, if so, the method provides the greatest level of cost savings extent to which – value for money will be achieved to the public sector. by delivering this project using the AFP method. Their assessment was based on the value for money The cost components in the VFM analysis include assessment methodology outlined in Assessing only the portions of the project costs that are being Value for Money: A Guide to Infrastructure Ontario’s delivered using AFP. Project costs that would be Methodology, which can be found at the same under both models, such as land www.infrastructureontario.ca. The approach was acquisition costs, furniture, fixtures and equipment, developed in accordance with best practices used are excluded from this VFM calculation. internationally and in other Canadian provinces, The value for money assessment is developed by and was designed to ensure a conservative, obtaining detailed project information and input accurate and transparent assessment. Please refer from multiple stakeholders, including internal and to the letter from KPMG on page 2. external experts in project management and

construction project management. Components of Value for money concept the total project costs under each delivery model The goal of the AFP approach is to deliver a project are illustrated below: on time and on budget and to provide real cost The value for money assessment of the Toronto savings for the public sector. South Detention Centre project indicates estimated cost savings of 7.8 per cent or $66.8 million, by The value for money analysis compares the total using the AFP approach in comparison to traditional estimated costs, expressed in today’s dollars and delivery. measured at the same point in time, of delivering the same infrastructure project under two delivery m o d e l s - the traditional delivery model (public sector comparator or “PSC”) and the AFP model.

Model #1 Model #2 Traditional project delivery Alternative financing and (Public sector comparator) procurement

Total project costs that Total project costs incurred would have been incurred by the public sector to by the public sector to deliver the same deliver an infrastructure infrastructure project with project under traditional identical specifications procurement processes. using the AFP approach.

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It is important to keep in mind that Infrastructure rate of the public sector and is not included in Ontario’s value for money calculation the traditional delivery base costs. methodology does not attempt to quantify a broad range of qualitative benefits that may result from In the case of the AFP model, the base costs are using the AFP delivery approach. For example, the extracted from the price agreed among the parties use of the AFP approach will more likely result in a under the project agreement. For the detention project being delivered on time and on budget. centre project, these were $708.4 million. The benefits of having a project delivered on time cannot always be accurately quantified. If the traditional model had been used for the

detention centre, base costs are estimated to be These qualitative benefits, while not expressly $479.6 million. quantified in this value for money analysis, are additional benefits of the AFP approach that should Risks retained be acknowledged. Historically, on traditional projects, the public sector

had to bear costs that go beyond a project’s base Value for money analysis costs because of the contingencies necessary For a fair and accurate comparison, the traditional developed to respond to the project risks. delivery costs and AFP costs are present-valued to the date of financial close to compare the two Project risks are defined as potential adverse events methods of delivering a design, build, finance and that may have a direct impact on project costs. To maintain project at the same point in time. It is the extent that the public sector retains these risks, Infrastructure Ontario’s policy to use the current they are included in the estimated project cost. public sector rate of borrowing for this purpose to The concept of risk transfer and mitigation is key to ensure a conservative and transparent analysis. For understanding the overall value for money more informati on on how project costs are time- assessment. To estimate and compare the total valued and the value for money methodology, cost of delivering a project under the traditional please refer to Assessing Value for Money: A Guide delivery versus the AFP method, the risks borne by to Infrastructure Ontario’s Methodology, which is the public sector (which are called “retained risks”) available online at www.infrastructureontario.ca. should be identified and accurately quantified.

Base c ost s Comprehensive risk assessment not only allows for a Base project costs are taken from the price of the fulsome value for money analysis, but also helps contract signed with ITS and include all Infrastructure Ontario and the public sector construction, maintenance and financing costs. sponsors to determine the party best able to The base costs between AFP and the traditional manage, mitigate and/or eliminate the project risks delivery model mainly differ as follows: and to appropriately allocate those risks under the 1. Under the AFP model, the private party charges project documents. an additional premium as compensation for

the risks that the public sector transfers to them Under the traditional delivery method, the risks under the AFP project documents. In the case retained by the public sector are significant. of traditional delivery, the private party risk

premium is not included in the base costs as the

public sector retains these risks.

