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 <ul style="display: flex;"><li style="flex:1">Partnering to modernize Ontario’s infrastructure </li><li style="flex:1">Partnering to modernize Ontario’s infrastructure </li></ul>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 <ul style="display: flex;"><li style="flex:1">Commercial Projects </li><li style="flex:1">Loan Program </li></ul>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 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 Completed Number Capital cost 55 20 14 89 $18.34 billion $15.07 billion $ 6.83 billion $40.24 billion Under construction Procurement/planning Total (as of June 30, 2016) Partnering to modernize Ontario’s infrastructure Number of AFP Projects Completed or in Construction AFP Projects Capital Cost ($ 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) 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 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) <ul style="display: flex;"><li style="flex:1">Design </li><li style="flex:1">Project Company </li><li style="flex:1">Lender (s) </li></ul><ul style="display: flex;"><li style="flex:1">Design </li><li style="flex:1">Finance </li></ul>Facilities Management Provider Contractor <ul style="display: flex;"><li style="flex:1">Build </li><li style="flex:1">Maintain </li></ul>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 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 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 <ul style="display: flex;"><li style="flex:1">1.22 million </li><li style="flex:1">3,600 </li><li style="flex:1">15 </li><li style="flex:1">9</li></ul>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 Partnering to modernize Ontario’s infrastructure The Realty Transformation Strategy is a 10-year <ul style="display: flex;"><li style="flex:1">Inside Toronto </li><li style="flex:1">Outside Toronto </li></ul>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 <ul style="display: flex;"><li style="flex:1">Partnering to modernize Ontario’s infrastructure </li><li style="flex:1">Partnering to modernize Ontario’s infrastructure </li></ul>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 , 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 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 multipleaccused high security courtroom Eight judicial conference rooms Projec t T ype : Design-Build-Finance-Maintain Contract Price: $379 million Partnering to modernize Ontario’s infrastructure

Infrastructure Ontario Approach to Large Infrastructure and Real Estate Projects

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