2. The financing rate that the private sector is

charged under AFP is higher than the financing

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As discussed on pages 13-14, the following are will not be paid by the province, thus providing examples of risks retained by the public sector the builder a clear motivation to maintain the under the traditional delivery method that have project’s schedule. Further oversight includes been transferred under the project agreement to increased upfront due diligence and project ITS: management controls imposed by the builder and the builder’s lender. • design compliance with the output specifications; Infrastructure Ontario retained an experienced, • construction price certainty; third-party construction consulting firm, Altus Helyar, • scheduling, project completion and to develop a template for assessing the project risks potential delays; that the public sector relinquishes u n d e r A F P • design co-ordination; compared to the traditional approach. Using data • site conditions and contamination; from actual projects as well as its own knowledge • development approvals; base, the firm established a risk profile under both • design and lifecycle responsibility; approaches for infrastructure facilities. • mechanical and electrical systems responsibility; It is this generic risk matrix that has been used for • construction financing; validating the risk allocation for the specific • schedule contingency; conditions of the detention centre pr oje c t. • coordination of equipment procurement installation; Using the AFP model reduces these results to the • commissioning and facility readiness; and public sector. For example, had this project been • activity protocols. delivered using the traditional approach, design

coordination risks that ari se would be carried out Examples of these risks include: through a series of change orders issued during construction. Such change orders would, therefore, • Design coordination/completion: Under the be issued in a non-competitive environment, and AFP approach, the builder is responsible for would typically result in a significant increase in design coordination activities to ensure that overall project costs for the public sector. the facility is constructed in full accordance with the design in the project agreement. The added due diligence brought by the private The builder is responsible for inconsistencies, party’s lenders, together with the risk transfer conflicts, interferences or gaps in these provisions in the project documents result in overall design documents, particularly in the plans cost savings as these transferred risks will either be drawings and specifications; and for design better managed or completely mitigated by ITS. completion issues that are specified in these design documents but erroneously A detailed risk analysis of the detention centre left out. project concluded that the average value of project risks retained by the public sector under • Scheduling, project completion and delays: traditional delivery is $350.7 million. The analysis also Under the AFP approach, the builder has concluded that the average value of project risks agreed that it will provide the facility for use by retained by the public sector under the AFP delivery the Ministry of Community Safety and model decreases to $63.3 million. This is a savings of Correctional Services by a fixed date and at a $287.4 million for Ontario taxpayers. pre-determined price. Therefore, any extra cost (financing or otherwise) incurred as a result For more information on the risk assessment of a schedule overrun caused by the builder methodology used by Infrastructure Ontario, please

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refer to Altus Helyar’s Risk Assessment Template DBFM projects, available at For a detailed explanation of ancillary costs, please www.infrastructureontario.ca. refer to Assessing Value for Money: A Guide to Infrastructure Ontario’s Methodology, which is Ancillary costs and adjustments available online at www.infrastructureontario.ca There are significant ancillary costs associated with the planning and delivery of a large complex Calculating value for money project that vary depending on the project delivery The analysis completed by Deloitte concludes that m e t h o d . the additional costs associated with the AFP model are more than offset by the benefits which include: For example, there are costs related to each of the a much more rigorous upfront due diligence following: process, reduced risk to the public sector, and • Project management: These are essentially controls imposed by both the lenders and fees to manage the entire project. Under Infrastructure Ontario’s standardized AFP the AFP approach, these fees will also procurement process. include Infrastructure Ontario costs. • Transaction costs: These are costs Once all the cost components and adjustments are associated with delivering a project and determined, the aggregate costs associated with consist of legal, fairness and transaction each delivery model (i.e., traditional delivery and advisory fees. Architectural and AFP) are calculated, and expressed in Canadian engineering advisory fees are also incurred dollars, as at financial close. In the case of the to ensure the facility is being designed and detention centre project, the estimated traditional built according to the output specifications. delivery cost (i.e. PSC) is $855.2 million as compared to $788.5 million under the AFP delivery approach. The ancillary costs are quantified and added to both models for the value for money comparison The positive difference of $66.8 million or 7.8 per assessment. Both project management and cent represents the estimated value for money by transaction costs are likely to be higher under AFP using the AFP delivery approach in comparison to given the greater degree of up-front due diligence. the traditional delivery model. The ancillary costs for the Toronto South Detention Centre pr oj ect under the traditional delivery method are estimated to be $7.6 million as compared to $16.7 million under the AFP approach.

An adjustment is made when estimating costs under traditional delivery. This adjustment is referred to as competitive neutrality and accounts for items such as taxes paid under AFP that flow back to the public sector and are not taken into account under the traditional model, and private sector insurance premiums that can be used as a proxy for valuing insurance costs when the public sector self-insures under the traditional method. In the case of this project, this adjustment is made by adding $17.3 million to the traditional delivery costs (i.e. on the PSC side).

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